Re: Re: The Question of Land
If people pay €450k for a postage stamp plot then clearly the 3 year earning rule failed due to very poor due diligence and underwriting standards in mortgage lending departments. Not a mistake that one would expect to see for another 29 years or so. Another indication of market failure are the towns in the outer commutter belt where housing estates of 50 plus units lie half built because the existing 2,000 people in the town simply have no demand for them
What really cracks me up, was the fact the €450k post stamp plot was purchased by light bulb fanatics, who proceeded to sing the praises of their construction. That it was so efficient and environmentally friendly. If we don’t extend the definition of sustainability beyond light bulbs and solar panels fairly soon, we are deep trouble. Some people have a bare faced cheek to talk about sustainability, when their holistic vision doesn’t extend much further than showing off their Eco-bling.
Over-production is not so difficult to understand, when you get some handle on construction costs versus land costs. As the price of land goes over and above the price of construction, it becomes much harder to control over production. The mental arithmetic that people begin to do is something like: I have a piece of ground, that is the major cost taken care of. All I have to do is add some more, by borrowing or whatever, to pay for construction and I have done a good days work. It also feels good to be a builder. It feels like you are busy, you are working and you are making some positive contribution to society. That became the rational way of thinking all over the country.
In fact, if you could buy fields in Leitrim at a ‘discount’ over fields in more central locations, then the attraction to build became even stronger. What I mean is that, when land values get out of control, the traditional ‘brakes’ that should apply to over-production of dwelling units (or any other form of real estate) are taken away. There is not public body or administration in Ireland whose job it is to apply brakes, when cost of construction no longer functions as a brake. That is my point about North Wall Quay. At some stage, society itself has to decide when and where to apply the brakes.
I remember in Argentia, or some other one of the large South American countries they found themselves in trouble a while back. I think the solution they employed was to tie their own currency to another strong international currency, the dollar. What happened was a period of new prosperity and wealth in that country. I think something similar happened in Ireland, in that land became the new currency. Everything tied back to that in some way. It was successful for a while. But it should only be considered as part of the initial boot-strapping process. Beyond that it is too dangerous.
In the South American example, they held onto the dollar peg for too long and it ended up causing them further trouble. I suppose you could say the same about Ireland. At one stage the currency of land offered us a vision of wealth and prosperity we never had before. It allowed us to think bigger and bolder – that can be harnessed for positive ends, if you have the right plan. But even green party affiliates I knew who would build a super-insulated, super efficient house were affected by the land boom in Ireland. We would have finished a site visit to some Eco-home or other, and after the visit, the hardened green designers would wink and nod to each other, thanking this land boom which had enabled them to take out loans for renewable technologies and super insulation.
We really need to assess in this country how we look at commercial property. There is a particular kind of over-production at work there, in the way available floor space overhangs the market but lies vacant for years and years. The developers who produced that floor space, often knocking down existing smaller scale rubbish, are in no rush to generate income from their floor area. They have no wish to utilise the space, but are content to wait and wait to land the one big fish. A tenant who would take a large chunk of space at the one time.
In a smarter economy, there is more pressure applied to available resources to make it pay for itself. What we don’t have in the commercial property sector is any kind of advanced commercial letting model that could support a smart economy. In today’s digital age, an office can start off with a brief case, and where the business startup is successful, can expand quite quickly to require a small office, and so forth. During the Celtic Tiger, in many key strategic areas of our cities, I think the smaller business was ran out of the market.
I think in the mid to late 90s, the smaller business startup might have had more of a chance. Because there was the space available to them. That in turn is what might have kick-started a healthy economy. We need to take a look at how inner city renewal works with regard to commercial lettable floor space. It would make more sense than building larger apartments that people cannot afford. As the architect Herman Hertzberger said about his famous office developments of the 1970s. They weren’t office buildings, they were settlements.
Brian O’ Hanlon