Ship of Fools (13 page)

Kelly liked to remind interviewers that his great-grandfather and namesake had been evicted in the late nineteenth 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 land-owning 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 County 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 seventeenth 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 had to take on.

They derived a particular pleasure from parading themselves at archetypically British upper-crust events like the Royal Ascot racing festival, and at 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 in 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 twentieth 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 Times
in 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, supercharged, 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 twenty-first century of an intensely local nineteenth-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. In most of the developed world, house prices generally rose sharply throughout the 1990s and the early years of the twenty-first century, but the Irish boom was certainly the loudest in Europe, if not in the world. Between 1985 and 2006, prices in Finland and Italy rose by 50 per cent, in France by 75 per cent, in the UK by 140 per cent and in Ireland by almost 250 per cent. Even these figures understate the mind-boggling scale of the rise in Ireland during the peak years of its property pandemic. Between 1994 and 2006, the average second-hand house price in Dublin increased from €82,772 to €512,461 - a rise of 519 per cent. If you'd spent €1 million buying houses in Dublin in 1994, and sold them twelve years later, you'd have made almost €4.2 million profit without lifting a finger.

There were some good reasons for house prices to increase in Ireland over this period. The population was rising, there were more people in their twenties and thirties looking to buy houses, and there were fewer people living in each household. Rising levels of employment and prosperity made
it possible for more people to aspire to home ownership. The Irish obsession with having a secure home (rooted in a history of eviction and displacement) meant that the desire to own one's own house remained stronger than in other countries: 87 per cent of Irish households own their own homes, compared to an EU average of 61 per cent. The high cost of living in Ireland, combined with relatively high wages and burgeoning demand, meant that inflation in the construction sector was especially high.

In these circumstances, 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. This was an era in which, in the interests of full disclosure, estate agents ought to have foamed at the mouth and bitten their customers' legs.

The size of the bubble bore no relation to the rational factors that could have been expected to inflate it. The average price of a new house in the country as a whole in 1994 was €73,000. Michael Punch and P. J. Drudy worked out that if that price rose in line with the consumer price index, it would have reached €109,000 in 2007. If it rose in line with average earnings, it would have cost €124,000. If it followed the trend in runaway building-cost inflation, the price would be €132,000.

The actual price in 2007? €323,000.

In other words, 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 cost of houses was so grossly inflated beyond what was happening in the rest of the economy that it made the Michelin Man look like Twiggy. The result in real terms was that mortgages became very, very expensive. At
the height of the madness in early 2007, the average working couple in Dublin, buying a first home, was paying a mortgage of €1,741 a month - a third of its net income.

 

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 land-banks 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 was 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.

The practice of building up large private land-banks went back to the 1960s. Paddy Kelly, for example, began to build his land-banks around Dublin in the early 1970s. In 1973, the
Irish Times
reported that ‘Mr Paddy Kelly of Woodland Homes has built continuity into his mini-estate operation by buying up a substantial “land bank” in the Dublin region. More of these parcels are in the three to ten acre bracket, although he has also bought larger holdings.' In 1981, he bought 80 acres of land in Clondalkin, giving him a very large stake in the development of the city on its western fringes.

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 growth took place in the boom years - it was shown that just twenty-five 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 hyper-inflated 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 road-building, 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 14-kilometre 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 being an almost feudal state in which the ownership of land itself conferred untold wealth. Michael McDowell might have noticed this, since he spent €30 million of taxpayers' money buying a farm in North Dublin as the site for a new prison, but he persisted in believing that the feudalist threat came from those who were harping on about inequality. 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 ten 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, County Meath - one of the highest prices ever paid for agricultural land anywhere in the world.

There was no relationship at all between the astronomical price of farm land and the amount of money that could be made from actual farming. What was driving the increase was a mixture of speculators buying up land for potential development and farmers enriched from sales for public infrastructure projects looking to replace the fields they had sold.