The article below is the final of a four part series that examines the housing policies of the political establishment and answers some of the most common questions people ask about housing. You can read part one here, part two here, and part three here.
Housing Policy Explained (4/4) - Why They Feed The Vultures!
A decade ago, ‘vultures’ were something to be seen on a trip to the zoo or on a David Attenborough documentary. Today the term ‘vulture’ is more commonly used to describe a new ecosystem of private corporations that are generating vast profits from Ireland’s housing misery.
Like their natural counterparts, property vultures are opportunistic in nature. They scour the earth hunting for ways to generate maximum profit from all forms of property ‘assets’, including housing.
The over-arching priority objective of every government since 2008 has been the restoration of the private banking system to ‘normality’, where normality means healthy loan books, profitability and a return to full private ownership.
The strategy that Fianna Fáil and The Green Party mapped out to achieve this ‘normality’ was dependent on attracting international vulture funds into Ireland. Without the vultures, their strategy would have failed.
The first wave of vultures to land were the classic ‘vulture funds’ - hedge funds, equity funds and distressed funds that specialise in buying and quickly flipping the problem debts of individuals, companies, banks and even countries. They had first smelt blood and begun to circle when Irish property prices began to collapse in 2007.
In 2009 NAMA was established in such a way as to provide these vulture funds with a perfect hunting ground to snap up tens of billions of euro of heavily discounted debt.
NAMA was tasked by Fianna Fáil and The Green Party with disposing of property assets, including housing, that were once valued at €88,000,000,000. Fine Gael and Labour continued with this policy when they came to power in 2011
Established by Fianna Fáil and The Green Party, NAMA was designed as a ‘bad bank’ that would take the defaulting loans of hundreds of Irish developers off the loan books of private banks. It was a critical part of the plan to return the private banks to stability and profitability.
The transfer of the developer’s loans to NAMA gave it effective control of land, factories, offices, shopping centres and homes which were once valued at a staggering €88,000,000,000 (€88bn).
NAMA was explicitly directed by the government to dispose of these assets as quickly as possible in a de facto fire-sale. The bad bank set about this task by creating massive portfolios or ‘projects’ of bundled debts which were tailor-made for global vulture funds.
The central importance of vulture funds to the government’s banking strategy is borne out by the five largest NAMA property deals listed below. Four out of five of these deals, with a collective loan value of €14,500,000,000 (€14.5bn), involved US vulture funds.
Project Arrow - €6,250,000,000 (6.25bn) non-performing loan portfolio. Half of Project Arrow was made up of loans linked to the Irish residential sector. Sold to the US vulture fund Cerberus for €800m - a discount of €5,450,000,000 (€5.45bn).
Project Eagle - €5,600,000,000 (€5.6bn) portfolio including all NAMA assets in the Six Counties. Sold to Cerberus for €1,600,000,000 (€1.6bn) in April 2014. - a discount of €4,000,000,000 (€4bn).
Project Jewel - €2,570,000,000 (€2.57bn) loan portfolio linked to developer Joe O'Reilly and the Dundrum, Swords Pavilions, Ilac shopping centres and other assets. Sold to the British Hammerson and German Allianz Real Estate €1,850,000,000 (€1.85bn) - a discount of €720,000,000 (€720m).
Project Tower - €1,850,000,000 (€1.85bn) portfolio linked to the developer Michael O'Flynn. €1,750,000,000 (€1.75bn) of the portfolio sold to US vulture fund Blackstone for €1,100,000,000 (€1.1bn) - a discount of €650,000,000 (€650m). The remaining €100m of the portfolio was sold to Kildare partners for €20m - a discount of €80m.
Project Aspen - €810m portfolio consisting of loans linked to the developer David Courtney. 80% of portfolio sold to a consortium led by the US vulture fund Starwood Capital for €200m - a discount of €450m. Courtney himself was aligned with Starwood at the time of the deal, meaning that he was effectively buying his own debts from NAMA at a heavy discount.
When Fine Gael and Labour came to power in 2011 they directed NAMA to continue the fire-sale of debts and associated assets, including thousands of completed or partially completed homes and large quantities of housing development land.
NAMA was the first avenue that the political establishment opened for the property vultures to gorge themselves on, but it wasn’t to be the last. Within three years of NAMA being established a second major avenue was opened to encourage international vulture landlords to become major, permanent players on the Irish housing landscape.
Noonan’s decision to introduce REIT legislation was part of a wider strategy to encourage global capital to buy up Irish debts, commercial property, land and homes.
"In order to attract new investment, I will provide for the establishment of Real Estate Investment Trusts, which allow for investors to finance property investment in a risk diversified manner." - Michael Noonan, 5 December 2012.
The sentence above was delivered by Michael Noonan as part of his 2013 budget speech. His announcement attracted little public attention at the time. Few understood that it signaled a dramatic change in housing policy - a change that would impact on the lives of hundreds of thousands of people in the years to follow.
Real Estate Investment Trusts, commonly known as REITs, are a special type of company that generate profit from rent-producing offices, factories, hospitals, shopping centres and homes. They first emerged in the United States in the early 1960s and now operate in more than 30 countries worldwide.
Unlike the vulture funds, the REIT business model is not based on quickly selling on debts and assets that have been bought at a heavy discount. Instead, they typically retain ownership of their property assets for many years, potentially decades.
Within months of the Noonan legislation coming into effect a number of housing-focused REITs had been established with the backing of international capital. They immediately set about buying homes and housing development land from the private banks, NAMA and the vulture funds. Today the REITs own thousands of Irish homes, with plans to buy and build many thousands more.
IRES REIT is now the largest private landlord in Ireland with almost 4,000 homes. The average monthly rent for each home is around €1,600
In parallel to introducing the REIT legislation in 2012, Fine Gael was also actively encouraging non-REIT institutional landlords into Ireland. From 2013 onward an ever-greater pool of pension funds, insurance corporations, providers of student accommodation and other cash-rich private entities began to buy up Irish housing from NAMA, the vulture funds and the private banks.
When the supply of discounted Celtic-Tiger era housing developments began to dry up, the institutional landlords shifted their attention to building new housing. Once again, Fine Gael, with the support of Fianna Fáil from 2016 onward, was only too happy to facilitate and encourage the corporate takeover of housing.
Under the direction of successive housing ministers they set about hollowing out the planning process to allow developers generally, and institutional landlords in particular, to generate ever greater profits. Key changes included:
The introduction of a new ‘fast-track’ planning process for larger housing developments, which effectively removed the democratic input of citizens, communities and local authorities.
An increase in the maximum height for apartment blocks
An increase in the number of apartments permitted per floor
A reduction in the minimum size of apartments
Removal of the need for dual-facing windows for all apartments
The creation of a new category of ‘Build To Rent’ housing which is permitted to build even smaller apartments than the already reduced minimum size, and exempt from the requirement to build a mix of one, two and three apartments within a single development.
The creation of a new sub-category of ‘BTR’ housing called ‘Shared Accommodation’ or co-housing which would see large numbers of people using shared kitchens, dining rooms etc.
A relaxation of the Part V requirement to supply social housing in private developments, including complete exemptions for student and Shared Accommodation developments,
In October 2016 explicit direction was issued by then Housing Minister, Simon Coveney, to the CEO’s of all local authorities, the CEO of the Housing Agency and to An Bord Pleanála,
“…the Minister specifically requests that planning authorities and An Bord Pleanála prioritise all necessary actions to deliver build-to-rent housing.”
Leo Varadkar’s approach to the banking and housing crisis was broadly the same as that of Enda Kenny, who himself had followed a road map developed by the last Fianna Fáil Taoiseach, Brian Cowen
When Fine Gael and Fianna Fáil agreed their ‘confidence and supply’ arrangement in 2016, the key elements of their strategy to return the banks to ‘normality’ were firmly in place.
Anglo-Irish Bank and Irish Nationwide had been liquidated and buried in KPMG
NAMA was on track to dispose of all the problem developer loans from the Celtic Tiger era
The supply of social and private housing had been successfully choked to help push house prices and private rents upward toward Celtic Tiger levels
Rising house prices were improving the loan books of the private banks, which were also back generating profits
Institutional vulture landlords had established a foothold in Ireland
Plans for selling off tranches of government shares in Bank of Ireland, Allied Irish Bank and Permanent TSB were advancing
There remained, however, one major problem in the banking sector - the large number of non-performing or under-performing mortgages that had been taken out by owner-occupiers and small-scale ‘Buy-To-Rent’ landlords. These home mortgages, which were never part of NAMA were adding billions of euros of problem debt to the loan books of the banks.
A mechanism had to to be found to dispose of these bad loans before the government could successfully sell all of their share in the banks. The normal mechanism of repossessing the homes by evicting families was a political minefield while the government controlled 75% of Permanent TSB, 71% of AIB and 14% of Bank of Ireland. Another mechanism had to be found.
And thus the vulture funds were once again offered bundles of debts at knockdown prices, only this time the debts were home mortgages, not developer or other business loans. Just as with NAMA, these bundles of home mortgages were given code-names such as ‘Project Glenbeigh’, ‘Project Glas’ and ‘Project Birches’.
In 2018, ten years after the state guaranteed all the deposits and debts of the private banks, the mass sale of home mortgages began.
In less than two years Permanent TSB, Ulster Bank, KBC, Allied Irish Bank and Bank of Ireland collectively sold tens of thousands of home mortgages to vulture funds like CarVal, Lone Star, Pepper, Cerberus Apollo and Goldman Sachs. Many of the very same vulture funds had previously bought tranches of developer loans from NAMA.
The value of these mortgages was measured in the billions of euro, as were the discounts granted to the buyers. Of course, the people who took out these mortgages in good faith during the Celtic Tiger were never offered similar levels of discount or debt-write down.
By the start of 2020, all of the main private banks were on track to reduce the proportion of non-performing debt within their overall loan books to less the 5% - the target level set by Irish and EU regulators.
The New York based Cerberus, is one of a number of vulture funds that have repeatedly bought heavily discounted debts from both NAMA and the private banks over the last ten years
From the perspective of the political establishment, the vulture funds have fulfilled a critical role of disposing of the carcass of Celtic Tiger debt. For a decade NAMA and the private banks have fed them discounted developer debt, discounted commercial debt, and finally discounted home mortgage debt.
There is, of course, no such thing as a free lunch. The vast discounts that were granted to the vulture funds will ultimately be paid by the Irish tax-payer, Irish bank customer, Irish tenants and Irish home-buyers.
In the decade prior to the property and banking crash the public debt of the Twenty Six Counties averaged €43,000,000,000 (€43bn) per year. By the end of 2019 it had ballooned to more than €200,000,000,000 (€200bn). A very significant portion of this debt can be directly linked to the bank-bailout and the creation of NAMA.
The cost of servicing this debt is astronomical. In the ten years to 2019, the state paid out an eye-watering €60,000,000,000 (€60bn) in interest payments on the public debt - SIXTY BILLION EURO of public money that wasn’t spent on housing, healthcare, education or other essential public services.
The vast public debt will be one of the lasting legacies of the political establishment’s decision to sell discounted debts and assets to the vulture funds. Another lasting legacy is the arrival of institutional vulture landlords in Ireland.
Fernbank in Churchtown in South Dublin was bought by a Canadian corporation from a NAMA builder. Rent for two-bedroom apartments was set at an extortionate €2.350 per month when they came to market in early 2019
In the space of just seven years institutional landlords have amassed vast portfolios of Irish homes. In areas of high housing demand, the impact of their arrival has been particularly strong. In the Rathdown area of South Dublin, for example, institutional landlords will soon own 10% of the entire housing stock. That area now has the highest private rent in Ireland - a direct result of the aggressive rental pricing strategy of the vulture landlords.
The support that the political establishment is giving these institutional landlords isn’t just a response to a short-term shortage of housing. It has much deeper ideological roots.
The Irish political establishment believes that housing should be dominated by the private sector - that each stage of the housing process, from land speculation to financing and development, right through to rental and sale should be controlled be the private sector and market forces.
When faced with a banking and housing crisis that had been caused by the greed of Irish land-speculators, developers, bankers and landlords, the establishment turned to international land-speculators, developers, bankers and landlords for a solution.
Their narrow, ideological blindness prevents them from even conceiving of an alternative, non-profit model of universal public housing - the only system that can deliver not only housing justice, but long-term economic stability.