Never mind the tent at Galway Races, Cowen needs to deal robustly with builders who mess the state about.
The Taoiseach’s decision to abandon the tent at the Galway Races means he can talk the talk of reforming the way we do our business in this country. That’s the easy part. The hard part is how he reacts to Bernard McNamara’s shock pullout from five public/private house building partnership projects.
If the developer can walk away, and the state is left to pick up the tab for social housing, the true nature of the sorry Irish story of the past few years will become evident and Cowen’s PR stunt with the Galway Races tent will be shown as nothing more than a hypocritical stroke.
This column has argued for years that much of the boom in Ireland was little more than a scam. Ireland was the victim of a financial coup d’etat whereby a cabal of the banks and developers, with the blessing of the government and cheer-led by various vested interests who were getting their grubby cut, took over our economy.
They colluded in the farce that saw one of the least populated countries in Europe having the highest land prices and, in the process, terrified thousands of young workers into years of indentured commuterism.
In the process, the psychology of the nation was altered, leaving us,140 years after the Land League, back where we started, owned by landlords. In the past ten years, land ownership – rather than enterprise, creativity and most importantly hard work – became the single biggest arbiter of wealth.
This led to a culture of the fast buck, where the ‘flipped’ deal and the easy profit were lauded and difficult things like innovation, service and production were frowned on.
So hotels and other businesses were closed down to make way for the property juggernaut, which was always based on the ‘greater fool’ theory, that there was always a bigger eejit that would buy the assets from you – until we eventually ran out of eejits.
Now that we have run out of eejits, the main players in the coup d’etat are running for cover. The banks won’t lend to their erstwhile stars, the developers, and in turn the developers are reneging on deals they had signed with the state.
Meanwhile, badly-off places like O’Devaney Gardens – which never got a look in – are left carrying the can. This reads like Dickensian fiction, but it is fact. The state can solve this problem. First, it needs to restore the credibility of the entire public private partnership (PPP) approach to public infrastructure.
At the moment, voters would be right to conclude that PPP is too often a one way bet for developers. PPPs seem grand in a boom, but at the first sign of a downturn, are the developers to be allowed to walk away and the taxpayers to be left carrying the can?
Bernard McNamara has argued that planning delays and changes have had a key impact and, of course, that the market has now changed. However, surely these risks should have been assessed when the deal was signed.
For the future of social housing in Ireland, the impression that PPPs are a one-way bet has to change.
Secondly, this government could send a signal that things are different now and that there is a penalty to be paid for messing the state about.
Of the five projects, McNamara had signed contracts on two, while he was the preferred bidder on three others. This is over €800 million-worth of work, which in the current downturn would be welcomed by any developer, provided the terms were workable. It looks unlikely that the McNamara deal can be resurrected, so Dublin City Council should act swiftly and go to the under-bidders with offers immediately.
If they are not prepared, for whatever reason, to move judiciously, Brian Cowen should take charge of this and do it. Obviously, given that apartment prices are dropping precipitously and the PPP was based on using the cash from the sale of private apartments to subsidise public housing, the numbers will have to be reworked. The state will have to accept fewer public houses and more private houses in the schemes. However, this should not be a deal breaker.
No one expects a developer to build and lose money on the project, so both sides might need to lower their expectations. There need not be any panic now, just clear commercial decision making. If McNamara doesn’t want the business, someone else will. Just do it. Get the houses built.
Thirdly, questions are being asked about whether it was wise to give one developer all five contracts. Was this the best way of getting value for the taxpayer?
Junior Cert economics tell us that the state, acting on our behalf, would cut us a better deal by having several contractors competing with each other. The impression that a small number of builders have benefited from state business during the boom is overwhelming. This has to change. There is little point in abandoning the tent at the Galway Races if the philosophy that underpins it remains alive and well.
The fourth issue at stake is Thornton Hall, another multi-million euro state contract to build a new prison. Apparently, McNamara is very close to signing this deal too.
A prison deal is much less risky than a PPP to build social housing, which is dependent on the housing market cycle. In a prison deal, you simply build the prison for the state, get a stream of income and take no risk. This is a no-brainer for a developer.
There is a strong argument that McNamara’s action in the past week, cherry-picking the PPPs he wants, should come into the equation when the government is deciding how to dole out this contract. If you mess with the government – taking projects when they suit you and abandoning them when they don’t – you should pay a penalty.
Cowen is sending clear signals that he wants to break with the recent past. He talks about patriotism and duty, invoking images from the past like that of Sean Lemass (who, by the way, most people under 40 have never heard of). If he is sincere, he needs to stand up and be counted on this McNamara saga and, for once, do the right thing.
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Have we really run out of eejits? Good article again. I think many developers will run a mile because no-one know how far the value of apartments is going to go so it will be hard to price this kind of scheme over the project life. Also the banks will probably be offering little or no credit to already extended developers for schemes like this. I would imagine that Mr McNamara is pretty canny and I would say that he knows or suspects something that the rest of us mere mortals don’t. I would agree that in a perfect world… Read more »
Why should the government fight for a good deal for the taxpayer? PPPs are a bit dodgy in the first place: At best, the basic premise seems to be, effectively, that the state is selling planning permission. At worst, and this is usually the case, the government is taking out, quite unnecessarily, an outrageously over priced mortgage, with a property developer. In the first case the government says “You can build 1,000 houses in this area if you build this new school/prison/social housing/whatever, for free”. The government gets their new piece of infrastructure, and the developer makes money on the… Read more »
Hi again David, I never thought I would see you write: “Just do it. Get the houses built.” You, a property promoter !!! There are a couple of things wrong with the situation. One, PPP’s are a poor vehicle for any type of government investment. Private businesses dont enter PPP’s unless they can make a guaranteed buck, yet the government takes on usually most of the risk. They are a nice idea on paper but country after country has found them to be poor value for money for Governments. The Comptoller is thinking likewise, although the FF/PD government hasnt. That… Read more »
It seems that I forgot the conclusion to that rant: State contracts, by definition, have no measure of future value, so the only possible way of achieving the necessary commercial tension to ensure that the contractor at least attempts to do their job in way that actually gets the roof on and more than one in four toilets actually working, is to have the threat of with holding future work. If they can’t do that, then they just shouldn’t do them. Even if they can restrict future work, it relies upon the public sector staff responsible saying “These guys are… Read more »
I heard McNamara on the radio yesterday…. sounded like he wants to go ahead. the real scandal is 27M of public money has been spent on these projects so far… Without a hold dug or any cement mixed and not including the money he’s spent!!!!! wtf?. He knows apartments wont sell for the prices projected back last year…whether this means he will lose money or not make as much is unclear….. He may be telling it as it is….. It may be that new planning conditions break the deal and make it unworkable. Dealing with planners is very very frustrating;… Read more »
Garry, I think you are spot on. Developers are in deep trouble now and the way out is a retweaked PPP which buys out these guys on existing stock. There are also a lot of apartments out there with poor/ non existant management companies due to the daft idea that owners would somehow auto-organise and keep the said companies running correctly. It’s funny how a lot of these places have owners who are also the original builders. Let’s not fool ourselves, a lot of the apts out there are defacto social housing. A PPP which grasped the nettle of tidying… Read more »
[…] at the Galway Races means he can talk the talk of reforming the way we do our business in this counthttp://www.davidmcwilliams.ie/2008/05/25/developers-cant-be-allowed-to-renege-on-partnership-dealsAzizi increases land portfolio AME InfoDubai-based property developer Azizi Investments has […]
I certainly do not want to go back to the days of ever moving cost over runs. Where the builder had a drip feed to the printing presses of the exchequer.
This seems to be the cards being played at the moment.
David’s article above says
‘Of the five projects, McNamara had signed contracts on two’. Is McNamara getting out of the signed contracts?
Philip, I think a new PPP on the existing stock would certainly be a way out for the developers but it could be a nightmare for the taxpayer…. although yes, it would be better to fill the empties first. But I’d hate to see us bailing out the banks again, they have made enough profits to absorb this with a few bad years. Yeah, its funny that most private apartments wouldn’t be good/big enough for social housing. Like you say they weren’t designed for families. But they weren’t build for students either, who would bring the washing home at the… Read more »
garry and philip have hit on the developers intention all along, their involvement in PPP’s is all about delaying the construction of social housing because they know this would deflate the property bubble. When they print their brochures they sell a lifestyle that doesn’t include a guy kitted out in a hoodie, wearing sovereign rings and white trainers waving from the second phase sister developement opposite. I believe their ” final solution ” lies in the ghost estates ( ghost estates now are recently completed housing developments that are unsellable and vacant )that can be found in the commuter belts… Read more »
Your best article yet David, well done. If the Fianna Fail connected coterie of developers-like Mr McNamara -who have been constructing jerry built apartments for the past decade, feel badly done by when they are obliged by the Green Party to build decent sized habitations, properly insulated etc it stretches the boundary of credulity that they will be “unviable”. The PPS deals to which Fianna Fail are so addicted, because they postpone (for ever) their having to use the peoples taxes to provide services and infrastructure-will- in the years to come- prove the greatest disaster that they ever inflicted on… Read more »
If the decline in the property market was Ireland’s only problem things would be manageable in the medium to long run.Ireland has to import all of it’s oil and faces a crippling overvaluation against sterling and the Dollar.These 2 factors will bring the economy to it’s knees just as they did in the seventies and eighties.At least the property market hadn’t caused the same level of indebtedness as it is now doing.How will tourism fare over the coming months?.
“How will tourism fare over the coming months?.” I am constantly amazed by the number of Austrians, Australians, etc. who have a desire to visit ireland. I think they are living on old fables of an age gone by. I try and let them down gently, whenever I meet these people. The “Riverdance” show has done more than the hundreds of millions spent by Failte Ireland to convince these people that Ireland is still a green paradise where comely maidens dance at crossroads (and so on.) I just tell them, if they insist in going, not to drink the water-unless… Read more »
http://www.ireland.com/newspaper/frontpage/2008/0531/1212156448865.html Quote…. ========= “There were further signs that the Republic’s housing boom has turned to bust at the High Court, as a provisional liquidator was appointed to two related property development companies. The court heard that houses built by Denis Finn Ltd (DFL) were “simply not selling”. The company, which has a number of unfinished sites in the Howth and Sutton areas of Dublin, was experiencing serious cash-flow problems and had been unable to raise further financing.” ========= So the banks are starting to call in developers…. . I guess the speed and value the assets can be sold for… Read more »
That´s an interesting post. I wondered why my B of I shares had halved in recent months.(nobody tells anybody anything ,nowadays ?) Guess I just join the long line of suckers.! It looks like the banks will be going into the building business shortly. All the big fish(developers) have already left the country for greener pastures years ago. Only the numerous small fry builders countrywide are now facing ruin. Maybe they will turn on Cowan-now that even the annual Ballybritt bash has been abolished. Dont buy shares in helicopter companies, either, this year .. Even the Lisbon Treaty could be… Read more »
A previous post mentioned “hanging out the washing on balconies”,in the hundreds of thousands of jerry built, high rise apartments, which now ring the city of Dublin.
It´s forbidden of course.!
Can you imagine the carbon footprint (and the expense- now that oil is 135 dollars a barrel) of drying all the dirty laundry in electric drying machines.?
All those apartment owners are really going to be “hung out to dry” themselves, in more ways than one.!
Some good points. Reality is though, if you’re on social welfare in Ireland what you are “entitled” to right now is a lot better than what you will buy on the open market with your own cash. Whoever said that apartments were defacto social housing was 100% correct: I have lived in houses split up into flats where I was the only tenant out of maybe 5 or 6 living there who actually had a job, and that was right at the height of the celtic tiger. At the moment I’ve read that around 1/3 of the private rented sector… Read more »
Excellent point from Laura.The exchequer (taxpayer) is propping up the overpriced rental market-has been doing so for years.! Time they lowered their rent allowances to help sanity return to the market.
The fact that now new social housing is in the pipeline will only continue to benefit speculators-but thats the new Europe.!
The big developers like McNamara are “a state within a state”.
They own Fianna Fail.