Towards a Real Housing Strategy #4: The possibility of using NAMA as a solution to the housing crisis

The purpose of the housing conference in Liberty Hall on Saturday 3rd October was to come together to work Towards a Real Housing Strategy. It was a structured forum for activists, academics and the wider public to engage with each other and bring together their own knowledges of the current housing question so that we can better understand it and discuss what should be done in order to address it.

Activists from Housing Action Now, the North Dublin Bay Housing Crisis Committee, Inner City Helping Homeless, the Peter McVerry Trust, Right2Change, Mandate, Unite and a number of others, spoke and contributed to the discussion. The experiences and understandings of these groups and individuals added the required grounding to a crisis that can sometimes feel abstracted from the human cost of experiencing housing distress. As well as the ‘traditional’ activists, a number of academics from NUI Maynooth provided a framework allowing us to understand the current housing crisis within broader social, economic and political contexts. With these strands of understanding converging, there is the hope that a strategy for tackling the housing crisis can emerge.

A significant part of the conference was to break into workshops so a dialogue about some of the ‘bigger’ issues could flourish. I broke into the workshop about NAMA. The session started with presentations from Mick Byrne (UCD) and Sinéad Kelly (Geography, Maynooth University) on the existing role of NAMA. Following their presentations, the audience became a workshop group with the discussion focused on how we might better understand NAMA and its potential role in reducing housing inequality in Dublin. Many of the questions posed and ideas considered were inherently about how to alter the use of NAMA for social gain and issues which arise from any desire to do so.

 

Ireland’s New Transnational Landlords

We have heard a lot about the crisis in Dublin’s rental sector in recent months. On the surface, a lack of properties for sale or to let on the market has contributed to rising rents and the crisis of homelessness. But underneath this, a less visible, though no less worrying, change has been taking place – the rise of the transnational landlord.

Traditionally Irish landlords have been small-time amateurs. 65% of landlords have only one property with most others having just two or three. Many landlords work full time in addition to renting properties and up to one third are described as ‘accidental landlords’ – such as people renting out their own principal residence due to mortgage arrears. But recently a new breed of landlord has entered the scene, referred to as ‘professional’ or ‘institutional’ landlords. The most prominent is Ireland’s largest landlord, I.RES, a Real Estate Investment Trust focusing on long term investment in the rental sector. Other examples include global real estate companies such as Hines, Kennedy Wilson and Oxley Holdings, all of which are pursuing ‘build to rent’ strategies across Dublin.

Like much of what’s going on in the Irish property market, this development is driven by three interacting sets of dynamics.

Firstly, Irish property is being sold en masse at bargain basement prices . The sellers are financial institutions seeking to deleverage rapidly. These include foreign lenders such as Lloyds who sold their mortgage book to private equity firm Lone Star Capital. But the main players have been the Irish bad banks – Anglo and especially NAMA. Indeed 800 of the 1,200 apartments owned by I.RES were bought in one go from NAMA under Project Orange. The largest asset class held by NAMA is development land, and much of this has been sold to global property companies seeking to become long term investors in rental accommodation. For example, NAMA was one of the main owners of 400 acres of suburban land in Cherrywood sold to Texas based Hines. Hines plans to develop up to 3,600 apartments on the site.

Map of the boundary of the Dublin Docklands SDZ

Secondly, there has been plenty of money washing around the global financial system and seeking to find its way into Irish property. As a PWC report earlier this year put it, European debt markets are ‘awash with capital’. The global financial environment continues to be characterized by some of the core dynamics that drove the financial boom of the 2000s: very low interest rates and low yields in traditional asset classes such as government and corporate bonds. Add to this significant quantitative easing in the US, UK and now the EU. There is a lot of money out there looking for somewhere to go, and heavily discounted real estate looks like a good bet. Hence, much of the money buying up Irish real estate is flowing in from the global financial system. Hines, itself a Texas based company, is backed financially by New York private equity firm King Street Capital. I.RES has funded its property shopping spree through its Canadian backer, the Canadian Apartment Properties Real Estate Investment Trust.

Thirdly, and finally, the transformation of the Irish housing system has turned the rental sector into a viable investment for international players. The sector continues to expand rapidly, increasing by over 100% in the Dublin region since 2002, as do rents. Most importantly, however, the collapse of the mortgage market means yesterday’s ‘first time buyers’ are today’s ‘top end renters’. The new class of landlord is chasing the high rents paid by a new class of renter, e.g. two income professional couples who are renting long term.

The business strategies of all the new institutional landlords thus work around these three axes: using global sources of capital to buy discounted Irish assets and rent them to relatively well-off renters. Let’s look in a little more detail at just what they’re up to.

I.RES (Irish Residential Real Estate Investment Trust) has spent around €400 million in the last year or two acquiring 1,200 apartments in Dublin. They hope to expand their portfolio to around 3,000 apartments. The company claims it “is focused on consolidating the fragmented Irish rental market by targeting high quality property assets … To deliver superior customer service, enhance tenant retention, and deliver quality homes.” They have been widely reported to be seeking rent increases of up to 20% across their portfolio this year. They are also considering expanding into affordable housing, social housing and student residence, all of which are potential new asset classes for global property investment in Ireland. You can read more about their plans in their investment brochure.

Oxley Holdings are also pursuing high end renters, but are even more focused on the top of the market. The Singapore based developer describes itself as “a lifestyle property developer that caters to the upwardly mobile homebuyer and entrepreneur” and is building 200 apartments at 72 – 80 North Wall Quay in Dublin’s Docklands, bought from NAMA last year.

Hines, which opened its Irish office last year, articulated its motivation for entering the Irish property market as follows:

“The firm made the decision to set up in Dublin to acquire single assets, portfolios, or debt; to enter into joint venture arrangements where appropriate; and to look at opportunities emerging from the de-leveraging in Ireland.”

In two years they have acquired over €1 billion in commercial, retail and residential property. As mentioned they look set to become a huge landlord under the Cherrywood development and are also building apartments in the Docklands, where they are completing the Spencer Dock development in conjunction once again with King Street Capital. Hines also sees themselves as a targeting the high end of the market and providing the high quality rental property. Their developments will also include special facilities and property management.

Finally, LA based Kennedy Wilson has aggressively entered Ireland chasing distressed assets but also developing major projects. While they have only a small residential portfolio (mainly investing in offices) they have snapped up around five apartment blocks in Dublin and are building the Clancy Quay complex near Island Bridge. KW have also entered a joint venture with NAMA to develop the Capital Docks project on Sir John Roggerson’s Quay in the Docklands. They submitted planning application in April 2014 for a major development on the 5 acre site. One of the buildings will be a nineteen story tower while overall the development will provide 300,000 sq. ft. of office space and 204 apartments (check out the commercial brochure for more details ). Interestingly, Deutchse Bank issued the first Commercial Mortgage Backed Security backed by Irish rental properties in 2015. The MBS was backed by loans linked to KW’s apartment investments.

Plans for Capital Dock

But what does this all mean for tenants and for housing more generally? While it’s too early to say, international research certainly gives cause for concern. The pioneering work of Desiree Fields has documented the impact of private equity firms on residential rental properties in New York and elsewhere. Issues include high rents, high rates of tenant turnover and other aggressive business strategies which hit tenants hard. In the Irish case, given that institutional landlords are focused on relatively well-off tenants, we might be tempted to think that their impact will be negligible. Given the chronic lack of affordable rental accommodation, however, we should certainly be concerned about the opportunity cost associated with this new form of investment. Every apartment block or development site snapped up by global companies with significant financial fire power is a lost opportunity for affordable housing. From the point of view of the city as a whole, it would have been better to see heavily discounted apartment blocks and cheap development land being bought by local authorities and housing associations. Instead, affordable housing is being crowded out by a few large players whose only interest is in ‘top end’ tenants. Thus, while the possibility of professionalization raised by institutional investors has been welcomed in some quarters, the early indications are that they will do little for the majority of tenants.

Mick Byrne

Mick Byrne is an IRC postdoctoral researcher in NIRSA NUI Maynooth. He is also an activist involved in various housing issues, including the Dublin Tenants Association.

 

NAMA needs fundamental change to focus on meeting housing need not international investor profits

With NAMA recently entering into its fifth year, Maynooth Geography’s Rory Hearne considers what it has achived. Published in today’s Irish Times

The government’s new Social Housing Strategy correctly identifies the underfunding of the provision of social housing and rising rents in the private sector as the principal causes underlying the current housing crisis. Unfortunately it continues this underfunding as the 2015 social housing budget will be just half of what it was in 2008. Furthermore, the Strategy failed to radically reform NAMA, which is the largest housing agency and property developer in the state. This leaves a fundamental contradiction in housing policy.

While the government expresses a strong concern to address the 90,000 households on the waiting lists it is, at the same time, actively encouraging NAMA to sell off its residential and land assets in the form of ‘packaged portfolios of property’, at the highest possible price, to international and Irish capital investors. The Strategy did not alter NAMA’s primary objective to achieve a maximum commercial return to the state. The uncomfortable truth is that those who will benefit most from current government housing policy, and NAMA in particular, are international wealthy investors and banks, developers and landlords and not the ordinary Irish people who have paid dearly for the write downs on development loans transferred to NAMA.

The reality is that NAMA is playing a significant role in worsening the housing crisis through its sale of assets to Real Estate Investment Trusts (REITs). The government encouraged the setting up of Irish based REITs in 2012 through generous tax breaks. Irish REITs are being set up to take advantage of high yield returns from investment in the ‘recovering’ Irish property market. One newly formed REIT is the Irish Residential Properties which includes large property investors from Canada and finance from the UK based Barclays bank. Another REIT, Hibernia, has billionaire investor George Soros’ funds amongst their shareholders. Irish Residential Properties bought the ‘Orange’ portfolio from NAMA for €211m which included 716 residential apartments in Dublin. NAMA advertised that the portfolio would provide a residential rental income of €10.6m and ‘significant rental growth potential over the near and longer term’. Selling to such investors with this expected rate of return will clearly provide a huge upward pressure on residential rents in the coming years.

NAMA is also likely to have a major influence on the residential property market through its intention to provide over 22,000 units in Dublin (half of expected demand in Dublin) and surrounding counties by 2019 through the use of existing units and 1,500 hectares of development land. It is doing this through partnerships with developers including the provision of at least €1bn in finance. However, the objective to ensure a maximum commercial return means that NAMA will make certain these units are sold at the highest possible price thus inflating prices further.

Although we don’t hear much about it, NAMA has a mandate to ‘contribute to the social and economic development of the State’. It achieves this through its provision of social housing yet only 736 units have been delivered. The new Housing Strategy includes an expansion of NAMA’s Special Purpose Vehicle (SPV) set up to sell or lease NAMA residential properties for social housing but only plans to deliver 2,250 units by 2020.

NAMA’s current trajectory is wrong if we want to develop a sustainable economy and society. Its need for rental growth is likely to be one of the reasons the government is refusing to give private tenants (who are the majority of those on social housing waiting lists) relief through the introduction of rent controls. By pushing for maximum commercial returns NAMA is working against the interests of those looking for an affordable and secure home. It is continuing the speculative asset approach to housing that fuelled the crisis. This promotes residential property as a commodity rather than a social good that is developed primarily to meet people’s housing needs.

NAMA is facilitating a massive transfer of wealth (income) created by the Irish people to foreign and domestic capitalist investors. It exemplifies all that is wrong with the current model of financial neoliberal capitalism. Rather than investing in the ‘real’ economy and social requirements it is promoting speculative finance. The result is rising inequality and a more unstable system. The legacy of socializing the costs of the banking crisis in Ireland has been widespread social devastation. NAMA is embedding this for decades to come.

But the government can still reorientate NAMA to play a key role in addressing the housing crisis. It could genuinely expand NAMA’s SPV by transferring the majority of NAMA’s residential development units and land into it. NAMA could then provide 15,000 social housing and 7000 low-cost rented units managed by housing associations by 2020. These could be excellently planned, environmentally sustainable and model community developments in areas such as the 25 acre Glass Bottle Site in Ringsend. Such a social stimulus could help repair some of the societal damage caused during the crisis. If this means NAMA doesn’t make a profit it is important to highlight that those most affected by that will be the private (mainly international) investors who own fifty one percent of NAMA’s shares. Furthermore, NAMA was also set up so that if it makes a loss a surcharge can be introduced on the profits of the financial institutions.

When our financial system was in peril there was no obstacle too large for our political establishment and the state to overcome. Now we face an equivalent crisis in terms of the fundamental housing needs and rights of hundreds of thousands of our citizens. It is legitimate to ask why the same radical approach that determinedly did ‘whatever was needed to be done’ is not applied to the housing crisis. It appears it is because the government is unwilling to stand up to the financial and property investors and transform the residential property market into a system to meet housing needs.
Rory Hearne

 

Housing supply, principles, politics, compromises and pragmatics

Yesterday the Independent published an OpEd that discussed ways to try and start creating housing supply in areas that needed it – principally some urban centres, particularly Dublin.  It gave ideas grouped around land and sites, planning, costs, regulations, finance, and alternative solutions.  The piece was written by Karl Deeter, Ronan Lyons, Frank Quinn, Lorcan Sirr, Peter Stafford and myself, six regular media commentators on Irish housing.  The idea was try and see if six people who hold different views on housing and planning could reach a consensus position that provided practical solutions to creating supply.  The ‘rules’ were all the instruments suggested could be introduced quickly and with minimal or no legislative changes and it all had to be said in 900 words or less.

Inevitably, the list of solutions produced was a compromise and writing such a piece is an exercise in politics and principles.  No signatory on the piece is fully subscribed to each potential solution and all had to concede ground.  From my perspective, I have problems with removal or reform of Part V, I’m cautious about bringing aspects of Dublin planning regs in line with the rest of the country and the reduction of development contributions.  But I’m happy to see the use of the term housing sector not market, the advocacy of social housing and associated HFA financing and a reversal of the cuts to capital spending, and the ‘use it or lose it provisions’ on planning and land zoning.  I’m a little cheesed off that the Indo editors altered a couple of bits of the submitted piece, especially removing the phrase the “inventions should be time delimited”.

Some of the critique of the proposals on twitter and email has been that they overly favour market and developer interests.  There is, however, I think some degree of balance.  Ideas such as derelict/vacant site tax and a more aggressive use of the Derelict Sites Act are not in land owner/developer interests.  Moreover a range of interventions favoured by such interests were kept off the table: tax incentives, reduction of construction labour wages, radical laissez faire change to the planning system, alterations to build quality, radical changes to density targets, and state provision of housing.

What the piece hopefully does is move the discussion on from diagnosing the problem to practical solutions and towards action.  It provides a selection of options that can be debated and I would welcome counter-pieces.  If the piece does that, then it has done useful work.  At the same time, we also need to move towards action.  We have a real problem that has real consequences and is quickly getting worse, yet very little is being done to address the issue.  We therefore need that action soon, not in two or three years time.  If that requires compromise solutions, then I’m prepared to consider them.  And as this exercise proves, other interests are too.  What we can’t afford to do is nothing.

Rob Kitchin

 

Construction 2020 Strategy for Ireland

Today the government announced a new Construction 2020 Straegy for Ireland – the full report can be found here.

The strategy is to be welcomed in that we’ve needed an overarching strategy re. construction, property and housing for some time.  It’s also good that it is wide in its remit, covering all the main areas.  It seems to me the strategy is about four things:

1.  creating a strong and sustainable construction sector
2.  producing new jobs and getting construction workers back to work – the plan is 60,000 by 2020
3.  Creating sustainable planning and communities
4.  dampening down the cyclical nature of property development

In other words the ‘Strategy aims to ensure that necessary and sensible development can take place, and that it is not held back by unnecessary obstacles.’  It sets out 75 action points, quite a few referring to initiatives that have already been announced previously, though the strategy does tie all the stuff together into a roughly coherent whole.

The question is whether these action points are going to address the various problems and issues.  At present, this is difficult to tell, because a lot of what the document sets out is a roadmap for finding solutions rather than providing solutions.  At one level this is good – we need well thought out solutions.  At another level it isn’t so great because we should have done the strategising a few years ago and now we’re trying to play catch-up whilst various forms of crises continue to play out around us – mortgage arrears, social housing waiting lists, rising prices, weak supply in some areas, oversupply in others, etc.  The report is full of proposed new committees, task forces, review groups, consultations.  Here’s a list of some:

• will propose a new national planning framework
• will publish a general scheme of a Planning Bill, along with a new Policy Statement on Planning, to implement the planning recommendations of the Mahon Tribunal and other planning concerns, and to establish an independent planning regulator.
• will create a Housing Supply Coordination Task Force for Dublin
• will produce a comprehensive strategy for Social Housing, setting out a vision for the sector.
• will undertake a review of Part V of Planning and Development Act
• will review Special Development Zones planning with the aim to streamline and speed up process
• will explore mechanisms for private financing and greater use of Public Private Partnership models for infrastructure procurement
• will engage with the banks, NAMA and other interested funding providers to ensure the availability of sufficient development finance
• will create a High Level Working Group chaired by the Department of Finance will be established to explore the issue of sustainable bank financing for the construction sector.
• will increase our engagement with the European Investment Banks (EIB) and European Investment Fund (EIF) in developing and implementing mechanisms designed to maximise the provision of financing to SMEs, including in the construction sector.

As it stands then, we have few concrete recommendations with respect to any of these things.  These need to be set up asap and to do their work quickly.  Ideally they will also be dealt with in some kind of a holistic way and not in isolation from each other.

There were a few concrete actions.

• National Pensions Reserve Fund (NPRF) is to become the Ireland Strategic Investment Fund (ISIF) with a mandate to invest on a commercial basis to support economic activity and employment in Ireland.  Work with IDA and others to invest in offices/infrastructure.
• A tenancy deposit protection scheme will be provided in law this year
• Regional Planning Guidelines that co-ordinate local authority plans will be replaced by more broadly based Regional Spatial and Economic Strategies from 2016, with inputs from LAs, key infrastructure and economic development agencies

They are also proposing greater certainty and flexibility in planning:

• flexibility around overall densities will be considered.
• changes to existing planning permissions – though only after public consultation
• streamlined planning process for certain types – ‘repeat’ or ‘change of house type’ applications – and also for appeals
• enable local authorities to introduce a ‘use it or lose it’ provision with respect to land zoning to reduce land speculation
• vacant site tax – examine the possibility for enabling a local authority, should it wish to do so, to adopt measures that incentivise the use and development of vacant sites
• legislate for and introduce a registry of options on land for development purposes to ensure market transparency

Some issues seem to be in a holding pattern.

• Homelessness – Mentions setting up of Homelessness Oversight Group and aim to eliminate homelessness by 2016 but gives no indication of how that will be achieved, esp. in light of rising homelessness levels.
• Unfinished estates – no new policy just continue with Site Resolution Plans;

The strategy sets out then a roadmap for getting to actionable initiatives, rather than setting up many new initiatives.  It does not set out many concrete actions but rather proposes a roadmap for dealing with construction and property issues.  There are proposals for lots of task forces and reviews, some tinkering with existing legislation but no radical overhaul, but not a lot of new concrete, strongly cash-backed initiatives – schemes mentioned in the strategy are all relative small sums of money or restate existing public capital expenditure plans (which are a fraction of pre-crash levels).

What would have I liked to have seen?  I would have preferred something a bit more holistic, rather than trying to frame a whole bunch of stuff as a coodinated plan.  Personally, I would have started with a new NSS/NDP and worked down from there.  I think it would have been useful to be more proactive in setting out options re. financing.  How to get finance into initiating construction seems to be largely missing beyond saying the government will talk to and encourage NAMA, EIB, EIF, ISIF (Ireland Strategic Investment Fund) to make finance available and look at issues.  I would have liked the government to be a bit more proactive in terms of initiating and driving funding, seeking ways to increase public capital expenditure.  The strategy announced €200m of new investment into the various property related areas, but this is a tiny amount of funding vis-a-vis the issues that need to be addressed.  Hopefully when all these various task forces and committees report, suitable budgets and means of financing can be attached to the action points, otherwise they’ll remain just that – action points, rather than actioned items.

Rob Kitchin

 

 

Why we need a housing strategy ASAP

The newspapers at present are full of talk of the resurrection of the housing market and the growth of house prices in Dublin.  It seems that housing market is finally stabilising and that the long waited for market correction is starting to take place.  Moreover, it is being suggested that we need to start building residential units again and to zone more land in Dublin (this is despite the fact that 2,575 hectares (6,400 acres) of serviced residential land is zoned in the four Dublin local authorities for 132,166 units).

The housing market in Ireland is nowhere near to functioning normally.  In fact, it is still largely dysfunctional for several reasons:

• extensive mortgage arrears and negative equity
• the lack of mortgage credit and a large proportion of cash buyers
• the lack of finance for development and the lack of active developers
• oversupply in most of the country and pockets of undersupply in specific locales (particularly family homes in parts of Dublin)
• large numbers of unfinished estates and poor build quality (issues of pyrite, etc.) that need to be retrofitted
• huge numbers on the social housing waiting list and stalled regeneration schemes

The shortage of family homes in some parts of Dublin is just one aspect of a very unhealthy housing landscape.  What we really need right now is not a knee-jerk reaction but a proper housing strategy that guides addressing the various problems facing the Irish housing market and plans future housing provision.

This housing strategy needs to do a full assessment of the issues above, along with suggested solutions that include planning and finance, plus develop models of where new housing might need to be built given expected demand based on trends in demographics, economic conditions and labour market change.  Together, these assessments should be used to map out a plan of action as to getting the Irish housing back in to some kind of order.

This strategy does not need to be years in the making.  With some coordinated action it could probably be prepared in a few weeks using in situ expertise and resources.  What it does require, however, is some government action to spearhead such an initiative.  Without this, how the housing situation unfolds will be ad hoc, uncoordinated, and likely to reproduce and extend the present problems.

Rob Kitchin

 

Shanghai on Shannon: Will it happen?

We first posted on possibility of a Chinese trading hub in Athlone in Nov 2010, noting how the idea for the development managed to achieve some momentum through political networks.  Interestingly, those networks were predominately Fianna Fail-centric and reeked of the ‘Galway tent’ mode of doing business, but are now a lot of less potent.  Yesterday An Bord Pleanala gave planning permission for the first phase of the development – to include three major exhibition halls, nine minor ones and other facilities totalling 102,348sq m (1.1 million sq ft), as well as underground parking for more than 1,300 cars.  There are a number of questions that the proposed development raises.

How big is the development?

Very big.  The site is 337 acres.  An Taisce estimates that development once complete will be 14 times the combined size of Liffey Valley and Blanchardstown shopping centres.  It aims to attract 1.5 million international buyers and visitors annually when fully completed and employ up to 9,000 people.  It would be one of the largest exhibition spaces in Europe.  The main issue with regards to this size will be servicing – adequate utility and transport infrastructure to ensure smooth running; this is feasible with good planning though there are some site issues as discussed below.

Does it align with spatial planning policy?

Yes.  Athlone is a gateway town in the National Spatial Strategy.  This means it is designated as a preferred site for population growth and economic investment.

Will it happen?

The key issues here are finance, political and state backing, other local development, and external competition.  If the project is going to be backed purely by Chinese capital looking for a spatial fix in Europe then the project is solely dependent on that finance being made available to fund the development.  This seems, however, to be unlikely.  Private investment is going to want to leverage finance and resources from the local and national state through in-kind provision of infrastructure and state aid to companies via IDA and others as with other FDI-backed ventures.  The state, and its various agencies then, is going to need to decide whether it wants to provide matching monies to help seed the larger investment.  Clearly local agencies are already backing the project with some resourcing.  The developers are also likely to need other private investors to spread the risk and its not clear if such investors have already signed up or will need to be found.

Beyond the project site itself, as an international trading hub transport infrastructure is going to be key.  Athlone is some distance from the two main international airports, Dublin and Shannon, and the travel to the site by coach/rail is a hindering factor for both the visitors and goods.  The solution proposed locally, as we posted about previously, is the development of an airport near to Athlone.  This has already been granted ‘strategic infrastructure’ status by An Bord Pleanala in Sept 2010.  The same questions about finance and state backing arise with respect to this project, but the two developments do seem co-dependent.

There are other competing locations for such a Chinese trading hub, with other sites being explored in Britain and continental Europe.  It is unlikely that there will be multiple such dedicated sites, so the consortium is going to have to convince investors that Athlone is the best location.

Is it the right location?

Athlone is a gateway town and it would be a fantastic development for the area if it happens.  However, location and particularly transport connections are an issue.  In a European context, Ireland is on the periphery of the continent and is dependent on air/sea for travel.  Whilst other FDI has been able to thrive here with such dependencies, these companies are not solely reliant on massive, daily international flows of visitors and goods.  That’s one of the reasons we do not already have a large, thriving, international exhibition sector. In an Irish context, it would make sense to locate the site nearer to already existing air/sea infrastructure.  The obvious location would be Limerick/Shannon/Ennis where there is already an established international airport and sea port for container shipping.  Clearly this will not suit the Athlone backers, but might be a determinate as to whether investors think the scheme is viable.

In my opinion, the Athlone project is largely a Field of Dreams idea that has managed to gain some momentum.  Whether it materialises into the development envisaged is certainly not assured and there is a long way to go to make the dream a reality.

Rob Kitchin

 

 

Don’t worry, about a thing… the financial software industry

As pointed out in a previous post yesterday, “the Irish financial sector appears diverse enough to weather the storm, with a range of companies in the IFSC compensating for a weakened domestic banking sector.” The financial sector in Ireland looks like it’s not doing as bad as we thought, and, there are some signs that the same goes for a variety of related advanced producer services related to the financial sector such as consulting, accounting and auditing, legal services …etc. One of the sub-sectors that has developed in Ireland parallel to the financial and banking sectors during the boom years and that seems to still be going strong despite the financial crisis and the recession is that of financial software. This is an increasingly key element of the financial industry, in particular with respect to activities that generate most benefits such as trading (where it’s all about how fast you can get the best information on markets and how fast you can buy and sell bonds, shares, futures, currencies … i.e. ‘things’ that only exist in a virtual manner… with money that you only virtually possess – that may be a bit of a caricature, but not so far from reality). Hence the importance of specialised financial software packages to manage the flow of information upon which financial industries rely as well as the flow of trades.

The reason for the growth of the financial software industry in Ireland since the 1990s and in particular in the 2000s has to do with agglomeration economies and is mainly two-fold: on the one hand it is obviously linked to the boom of the financial sector including through the creation of the IFSC in 1987 dedicated to the provision of a wide range of financial services such as banking, asset financing/leasing, corporate treasury management, asset management, custody and administration, securities trading and international insurance and assurance activities (including a highly favourable corporation tax regimes for companies that decided to locate there until December 2000 when the 12.5% corporation tax was applied to all companies across the Republic); on the other hand it is linked to the  earlier development of a broader software industry since the 1980s (based itself on the growth of foreign direct investment in electronics manufacturing in the previous couple of decades, encouraged and facilitated by a national policy) which set up the conditions and fostered the expertise for the growth of the subsector of financial software.

The sector grew strong throughout the 2000s, and does not look as if it has been weakening since the beginning of the financial crisis in 2008. If one looks at recruitment websites, there are many job opportunities advertised in this sector. And this is not only in those firms that were present in Ireland before the crash; new firms have established operations in Ireland in the past couple of years, for example BSB in September last year (2009), which created 20 jobs, or Fi-Tek just a month ago (September 2009), which is establishing its European headquarters in Dublin and is to create 50 jobs there in the next 5 years.

Although the growth and strength of the financial software industry in Ireland should be seen as an asset for the country and for its economic recovery – which is why they have been targeted by strategic IDA investments (even though, admittedly, the sector is very unlikely to create thousands of jobs directly… but has the potential to continue to generate some employment and links with other industry so as to enhance Ireland’s profile as a world leader in that sector – see, for example, Sean O’Riain’s book on high-tech growth for more details — it is important to note that the geography of this economic sector in Ireland is highly uneven. On the one hand, the majority of, if not all, financial software firms are located in Dublin, mostly very close to the IFSC where some of their clients (banks and other financial institutions) are based, although with the weakening of the sector in Ireland, most of their clients are now firms based in the UK and continental Europe. We should note here that the broader software industry itself is highly concentrated in and around the Dublin metropolitan area, both in terms of number of firms and employment (see maps below).

So the financial software industry is very unlikely to help address regional imbalance in the distribution of growth and employment in Ireland. On the other hand, most of these firms are not Irish. A lot of them are US multinationals with operations in a few European cities including Dublin to cater to their European clients – e.g. Fi-Tek, ITG …etc – but also European companies – e.g. BSB is a Belgian company (although operating through Luxembourg), Murex is a French firm with offices in Dublin …etc. One is left to wonder: why are Irish software companies absent from the field? Why don’t we see indigenous software firms tapping into that subsector of the economy that is almost entirely left to US and other European companies?

Delphine Ancien

 

The mirror’s this way …

IBEC have been up to their usual public sector bashing calling for radical reform that cuts costs and boosts efficiency, productivity and flexibility. Perhaps its time for IBEC to look in the mirror at how some of its members have milked the public purse and seek suitable reforms?  There has been, and continues to be, a huge chunk of public purse finance spent hiring the private sector, a huge chunk of which has been squandered – think of the huge overspend on public infrastructure projects, or the massive fees paid to consultants for often quite shoddy pieces of work, or the PPP contracts that funneled huge guaranteed funds to the private companies over long periods of time.  And, just as there is excellent work undertaken in both the public and private sectors, there are slackers, jobsworths and inefficiencies in both.  We’ve all experienced poor service across the service sector; this is not something unique to the public sector.  The private sector would clearly like public sector work to be transferred to them, where it will be supposedly dealt with more efficiently and cost effectively (and certainly more profitably for those companies who would benefit).  There is clearly a wider debate needed here about whether we want vital public services privatised, and under what terms, but in the meantime perhaps IBEC should look at itself, its agenda, and the way its members have been milking the public purse during the Celtic Tiger period whilst it pushes its neoliberal agenda.  Any talk about reform of the public sector should be accompanied by significant reform of private sector contracts driven by an agenda of openness, transparency, good governance, and most importantly value for money.  It’s pretty difficult to believe that we were getting value for money during the boom.  It wasn’t called Rip-Off Ireland for nothing.  The mirror’s this way …

 

Investment magnet for Islamic finance?

Buried in the new finance bill is a measure designed to help kick-start the IFSC back into life as a finance investment magnet – the amending of tax laws to enable of Shari`ah-compliant financial transactions (as noted in the Irish Times and Islam Online).  According to Islam Online, ‘Islam forbids Muslims from usury, receiving or paying interest on loans. Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.  Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.  The new provisions will treat returns on Shari`ah-compliant products as interest for taxations purposes. The measure covers a range of credit transactions and allows for the creation of investment securities similar to sukuks (Islamic bonds).’