Photo by Caroline McNally

A lot has been written about how finance and financialization shaped the politics of housing during Ireland’s boom and bust.

During the boom, social movements and civil society ignored the relationship between finance, housing and the wider political economic system.

This left us woefully under-prepared for what took shape after 2008, and raises an important question: how is the relationship between finance and property shaping the politics of housing in Dublin today?

In short, there are two main trends, headed in opposite directions.

On the one hand, if we look at the development-land market and the commercial real-estate sector – meaning offices and retail – we can see that there has been a new wave of financialization: the arrival of the vulture funds.

On the other hand, housing is not being defined by a new round of financialization, so much as by the absence of credit.

Both trends are shaping the politics of housing in the city.

The Vulture Funds and the Globalisation of Commercial Real Estate

In 2013 and 2014, NAMA and the IBRC started to sell large amounts of financial real estate assets to “international investors”.

The two “bad banks” had become the major players in the market – especially NAMA, which acquired the bulk of the commercial real-estate loans held by the main Irish banks, ultimately taking over assets worth €74 billion (equal to a whopping 47 percent of GDP).

By “financial real estate assets”, I mean loans backed by commercial and investment property: for the most part office blocks, retail space (including shopping centres) and development land.

Together, the IBRC and NAMA were the largest vendors of toxic real-estate assets in Europe in 2014. Out of €96.7 billion of distressed real-estate asset sales in Europe in 2013 and 2014, an incredible €36 billion related to assets sold by the two agencies. In order to appreciate the intensity of this speculative feeding frenzy, it is worth bearing in mind Ireland’s tiny size compared to other European countries.

Almost all of this debt is being bought by private-equity firms and hedge funds.

Texas-based Lone Star Funds bought 60 percent of all assets brought to market by IBRC. More than 90 percent of assets sold by NAMA went to US firms, and NAMA CEO Brendan McDonagh confirmed that the “vast majority” of these were private-equity firms.

As many have commented, the loans are being sold at discount prices. This is one reason why private-equity firms and hedge funds (aka vulture funds) have invested heavily in Ireland.

The other important thing to keep in mind, however, is that the funds are taking advantage of the fact that there is very little credit available in Ireland: the domestic financial system is still in paralysis, and this creates an advantage to outside players backed by US money.

The real focus of investment has been office property, which has bounced back strongly since the crisis. Office rents are back to 2007 levels in central Dublin.

In 2015 the retail sector also grew sharply, with several high-profile shopping centres sold by NAMA.

Development land has also been hot property, especially in the docklands and in some suburban areas of Dublin such as Cherrywood where the US company Hines bought a massive site in conjunction with private-equity firm King Street Capital.

All this means that international funds now control vast swathes of urban space. They seek high returns, extracting wealth from Dublin.

This makes the urban system even less democratic, subjects it to even more intense forces in the global financial system, such as US interest rates, and continues to put commercial considerations ahead of anything else.

Importantly, the government has aided this process from start to finish. Not only is “attracting international capital” an explicit objective of NAMA (and hence of the Department of Finance), government officials met with vulture funds no fewer than 65 times in 2013 and 2014, including meetings directly with the Taoiseach.

The risks posed by this wholesale transformation of the Irish property market have not been properly analysed by the government or financial regulators.

And the politics of it have not really started to play out – yet.

Housing and Finance Today

Housing has been impacted by the arrival of the vultures and the new wave of financialization.

Somewhere in the region of 15,000 mortgages in arrears have been snapped up by funds, mainly from IBRC and foreign lenders such as Lloyd’s Bank. However, this has yet to have a decisive impact on housing.

The vulture funds that bought mortgages, thus far, have not been repossessing homes to an unusually high degree. In fact, the main culprits here continue to be the Irish banks.

In the rental sector, financial firms have become big-time landlords for the first time in the history of the state.

IRES, a real-estate investment trust registered on the Irish stock exchange, is now the largest landlord in Ireland. It was only set up in 2014, but thanks to a shopping spree in NAMA’s bargain basement, it has acquired over 1,200 flats in just over a year.

For the moment, it is unclear to what extent these financial landlords will become major players in the Irish rental system.

The arrival of the vultures is important, but what has been driving the housing crisis is not this new avenue of financialization, so much as the absence of credit within the domestic financial system – in other words, from Irish banks.

After the crash, mortgage credit dropped by around 90 percent for a number of years. By 2012, house building had declined by 90.9 percent.

Mortgage credit was the lifeblood of our housing system. Once this collapsed, we were left with a completely dysfunctional housing system in which there was essentially no mechanisms for funding new housing provision.

In retrospect, all the talk of the massive oversupply of housing obscured the fact that most of that housing was not in the places people actually needed to live, especially Dublin and the greater Dublin area.

The private rented sector has also been effected by the absence of credit.

Buy-to-let mortgages were central to the expansion of the private rented sector, and the financialization of housing in Ireland from the early 2000s. Today one-fifth of buy-to-let mortgages are in serious arrears.

But the real shock to the private-rented sector has been the fact that yesterdays would-be first-time buyers have not been able to move on from renting. Many two-income households are today renting, and this has added enormous upward pressure to rent prices.

This, you might think, is precisely where social housing should kick in. Social housing, like most public services, is supposed to leap to the rescue in cases of market failure.

If there was ever a case of market failure, this is it.

But in Ireland, state and public spending were directly embedded in the property and financial markets; when those markets went down they took the state down with them. It is thus no surprise that funding for social housing has fallen by 80 percent during the very period in which housing need has doubled.

If all the households on the social housing waiting list are not going into social housing, where are they going? The vast majority (over 70 percent) are in the private rented sector.

The private rented sector is thus soaking up the pressure from the two other tenures, both of which are in free fall: home ownership and social housing. And tenants are paying dearly for it.

Thus, while the politics of housing during the boom was all about excessive levels of credit, today it is the absence of finance for home ownership, buy-to-lets and social housing that is primarily shaping the housing system.

It affects many different groups.

Many people who might once have planned to own their own home have watched that possibility fade from view.

Existing home owners who need to trade down or change their housing for other reasons, such as divorce, find themselves trapped by negative equity. Others struggle under crippling debts.

Meanwhile, more or less everyone else is left to fend for themselves in the private rented sector.

What Happens Next?

Where all this is headed is hard to say.

If the “recovery” continues, we may see a return to higher levels of mortgage lending and development finance, and thus see home ownership make something of a comeback. We may also see a small increase in social housing provision.

But it seems unlikely that any of this will take the pressure off either the private rented sector or homelessness within the next five years or so. For those “lucky” enough to find a place, rents will continue to increase, and as a result, homelessness will continue to grow.

We have witnessed a boom, a bust and now a “recovery” in which housing is increasingly unaffordable and homelessness is skyrocketing. It has become painfully clear that our politicians are not going to address the causes driving the housing crisis.

This is why social movements and civil society are more important than ever. Our focus must be on ending the current system whereby the fate of the housing system is in the hands of a volatile, out-of-control financial system.

Dr Michael Byrne and Professor

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