Showing posts with label The Builders. Show all posts
Showing posts with label The Builders. Show all posts

Tuesday, November 17, 2009

Review of The Builders by Frank McDonald and Kathy Sheridan (2008, Penguin)

Written by well-respected Irish Times journalists Frank McDonald and Kathy Sheridan The Builders charts the rise of the property boom in Ireland during the late 1990s and into the 2000s, a period in which hundreds of thousands of new housing units were built, and office blocks and shopping malls popped up all round the country, transforming the landscape. Principally it traces the stories of some of Ireland’s best known developers, most of who came from unassuming, rural backgrounds to build multi-billion euro property empires, much of which is beyond Ireland’s shores. As such, while there is some analysis of the regulatory, legal and financial conditions that fuelled the construction bonanza and spiralling land and unit costs, the principle focus is on the main movers and shakers, and how they built up their businesses.

What the book reveals is that, not unsurprisingly, that the most successful Irish developers are workaholics and ruthless business operators willing to grease palms, exploit loopholes, drive up productivity and reduce costs, and to fight tooth and nail over contracts, using the courts when necessary. While personality and drive is undoubtedly important, the book also exposes how developers benefited from: 1) very close relationships with TDs and councillors, especially those representing Fianna Fail, who fixed the planning process, 2) a relatively weak planning system that struggled under sustained pressures of demand, lobbying and corruption, 3) a deregulation of personal and corporate financing that flooded the market with credit, 4) tax incentive schemes, including the significant reduction of capital gains tax, that enabled them to avoid taxation and to plough their profits back into new investments, 5) the hoarding of zoned land to restrict supply and push up demand and price, 6) the creation of a relatively large investment class that were amassing small portfolios of properties for rent or were ‘flipping’ new properties for tidy profits, 7) unregulated price phasing of developments.

While a fascinating read, the book does have some shortcomings. The principle one is that by focusing on the personalities the book really fails to systematically examine how political, regulatory and financial structures were configured in such a way as to make the property boom almost inevitable, regardless of who the developers were per se. In particular, there is very little attempt to draw on academic explanations with regards to urban development, even that by Irish academics who have been researching the property boom for a number of years such as Andrew MacLaren. As a result, what McDonald and Sheridan provide is effectively a regime analysis (where in development is driven by a small, tightly networked group of political and business elites), rather than, say, employing regulation theory which would provide a neo-Marxist explanation of what was occurring. The result, I feel, is that analysis is quite descriptive but really lacks explanation – and to that extent its mostly surface with little depth. In addition, although published in October 2008, The Builders feels oddly out of date. I suspect most of the book was written in 2007 at the point where a slow down was occurring, but the crash was still a little way off and commentators and developers were hoping for a soft landing. Since publication some of the developers discussed have gone bust, others have lost fortunes, and almost certainly all have been NAMAered (their portfolios drawn into a toxic asset management unit owned by the Irish State). A year can be a long time in an economic crash.

Monday, November 9, 2009

From boom to bust

Just three years ago Ireland was the place that every developing country wanted to emulate. It had transformed itself from a poor, peripheral country on the edge of Europe (in 1987 its GDP was 67% of the EU average) to one of the richest nations on the planet (with a GDP 139% of the EU average in 2004). For over a decade GDP growth per year was over double that of nearly every other European country. Employment rose from 1.16m people in 1991 to 1.99m people in 2005, and unemployment dropped from 15% in 1993 to run at about 4% between 2000-2005. Standands of living and quality of life rose rapidly, as did propert prices, and the population grew by 17% between 1996 and 2006 (from 3.62m to 4.23m). In turn there was a cultural transformation away from social conversativism to liberalism and consumerism. Ireland seemed to be a conundrum with low personal and corporate taxes, high indirect taxes, yet with a public health system and free education at all levels - to use Mary Harney's phrase it resided 'somewhere between Boston and Berlin', blending European social welfarism with American neoliberalism. And then the global financial crisis occured and Ireland's boom rapidly heads for bust with plummeting house prices, rapidly rising unemployment, personal tax hikes, and salary cuts across the private and public sector.

In 2006 I co-edited 'Understanding Contemporary Ireland' with Brendan Bartley. The book consisted of 22 chapters examining all aspects of society and economy, written by a collection of leading social scientists, all of whom challenged the myth that the Celtic Tiger had done nothing but good and were sceptical as to government policy and the sustainability of the economy. I don't think any of those writing anticipated the wheels coming off Ireland Inc. quite so spectacularly though. We were probably all hoping for a soft landing even if we feared the worst. What we're experiencing is anything but soft, although it's still a long way from Iceland's demise (and certainly the joke that Ireland was Iceland but for one letter and six months has not come to pass). I thought it was about time I got beyond the newspaper reports and started to read some of the analysis that seeks to explain what went wrong. To that end I went and bought a number of books over the weekend (from The Reading Room) which I'll be reviewing over the coming weeks as I get myself back up to speed with the state of contemporary Ireland.







I'm also co-organising a one day workshop on Nov 23rd entitled 'Geography after NAMA' (the government's plan to buy the bad property debts off the banks) and it'll be interesting to see what other social scientists make of what is occuring.