Emer O’Siochru is an Irish Architect and Valuer.
Read her personal background statement here.
The following is a partial transcript of Emer O’Siochru's presentation at The IU Conference, London 24 July 2013
(The International Union of Land Value Taxation) The IU presentation is now offline.
In 1998, she co-founded Feasta, the Foundation for the Economics of Sustainability. She has taught architecture, managed a design gallery, redeveloped inner city property, worked in local community development, ran an architectural practice and served on public and voluntary sector boards. She currently directs EOS Future Design that creates real and virtual systems for sustainable living, and farms organically. Emer has written on monetary, taxation and planning reform. She directed the Smart Tax Network funded by the Irish Department of the Environment and edited “The Fair Tax” book in 2011.
A liquidity problem quickly turned out to be a solvency problem. 8:25
…depositors fled. Continued to flee. They couldn't manage: The situation was such essentially that the Irish government couldn't borrow on the bond market because they felt that the economy wasn't sound; that it had made a big mistake in underwriting the banks. And, in the end of the day, a bailout had to be accepted from the Troika aka, The International Monetary Fund, European Central Bank, and European Commission.
That was an austerity, and balancing the books was the price of that bailout. Bear in mind that our public finances were in surplus, before the bank crisis, but after the crisis, not only did we have to pay back the troika, the receipts, since property had collapsed, had collapsed as well, so the government wasn't even bringing in as much tax income as they had before, and things were looking very bad.
So why did it happen?
It did not happen because planning regulation restrict the amount of land that was available, driving up the value of sites. That is not what happened in Ireland. I hear this argument in the UK, saying the reason why property values are going up and are now going up, particularly in London, is because insufficient land is zoned for housing, in particular.
We had 3 to 5 times the amount of land that you could conceivably want zoned in our country, around our settlements. And apart from that, we had a situation in which you didn't even need to have land zoned for getting planning permission in the open countryside. In fact, 30% of all the housing was self-build in the old countryside. So we had no restrictions really on the amount of housing that got built.
So it wasn't because of a restrictive planning regime that land values went up. It went up because of the availability of credit.
Banking regulation. Some people say that if we'd had better banking regulation we wouldn't have had the problem. There is no doubt; it would have helped, if we had tidied up on our regulation. In other words, if we had prevented the banks from lending more than 80% of the value of the house, for instance, to first-time buyers, or to buyers generally, and that would have, in a way, slowed down the construction and development exuberance and so on. The problem was, we are in Europe, with an open market, and we already had European banks competing with Irish banks. In fact, it was the European banks that were the first ones that brought in the 100% mortgages, as far as I know, and everybody then had to catch up. You can't really easily regulate your banks in a small country where the money isn't your own money. You are using a third-party currency. They, banks in other countries, could operate in your country under their own rules. In some cases they operated under Irish rules. It was possible for them to operate in Ireland under regulatory rules of their base country.
Yes, regulation was important, but it wasn't sufficient reason. If you look in other EU countries where they had broadly the same regulatory system, they didn't get the same kind of 'boom and bust'. So, what else did they have is the question. What was the real cause?
I have to talk about home ownership incentives.
This is a quote from Colm McCarthy. He is an economist operating in Ireland who likes to speak his own mind. I don't agree with him in every respect, but I respect the fact that he always writes independently and is not politically beholden to anyone. He said:"
Imputed tax on housing is not taxed in Ireland. We've had mortgage interest relief on mortgages for a long time. They were there consistently. There is no local tax; there are no rates or property taxes on domestic dwellings in Ireland, at all. And if your sold your house, and it is your prime residence, there is no capital gains tax." Colm McCarthy
So as he's explained, most of the developed countries may have one or two of these goodies for property owners, but only Ireland had all of them. And not only that, but they were further tax reliefs if you build in certain locations. So if you were to build, say, along the Shannon [river], which is an undeveloped region of the [west] coast, and so on, you could offset the capital cost of the construction against your income tax. Not just the rental income, but your income tax. So we had no real taxes on your own home. And further, we had incentives, basically, to put your money into property. And I'm quoting here Michael Hudson. He says,
"If you don't tax that value that attaches to land, arising from the general wealth of the economy, the banks get it." Michael Hudson
That is what happened.
The banks got it. They turned it into a kind of money backed by debt, essentially phony money that wasn't backed by real productivity. That essentially led to the boom and that subsequently led to the bust.
I'm an architect, so I'm interested in the physical effects of this.
Very unsuitable sites were developed around remote villages, flood planes— completely unacceptable sites got planning permission from 'connected' politicians, essentially. And houses were built. And people occupied them, certainly in the earlier part of the boom. In the later part, nobody would buy them, so we now have 'ghost' estates.
Most of our new housing was built speculatively, similar to the UK in that regard. In other words, the builders built them and then they'd look for the buyers. Except for the one-off houses —if you had lived in a rural area or your family had access to land— but most of the rest is built speculatively, so there was very little commissioned and that has an effect on the final form.
So you get identical houses, practically. Cul-de-sac estates. An 'estate' is an invented spatial form, very different from the kind of village or town form that we had in Ireland before. Of course, we had many, many one-off houses arising from the fact that people thought that a large house—a property, is wealth you never loose. That, in many cases where young people got land for nothing from their parents, instead of saving money and building a normal-sized house- 1500 sq. ft., they instead built what they considered a normal-sized house which was 3000 sq. ft. So they invested all of their money in constructing fancy mansions for themselves - 5 bedrooms. These are young people who aren't even married. And, in general, because of this attitude —we got from the Americans— that if you own your land you can do whatever you like with it and that is somehow part of our tradition. It was very difficult to oppose them.
The environmental groups that did try to oppose them were demonized; placards and intimidation and editorials in the newspaper, and so on. So, during that time, you could make money simply by the conversion of the land from agricultural use to a higher use — to housing use, that's where your money is made. Or, if you converted an inner city site, an urban site, from a lower use to a higher use, or a higher density use, that's where your money was made. You lost money on construction and design: that was the view of the developers, generally speaking, so they minimized that. Now, in Dublin, where there was more competition, the design quality did go up because you were using existing sites that had high value already, so you had to distinguish yourself with design and construction quality, but in general, we built 50% of our existing stock during that period of time and we got lousy buildings. We did not build them to the energy standard that…[video stream cut short.]