Thursday, November 26, 2009
While there were positive developments for the Authority during 2008, given the challenges faced then,and which still continue, it would be disingenuous to dwell on them. The fact is that 2008 was an exceptionally difficult year for the Authority.
On its own, the collapse of the Irish property market during 2008 – and with it the value of the assets held by the Authority on behalf of the Irish taxpayer – would have posed huge problems. However, the Authority also lost a very significant Court case relating to execution of its statutory planning powers. Together these two
developments will have a profound impact on the Authority and how we conduct our business and fulfil our mandate for years to come.
The financial challenge posed to the Authority by the collapse of property values will require ongoing work as we have to adjust to what will essentially be a new business model. This will result in a delay in completing some of
our projects and a more conservative approach to progressing our mandate.
The impact of the lost Court case will also be significant. As a result of the ruling in that case, and a request from the Minister for the Environment, Heritage and Local Government, the Executive Board has initiated a number of reviews of our practices, policies and procedures to ensure that we are fit for purpose and, most importantly,to ensure that we abide by best practice in respect of corporate governance. I know I speak for the Minister and all my colleagues on the Executive Board when I stress that there is absolutely no room for compromise or ambiguity in this regard. The Executive Board, Council and Executive face into an ongoing, uncertain economic climate. It is a challenging time for all concerned. Tough measures are required to restore the Authority to financial stability, to rebuild
its reputation and to ensure it operates within its available resources without recourse to the Exchequer.The Executive Board is determined to take the necessary corporate restructuring steps, with speed, to return the Authority to its important mission of the physical, social, economic and cultural regeneration of the Dublin
Docklands Area, on a sustainable basis. The Docklands project and the people of Docklands deserve no less.I would like to thank the Minister for his support since my appointment and my colleagues on the Executive Board for their hard work and support.The staff of the Authority have worked tirelessly in difficult circumstances and I want to acknowledge their critical contribution. I look forward to working with local community leaders, our Council, Executive Board, Staff and other
stakeholders to continue delivering on the imperatives of the project ensuring the Docklands is a great place to live, work and visit.
Posted by Southofdub at 10:29 AM
Monday, November 16, 2009
But that is to ignore the elephant in the living room:
namely, that the property developers continued to borrow huge sums from banks to buy development sites and build apartments because they believed that consumers could continue to shoulder ever higher property prices.
The main reason consumers were able to pay more each year for houses was because the Financial Regulator failed to stop banks from selling them unsuitable products.
Property developers came to believe that consumers had endlessly deep pockets because bankers continued to refill the consumers’ pockets with buckets of borrowed money.
When the consumer could no longer afford a property by borrowing the traditional, prudent two-and-a-half times his income, the bankers gradually relaxed the criteria to the point where it was considered normal at the peak of the boom for a borrower to take a mortgage of five or six times his income.
When the consumer could no longer afford the mortgage repayments spread over the traditional, prudent 20 years, the bankers devised new products to allow the borrowers spread the payments over first 25 years, then 30 years, then 35 years and, in some cases, 40 years.
When the consumer couldn’t afford to save the traditional, prudent deposit, the bankers came along and offered 100 per cent mortgages.
When the consumer still couldn’t afford the mortgage repayments, the bankers increasingly offered reckless ‘buy now, pay later’ products with low introductory rates leaving the consumer to face higher interest repayments when the introductory offer expired.
The bankers even launched interest-only mortgages under which the borrower paid only interest and no capital for an initial period and in some cases for a full 20 years.
As revealed in The Sunday Business Post last weekend, as many as 53,000 borrowers, many of them buy-to-let investors, took out such interest only mortgages in the last five years of the boom.
It would appear the only way many of those borrowers could ever have repaid those loans was by selling the property, an option which is no longer open to many of them as house prices have fallen to the point where a sale would lock in a massive capital loss, assuming a buyer could be found in the current market.
Finally, in 2006 and 2007, Irish bankers began to copy what was happening in the US and began selling subprime mortgages to consumers who would previously have been considered too risky under traditional bank lending criteria.
The only thing that prevented the sub-prime mortgage problem becoming a bigger problem in Ireland was not the intervention of the Financial Regulator, but the arrival of the international credit crunch which prevented our bankers from raising the funds that they would otherwise have recklessly lent to borrowers.
When consumers on average incomes still couldn’t afford houses, when interest rates rose after all those risky products had been unleashed, when even the banks recognised that the limits of what they could lend to consumers had been reached - or more accurately breached - the developers in early 2007 began to see the writing on the wall as consumers balked at the prices for homes and began to walk away from the property market even before the credit crunch hit hard.
The developers then leaned on the government to fund so-called affordable housing schemes using taxpayers’ money to help prop up prices. But the amount of taxpayers’ money made available was not enough to prevent the dike from bursting and pretty soon the banks found out that the developers couldn’t afford to repay their loans because they couldn’t find buyers for their developments.
Posted by Southofdub at 9:56 AM