What caused Irish property crash?

 

Madam, – The euro zone is a group of 17 countries with a combined population of 330 million people. All the member countries have the same currency, the same central bank, the same interest rates and the same commercial lease law, except one – Ireland.

Ireland has entirely different commercial lease law to all other euro-zone countries. The two components of all countries’ commercial lease law is the length of the lease and the method used to review the rent. In all other eurozone countries lease lengths are short – say three to 10 years – with break clauses, and rents are adjusted annually by increases/decreases in the consumer price index. In Ireland lease lengths are long (say 25 years) with no break clauses, and rents are reviewed every five years by method of the ratchet upward only rent review.

Irish commercial lease law was a twinheaded monster which incentivised the massive overrenting of tenants, and more devastating, it was the rocket fuel for the valuation model in valuing commercial property which created the massive commercial property price bubble. Irish banks lent 10s of billions against these toxic leases, not against the properties. If Ireland had regular euro-zone lease law it would have been impossible to have had a commercial property crash. – Yours, etc,

JOHN CORCORAN, MSc Economics,

London School of Economics and Political Science,

Silchester Wood,

Geenageary,

Co Dublin.