The landed class who blew the bubble
While many property developers during the boom liked to see themselves as patriotic avengers of historic injustices, in this extract from his new book, ‘Ship of Fools’, FINTAN O’TOOLEshows how Ireland’s astonishing property bubble was based on an age-old problem: ownership of the land by a tiny elite
PADDY KELLY didn’t have a Rolls Royce. He had, as he corrected his interviewer, Eamon Dunphy, on RTÉ radio at the end of November 2008, “several” Rolls Royces. He didn’t have a house on Shrewsbury Road, where, perhaps because it was the most expensive property on the Irish version of Monopoly, all the developers wanted to live. He had two houses on Shrewsbury Road. He hadn’t yet gone bust – that would take another few months – and the “hundreds of millions” of euro he confessed to owing the banks were, he said, “no great burden” to him. But he was, nonetheless, one of the oppressed, the heir to a legacy of great suffering and injustice whose every triumph was a blow struck for history’s victims.
Kelly liked to remind interviewers that his great-grandfather and namesake had been evicted in the late 19th century from his tenant farm in Abbeyleix and imprisoned for putting up a poster on behalf of the Land League, which fought a long and bitter struggle against the dominant landowning elite. In that radio dialogue in November 2008, as the men who had led Ireland’s astonishing property boom were entering the last days of their golden age, Kelly recalled a phrase used by the Fianna Fáil minister Kevin Boland in 1970.
Denouncing those who were standing in the way of the demolition of Georgian Dublin and its classically proportioned streets and squares, Boland called them “a consortium of belted earls and their ladies and left-wing intellectuals”. The red-baiting and anti- intellectualism were there as ornamentation to the main theme: the new, brash Fianna Fáil developers were not crass money-men but the vanguard of the national revolution.
Property development was the new armed struggle, the war of independence by other means. Where Paddy Kelly’s great- grandfather and his generation had taken on the landowning aristocracy with boycotts and rent strikes, and the next generation had burned down their big houses, now the people’s struggle against the aristocrats was best conducted by building lucrative office blocks and densely profitable housing estates on the sites of their former townhouses and mansions. This wasn’t greed, it was patriotism.
Paddy Kelly talked about his feeling of historic triumph when he was building houses on what was once the great Ascendancy estate of Castletown in Co Kildare: “It was time the Irish went through the front gate. I always remember Kevin Boland talking about the belted earls . . . We, the ordinary Irish, had to have a say as well.” He went on to talk of his great-grandfather and of his belief that his family had had its land confiscated in the Plantation of the 17th century: “All that suffering in a sense is all part of what we are.” This sense of historic vengeance suffused the mentality of the elite class of property speculators and developers who often came from humble, rural Catholic backgrounds and who rose sufficiently high to accumulate up to €90 billion of bad debts to Irish banks which the even humbler Irish taxpayer is now being forced to take on.
They derived a particular pleasure from parading themselves at archetypically British upper-crust events like the Royal Ascot racing festival, and from buying historically resonant English buildings. It was not accidental that Seán Dunne imagined his would-be redeveloped Ballsbridge as Ireland’s answer to Knightsbridge. When the artificial “island of England” off the coast of Dubai – aptly enough, built on sand – was sold in 2008, it was predictable that it would be bought by Irish developers who outbid British investors. The pleasure of owning England was worth the extra money.
When a syndicate led by the Irish developer Derek Quinlan fought off a Saudi oil sheikh, Prince Al-Waleed bin Talal, to buy the Savoy Hotel in London (along with Claridge’s and the Connaught), one of Quinlan’s employees had the Irish tricolour flown from the roof, like the Russians taking the Reichstag. “I cried,” Quinlan recalled. “My poor father, who was in the Irish army, would have loved to have seen this.” When Pat Doherty’s Harcourt Developments bought the old Conservative Party headquarters on Smith Square in February 2007, one of his directors, Mike Murphy, admitted that “There is a kind of little buzz about it” and could not resist joking that the Tories themselves were not included in the purchase price. The tones were suave and sometimes sentimental.
But if you listened hard, you could hear, unspoken but implied, the famous (and surely apocryphal) reply of a republican activist asked in the early 20th century by an English reporter what the aims of Sinn Féin were: “Vingince, bejasus!” Yet only rarely did the thought seem to strike any of those who were constructing great fortunes in property that they were themselves the new landed aristocracy. That thought does seem to have crept uninvited into Seán Dunne’s brain as he expounded on one of the favourite subjects of the new elite: the carping of the bitter little people. “Jealousy and begrudgery,” he moaned to the New York Timesin January 2009, “are still alive and well in Ireland, and whoever eradicates them should be prime minister for life. It’s part of the Irish psyche and it is the result of 800 years of being controlled by other people, of watching everything the master or landlord is doing.” The implications of Dunne’s comment – that he and his cohorts were the landlords and masters being watched by the jealous peasants – were almost certainly unintended, but they were not untruthful. Leaving aside the ironies of those who saw themselves as representatives of an oppressed peasantry becoming the equivalents of the landlords who had oppressed their ancestors, the resonances of the nineteenth century were real. It was not just that boomtime Ireland retained a pre-industrial obsession with property as its preferred form of wealth, but that property in its rawest form – land – was at the heart of the strangely distorted economy that emerged from the late 1990s onwards.
On the surface, the story of the Irish boom was a tale of post-modern globalisation. It was about the miracle of a society that never had a proper industrial revolution and that suffered as a consequence from underdevelopment and all its attendant ills. This absence of old industry suddenly became an advantage in the high-tech, post-industrial globalised economy of the 1990s. Without the leaden legacy of dying steel, coal, engineering or car manufacturing industries, Ireland could go straight from the almost pre-modern to the post-modern, skipping ahead into the bright, super-charged, ultra-connected future.
This story was not entirely unreal, but there was also another, parallel, narrative. It was barely modern, let alone post-modern. As Kelly’s harking back to his great-grandfather’s sufferings suggested, it was a weird unfolding in the globalised 21st century of an intensely local 19th-century psychodrama. Alongside the microchip manufacturers and financial wheeler-dealers, the software engineers and concocters of wonder drugs, there was a rough, primitive struggle for the control of land. Except that this time, the descendants of the indigenous underclass were the ones on horseback and it was the new urban and suburban workforce that was paying to keep them there. And there was no Land League to fight the new Ascendancy.
If the control of land is left out of the equation, the sheer scale of the Irish property bubble is impossible to fathom.
There were some good reasons for house prices to increase in Ireland over this period. House prices were always going to go a little crazy in the Celtic Tiger years. The problem was that they didn’t go crazy – they went stark, staring mad.
The size of the bubble bore no relation to the rational factors that could have been expected to inflate it: new house prices increased over four times faster than house-building costs, five times average industrial earnings and more than seven times faster than the consumer price index.
The main reason for this was the price of building land, which in turn was heavily influenced by what the Oireachtas All-Party Committee on the Constitution referred to as the fact that “certain landowners had accumulated large landbanks at the outskirts of urban areas which they then released in dribs and drabs in order to manipulate the market and artificially to maintain high land prices”. Essentially, a small number of very wealthy land speculators were able to shape the market in such a way as to ensure that the cost of buying the land it stood on made up a larger and larger proportion of the cost of a house.
Especially in the areas around Dublin, a tiny number of speculators and developers could control the supply of building land. In Fingal county – the area of north Dublin where most of the city’s growth took place in the boom years – it was shown that just 25 individuals or companies owned 50 per cent of the building land in 2003. With this kind of power, the landowners were able to push up the prices they got from builders. Before the boom, land made up about 10 to 15 per cent of the cost of a house. At the height of the boom, it made up a breathtaking 40 to 50 per cent. Given the huge absolute rise in house prices, this generated vast profits for those who controlled the land. In 2003, Jerome Casey, of the Building Industry Bulletin, reckoned that the difference between the old, normal percentage of the price accounted for by land costs and the new, boomtime figures translated into €6.6 billion in extra profit. In other words, in one year alone, the small oligopoly of development landowners made €6.6 billion by controlling the market. Every cent of that was squeezed out of the poor saps who were buying the houses.
This massive inflation in the cost of building land had further costs for the average citizen. The country’s infrastructure was seriously underdeveloped as the boom got under way and there was a need for very large-scale investment in roads and public transport. But the land on which to build this infrastructure now had to be purchased in a hyperinflated market. Thus, land acquisition costs for the Luas light rail project in Dublin were around €100 million – at one point in 2003, its developer, the Rail Procurement Agency, was paying €6 million per acre. Even for roadbuilding, where most of the land in question was rural and agricultural and was not zoned for development, the public ended up paying through the nose. Merely widening a 14km stretch of one motorway, between Dublin and Portlaoise, in 2003 cost the taxpayer over €70 million – just to buy the land. The National Development Plan’s estimate of €7 billion for its programme of road-building and upgrading more than doubled to €15.8 billion. During the boom years, farmers and others made €11 billion from selling land, most of it to the State.
Even the cost of farmland with no official development status was pushed upwards, as Ireland returned to an almost feudal state in which the ownership of land itself conferred untold wealth. Michael McDowell spent €30 million of taxpayers’ money buying a farm in north Dublin as the site for a new prison.
By 2007, Irish farm land values were the highest in Europe, at €66,000 per hectare – an incredible price in a country with plenty of arable land and a relatively sparse population. It was 10 times the value of similar land in Scotland and six times more than the same fields would be worth in England. In May 2008, €13.5 million was paid for a 450-acre farm in Warrenstown, Co Meath – one of the highest prices ever paid for agricultural land anywhere in the world.
The primal nature of this land-hunger is clear from the way Irish investors started to buy up farms in Scotland and England. According to the estate agents Savills HOK, 22 per cent of queries about Scottish farms on its books came from Ireland. In 2007, almost half of all British farm land sold to foreign buyers was bought by Irish purchasers. In a 21st-century, high-tech, globalised economy, the historic thrill of buying up England was more potent than any satisfaction to be gained from creating real and sustainable wealth.
Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger, by Fintan O’Toole, is published by Faber Faber, £12.99