Andy: Why It Matters Who We Owe Money To

“Deputy [Ruth] Coppinger criticised me for not intervening with what she described as vulture funds. The investment companies in question may be colloquially known as vulture funds but it was, in the first instance, a compliment when they were so dubbed in the United States where vultures provide a very good service in the ecology through cleaning up dead animals that are littered across the landscape, especially in the prairie provinces.”

—Minister for Finance Michael Noonan, 2016

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Retailers at two of Dublin’s largest shopping centres – Blanchardstown and Dundrum – are facing rent increases as vulture funds and others seek to generate quick profits from the malls they purchased off NAMA.

According to a representative of retailers, as reported in the Sunday Business Post, “They [the new owners] are digging their heels in and are enforcing upward-only rent review clauses with a view to flipping the property on and turning a quick profit.”

The upward-only rent reviews that the vultures are making use of were banned in 2010 – but only for new leases. The contracts attached to these shopping centres allow the practice to continue.

As documented in my last column, the profits thus earned can be spectacular and probably represent substantial losses for the taxpayer relative to what could have been earned for the state if NAMA had held onto the properties for even a little longer.

This point has since been backed up by economist Constantin Gurdgiev, who concludes that “these foregone returns are a loss to the taxpayer – and a gain to the, predominantly, vulture investors”.

What the shopping-centre story illustrates (and many others, including the Liffey Valley are also affected) is that this model has ripple effects beyond simple taxpayer losses, in this case impacting on rents and consumer prices.

The vultures are not only making life hard for Dublin retailers and consumers. According to a representative of the Irish Farmers’ Association, vulture funds are adopting a “short-term and ruthless approach to farmers whose loans they have acquired”, seeking to generate a short-term profit rather than facilitate longer-term restructuring that might allow the agricultural businesses survive and thrive.

According to Sinn Fein Finance spokesperson Pearse Doherty, who has introduced legislation to try and better regulate the sector, “the vultures are wreaking havoc on our economy and communities. The policy of empowering them must be stopped.”

None of this should come as a surprise. Almost a year ago, I asked, vis-à-vis the vultures, “Does it matter to the debtor to whom they owe the money?” and answered that “It does if the new creditor is more likely than the old one to aggressively pursue repayment and eviction.” A growing number of retailers and farmers, as well as homeowners and tenants, are experiencing that now.

In that column, I highlighted (building, as I often do, on research by Michael Byrne) the prominent role played by the Irish Residential Real Estate Investment Trust (Ires, part-owned by vulture fund Fir Tree).

Ires became the biggest single landlord in Ireland when it bought an enormous quantity of property (at a discount, of course) from NAMA, and it soon announced that it would seek to implement rent increases across the board of 20 percent.

Ires (or Ires Reit) now has over 2,300 apartments across Dublin, and, as promised, does indeed seem to have notched up substantial rent increases in the capital in 2016.

The company was in the news again last week when Dun Laoghaire-Rathdown County Council turned down its application to build 465 apartments in Sandyford on land it had acquired from NAMA.

Whatever the merits of that particular Sandyford scheme, the situation focuses our attention on one of the core choices facing Irish housing.

Do we rely on private firms to solve our problems, firms that have made fortunes from buying discounted public land or property and jacking up rents but that simply will not deliver the affordable housing we desperately need?

Firms that, according to a council report, delivered just 25 public housing units in 2016 in the Dublin City Council area.

Or do we explore an alternative model, such as a state-owned Housing Corporation of Ireland that could more prudently manage the public’s land and property, supply large quantities of affordable and environmentally sustainable housing, and ensure both reasonable rents and security of tenure?