There was a fairly lengthy piece in the Saturday Weekend Review of the Irish Times about the philanthropic developer and businessman Niall Mellon. I have a lot of time and admiration for Mellon’s energy, entrepreneurship and housing development works in South Africa. However, his views about the causes of the crash and the role of developers in Ireland’s woes seems way off-beam and, at times, contradictory. On the one hand, developers apparently played little or no role in the collapse and have been the victims of a witchhunt and, on the other, they have a duty of shared responsibility to pay back debts. Here’s a selection of what he had to say:
“What happened” was the collapse of the Irish banks in 2008. One day he was a developer worth more than €150 million; the next he had nothing. “The night the banks collapsed I went to bed a hero and woke up a villain. That’s what the Irish State did.”
Two years after what he passionately describes as a “witch-hunt” against developers, he surrendered his Mount Merrion home on five acres to Nama. “And – what people couldn’t understand – I also handed over another dozen properties I owned, unencumbered, with no bank debt whatsoever, any of which would have paid my mortgage for several years.” …
“Irish people need to remember there was no property crash in Ireland; there was a bank collapse that caused a property crash. Two different things. Fianna Fáil were desperate to blame anyone except themselves and heaped pain on developers. It was an absolutely disgraceful effort by the then government, and it hasn’t been much better under this one. But this year Frank Daly, the current chairman of Nama, came out and said it was the banks, not the developers. So developers need to be fairly judged now. Everyone is forgetting developers only built to satisfy demand.”
The last paragraph is the one that many people will have problems with. The conventional reading would be that the banks collapsed because they had over-extended themselves by lending finance to developers in a bubble and oversupplied market (unlike elsewhere where banks were caught in the maelstrom caused by the complex deriatives of the US subprime market). Given that developers sought this finance, to intimate that they are an entirely innocent part of the banking collapse or that the fault lies simply with banking practice and government policy appears disingenuous.
It was developers who drove property development and borrowed the money for ambitious and risky property schemes; it was developers that contributed donations to political parties and strongly lobbied government about laissez-faire planning and finance; it was developers who drove up land prices and helped egg-on property prices; it was developers that flooded the market with excess housing and commercial property; it was developers who build estates compromised with poor building materials and weak safety standards. Developers did not only build to satisfy demand – they created huge oversupply with respect to residential and commeercial property which still exists and will do for quite some time in many parts of the country. And commercial property has been as much the problem as houses and apartments. The legacy of unfinished estates, zombie hotels, ghostly retail parks and office developments, pyrite-infected homes, and a reading of Breakfast with Anglo or Anglo Republic or Ireland’s House Party or Namawinelake attests to all of this.
Admittedly, not all developers were the same and they ran their businesses in different ways and with varying ethos. Nevertheless, as a collective group developers do share responsibility in the collapse in the country’s fortunes along with banks and government. The idea that developers are simply innocent victims of the crash is delusional and smacks of an attempt to re-write the narrative of history so that they are more favourably judged. It simply doesn’t wash.
Mellon himself does seem to accept this notion of shamed blame and responsibility. He continues:
“I wanted to accept my share of the responsibility. Part of that was moving out of a big house. Part of it was keeping unencumbered assets and giving them to Nama.
“There has to be a shared responsibility and a shared approach to solving this. So if you borrowed money you sell your assets to pay back as much of that loan as you can, and when you’ve done that you should be set free, in recognition of the fact that there was a systemic collapse of the financial governance system with the Irish banks.”
He could have opted for “the easy choice” of bankruptcy in the UK but decided against it. Pride was one factor; another was a sense that he could do a better job disposing of assets than a receiver. He has also managed to pay “95 per cent of debts due to a few hundred small creditors. So that’s nearly finished,” he says.
And fair dues to him. Unlike other developers who have run for the hills or have sought to shift assets or fight Nama, Mellon has seemingly got on with addressing his various obligations. Having read the piece, I’m inclined to try and judge him fairly, but at the same time I’m not prepared to accept many of his assertions with respect to the innocence of developers in creating the conditions for the crash or to rewrite history.
Rob Kitchin
Ireland after NAMA 
November 19, 2012 at 9:19 am
@Rob
IMO, the developers were being true to their natures – literally pushing the boundaries as far as they could. IMO, the market frameworks were, and still are, too loose. Unless the structure of the market is radically changed, exactly the same forces will again reach beyond their grasp for ambitions that were then and still beyond their abilities.
They could only do this because of two other groups which should have acted as countervailing forces
1) Banks;
2) Government – national and local.
As regards the banks, it is clear that the directors failed completely in their fiduciary responsibilities. Just because Anglo-Irish and at least non-Irish bank was running amok is not sufficient reason for Irish publicly quoted companies to get involved in what was essentially a Ponzi scheme. Banks were lending ever-increasing amounts to
1) developers (with what seems like minimum good practice in terms of checking the quality of assets/cashflows backing these loans);
2) developers in turn were paying ever increasing amount for land/sites/construction contracts, for sale to
3) end users ( eg. businesses, purchasers of residential properties, buy-to-let “investors”, public authorities like National Roads Authority);
4) which end-users were borrowing from the same banks that lent to developers;
5) which banks were borrowing short (from banks abroad) and lending long to developers/mortgagees/buy-to-let “investors” et al.
Government at local and national levels, in turn came to rely on the revenues being generated by development/construction VAT, Stamp Duties, income tax, PRSI, “development” levies/contributions etc
To change the market framework for developers, I suggest (as I did in October 2008*, within the week of the last Government guarantee to banks) that we now need to implement in full and forthwith the recommendations of the 1974 Kenny report on the price of building land.
see here
Click to access Kenny_Report_1974.pdf
As regards the banks, it is time to consider a different model for “normal” retail banking eg that set out by TCD’s William Kingston here
Click to access regulation%20article.pdf
He suggested simply taking away limited liability from banks. His argument is that bankers are more motivated to outwit regulators than regulators are to rein in bankers. Thus, make the bankers directly responsible for the liabilities of the banks just as they feel directly responsible for the “profits”
* http://www.irishexaminer.com/archives/2008/1004/opinion/end-malign-influence-of-property-speculation-on-the-way-we-are-governed-73915.html
“THE crisis in Irish financial institutions is an opportunity to end the malign influence of property development/speculation on how we are governed.
This long-running source of economic and political instability has now resulted in the citizens of this Republic being loaded with unknown liabilities that may last for years, just as we are still paying levies on insurance premia 25 years later arising from the collapse of PMPA.
The current weakness of Irish-owned financial institutions due to lending for property development is a factor driving the Government deposit/loan guarantee scheme…..
….It is now time to change the view that we can build a common prosperity by selling land and buildings to one another.
Fortunately, part of the solution has already been worked out for us.
In 1971, the then Fianna Fáil government appointed Judge John Kenny to consider, in the interests of the common good, possible measures for
(a) Controlling the price of land required for housing and other forms of development, and
(b) Ensuring that all or a substantial part of the increase in the value of land attributable to the decisions and the operations of public authorities… shall be secured for the benefit of the community……
….This is the least the ruling class can do now that we, through the Government, have given huge guarantees to sectors that have over-reached their abilities. We do not deserve the hard landing that the self-satisfied networks of Government, financial institutions and property development have now made for us.”
November 19, 2012 at 9:44 am
I counted six references by Niall to personal guarantees, and I came away with a sneaking suspicion that these were a matter of some obsession, which if Niall has handed over all his unencumbered assets, is a curiosity.
November 19, 2012 at 12:47 pm
Like many who give personal guarantees, he probably did not expect that these would actually be called down – ever, regardless of circumstance or change of fortune – because of the “relationship” he (thought) had with his bankers.
November 19, 2012 at 1:08 pm
‘Innocent Victim’ and ‘Easy Choice’ are good names for race horses but not for the jockeys.
Still I will judge him by how he treats his sub-contractors and other creditors.
But life moves on – already there are noticable housing shotages in parts of Dublin – a new generation are joining the still considerable number of survivor developers. The key question is In Ireland after Nama do we let them play by the same old rules.
November 19, 2012 at 5:04 pm
Trouble is, Brian, that that the question has already been answered by NAMA, with their policy of putting a floor under the price of some properties that they sell to private individuals.
In other words YES – the powers that be seem to be doing their utmost to ensure that investment in property is a still a no-lose/one way bet for house purchasers.
It remains to be seen, what extent if any, the property tax will lead to different patterns of property investment and development. see
http://www.ronanlyons.com/2012/08/27/property-tax-its-not-rocket-science/
or this
“The Irish government has covered discussion of the proposed property tax in a blanket of silence. We fear the worst.
The developers, speculators and banks are set for another bail-out by the ordinary citizen.
But it is not too late yet if we wake up and demand a Site Value Tax instead of a property tax that will exempt the 1%.
Site Value Tax (SVT) what is it?
On the basis that it is the activity of the community that makes land valuable SVT is a tax designed to maximize return of value to the community.
The tax is levied on the site occupied by each dwelling based on the amenities provided by the community to that location.
Because the tax would apply equally to undeveloped zoned land it would ensure no hoarding or overnight “killings” so no “bubbles”.
The benefits to Ireland and its citizens of Site Value Tax
*Because SVT would levy a tax on the footprint of all homes and zoned land, whether developed or not, it would provide a steady known income to the government and avoid future bubbles.
*As this footprint would be rated to reflect the amenities provided by the community those with the most would pay more and those with less would pay less making it a fair tax.”
http://smarttaxes.org/2012/11/01/it-isnt-too-late-a-plea-to-make-a-decision-in-favour-of-site-value-tax-put-people-out-of-there-misery-announce-the-choice/
Similarly, new modes of funding private residential accommodation may yet emerge eg. the use of special bonds as in Denmark,