How Ireland’s addiction to property brought it to its economic knees

Here’s my very personal thoughts on my homeland for the From Our Own Correspondent show which went out today on the BBC World Service

http://www.bbc.co.uk/iplayer/episode/p00fvjnx/From_Our_Own_Correspondent_From_Our_Own_Correspondent/

Ireland has a problem with property. Possibly it’s due to its troubled history with its British neighbours who for centuries prevented most Irish people owning any land at all. Once independence was achieved, the Irish quickly became the country with the highest levels of home ownership worldwide.

The property boom reached its feverish height in the Celtic Tiger era between 1996 and 2007, when buoyed by easy credit and a building boom fueled by ill-advised tax breaks, Ireland had the biggest property bubble in the Western World. Then of course it was followed by its biggest-ever collapse.

Unlike in America though, people in Ireland who find themselves almost bankrupted by their mortgages cannot simply hand back the keys and be absolved of their debts. To take out a mortgage is to start a lifelong relationship with your bank.

When house prices hit the roof in 2005, I remember visiting my parents in Dublin and browsing the ‘property pornography’ which was the Irish Times housing supplement. This was a world where social status seemed to be everything and where economic reality was ignored.

Among the hundreds of For Sale adverts, was a segment called ‘5 for 500,000’ in which homes around the world at that price level were compared. The Irish home for half a million Euros was in a very run down area of West Dublin. This was a district where the police would only venture in cars and usually only in convoy. The 2 bedroom terraced house cost more than a villa in Spain, more than a beachside mansion in Cape Town, more than the flat I’d just bought in London’s notoriously expensive Chelsea.

I asked my father how that made sense – to which he replied that things were different in Ireland; wages were higher and the economy was booming.

Although both facts were true, it was for me a revelation, what they call a ‘shoeshine boy’ moment. I realised that this property boom would soon go bust and the quicker it did so, the better for everyone in my homeland in the long run. Saying this sort of thing wasn’t popular though. I received much hostile comment when I broadcast the story that Ireland was going to need an IMF bailout.

But then came the global financial crisis and the seizing up of wholesale bank lending and the Irish economy came crashing down to Earth. And that crash is still going on — in awful high definition slow motion. This week we learned that Ireland’s entire banking system is effectively insolvent and will need to be all but nationalised. Irish banks are only still trading thanks to the generosity of the European Central Bank and to Irish taxpayers. They will now be burdened with debt in a way that no other European country has seen since World War II.

Can the Irish dust themselves off? I believe they can and I believe they will – but not before even more financial and emotional trauma. And not before thousands of people have been evicted from their homes. And hundreds of thousands of young people have left to share their education and experience with other economies around the world.

But will they learn from their mistakes? I hope so. In the past century and a half, the Irish have survived wars of independence, horrendous famine, civil war, numerous recessions and still they smile and still they reinvent themselves.

In particular I hope their obsession with owning their own homes will wane and I hope that the banks will never again be able to bring an entire nation to its economic knees.

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About BBC Joe Lynam

BBC Business Correspondent covering banks, economy, companies, credit, management, tech, IT, government, markets etc. This is my private Blog and and such doesn't necessarily represent the views of the BBC
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