God help the long-term interests of Ireland’s construction workers, the supposed beneficiary of the latest madness. Electoral politics are overtaking the economy, short term and long term. The purse strings are being loosened. Promises are back. Memories are short.
Next Friday the Government faces three dreaded hurdles: European elections, two Dail by-elections and nationwide local polls. Fringe parties and independents are threatening the cosy status quo. The Coalition fears a combination of young and old, united in an effort to give them a bloody nose.
The official response has been panicky. Last Wednesday, the Taoiseach and Tanaiste called a press conference to announce 60,000 jobs by 2020. Just like that. Better still, the construction sector was being revived. Enda and Eamon would inject a stimulus that would provide 25,000 jobs before 2016 (coincidentally the date of the general election). The two party leaders must be wishing they could produce the lot by Friday week.
Not to worry, the jobs are as good as in the bag.
The details of ‘Construction 2020′ – the plan outlining the revival of the construction industry – were overshadowed by a piece of electoral madness that has made sane economists like Ronan Lyons’ hair stand on end. Enda and Eamon are converts, suddenly big into bank guarantees. Last Wednesday, on the very same day that they lambasted Fianna Fail in the Dail for the 2008 bank guarantee – as they prepared the political gallows quaintly known as the Banking Inquiry – they were offering their own gift to the bankers.
Enda and Eamon wanted the banks to lend more to first-time buyers. The once bitten bankers are reluctant to lend above 80 to 85 per cent of a house’s value. Many punters can only pony up a 10 per cent deposit. So Enda and Eamon will bridge the gap. The banks will forward the missing 10 per cent or so, provided the two guardians of the taxpayers’ savings put the nation’s non-existent reserves on the line.
Here we go again. But this time it is different. Last time, the bankers were bonkers, reckless and the ones guilty of causing long-term misery for short-term gain. This time they are more cautious than the Coalition!
The mind boggles. Enda, Eamon and Michael Noonan are daring to enter borrowing territory where the bankers fear to tread.
It is the Government’s bright idea that it should guarantee up to 10 per cent of the value of a new house in loans to home buyers, if bankers have refused to provide above 80 to 85 per cent. Quite a novel piece of economic insanity. So 95 per cent loans are back.
Purchasers of new houses, desperately seeking homes and mortgages are unlikely to turn down such an opportunity. Understandably, starry-eyed youth never does. Imagine the innocent borrowers’ surprise when, having been refused the extra credit by their banker, they get a letter from the bank manager saying that they have been reprieved.
Although the banker does not think the offer is prudent, the lucky borrower has been spotted by a less fussy party – the Government. Michael Noonan is riding to the rescue. He will go bail for the extra 10 per cent. Happy days are here again. The taxpayers’ money is on the line. Michael calls the operation ‘insurance’, but it is a guarantee to the bank that if the borrower defaults, the battered Irish people will pick up the tab.
Former Taoiseach Brian Cowen, regulator Paddy Neary and their colleagues – the clowns who ran around Merrion Street like headless chickens on September 29, 2008 – are laughing. Enda and Eamon have decided to follow their example. Government guarantees of bankers’ property market risks are the business.
Such attitudes send out echoes of all those unsolicited letters that used to arrive from the banks offering us another unsecured 10 grand to be used for any purpose known to man. Today the Government is filling the role of the reckless.
The response to the Government’s proposal has been almost universally hostile. By Thursday, Coalition spokespeople were backtracking. After Ronan Lyons had pointed out that the answer to the housing problem was more houses not more money, ministers were insisting that this project was merely an idea.
It was not set in stone. It could come with health warnings and strict conditions attached. There could be a cap on the value of houses eligible for the guarantee. They were going to do a thorough analysis before July. It would not be a replica of the disastrous London attempt to boost the property market etc, etc.
Yet the genie was out of the bottle. Election considerations had forced the three top ministers to produce this ‘insurance’ scheme out of the hat before D-Day on May 23. Otherwise, they could face a humiliation at the polls that would make Fianna Fail blush.
They still could. Irish people are no longer fooled by governments bearing gifts.
They can see that this manoeuvre is a political move hugely influenced by a strong developers’ lobby. The Construction Industry Federation has scored another triumph. The bankers are cock-a-hoop. Not only is the Government subsidising the mortgage market but bank balance sheets will suddenly improve if house prices rocket following this artificial boost to property values. If the effect of such measures are felt before the bank stress tests in the autumn, our banks could clear the hurdle with flying colours.
The entire rationale is supposedly the need to re-employ thousands of unemployed construction workers. God bless the aspirations. There may be temporary, but precarious, jobs created.
But the more serious downside will be that first-time buyers, armed with government subsidies of 10 per cent of the house value, will outbid each other for new houses. An artificially buoyant market will be created. The taxpayer will be the benefactor.
If houses crash-land again, the bank guarantee on the extra house loans could be called in. The taxpayer will be the victim of the collapse. Bankers, developers and government will escape scot free. Familiar?
Steep house-price rises in Dublin are spreading outside the capital. At a moment when cool heads are seeking a calmer property market, the Government is contemplating giving it a contrived hike.
The proposal is grossly irresponsible. Especially, as last week it emerged that Ireland’s mortgage market remained in grave peril, possibly in need of further emergency measures. The attempt to sort out mortgage arrears has failed.
Ratings agency Fitch, not beloved by official Ireland, revealed that Irish mortgages in arrears of 90 days or more were accelerating. They now stand at 18.4 per cent of all loans, up significantly from 16.7 per cent last year. Quite an embarrassment for the Central Bank, which found that in the same period they had declined. Ahem. Both of them cannot be right.
The solution is surely not to expose young, first-time buyers to loans that they may not be able to afford to repay. Nor is it to create a mini-bubble in the property market. Nor to raise the expectations of 60,000 out-of-work construction workers that help is at hand.
Deja vu.