May 25th, 2010 by Conor McCabe
In the June budget the Minister for Finance, Mr. Richie Ryan, announced that the two major Associated Banks [Bank of Ireland and Allied Irish Bank] had agreed to make £40 million available to house purchasers over the next two years. The two major banks were each to make £10 million available for house purchase loans in both 1975 and 1976. It was hoped that this additional financial stimulus would help to revivify the ailing building and construction sector.
That sector would receive a further boost when the two Northern Ireland banks [Northern Bank and Ulster Bank] also begin to extend finance for house purchase. These two banks could together increase the “home loan fund” by about £3 million annually. (Irish Times, 20 August 1975)
I’m old enough to remember when scratched records were more than just metaphors, but I cannot help but think of them as such when reading about the Irish construction and mortgage debacle of the 1970s.
The associated banks came late to the residential mortgage market - in terms of household lending, up until 1975 they concerned themselves mainly with ‘bridging loans’ or short-term money to house purchasers. The entry of these banks into what was till then the preserve of building societies, local authorities, and assurance companies had an immediate effect - prices shot up. Not only could more people apply for mortgages, with greater amounts of credit available the amount that speculative builders and estate agents could charge people for houses rose as well.
This was not how the entry of the associated banks was sold to the public. In the 12 months before the 1975 budget the estate agents, builders, and newspapers all claimed that the slump in the private housing market was caused not by a lack of affordability, but by a lack of available credit: people could afford mortgage repayments, no problem, they just couldn’t get a mortgage from the building societies. This was because of the societies themselves who insisted that applicants had to have a certain income, and had to have saved at least £1,000 in the previous six months with the society in question, in order to receive a maximum loan of 75 per cent of the house price.
The other main source of mortgages, local authorities, capped their loans at £4,500, which meant that prospective buyers had to have built up £2,500 in savings in order to make the £7,000 price tag for the average home.
The ‘dream’ of owning one’s home, however, was outside the realm of the majority of families. In the towns and cities, most people rented - either from private landlords or from local authorities. The task for speculative builders and estate agents was to convince the general worker that owning a home was a logical and natural process. The fact that this natural process needed unnatural amounts of credit to sustain it was never mentioned.
One of the arguments put forward was that Irish people owned the land they worked, and so it was natural to own one’s home. To rent was un-Irish, and went against the whole spirit of the nation’s history. Yet, there is a fundamental difference between owning a farm (however small) and owning a house. One is a livelihood, the other is shelter. The industrialization of the Irish economy that was taking place at this time separated people from the ownership of their livelihood: people worked for a wage and from that wage provided for themselves and their families. The land analogy so beloved of builders and estate agents was more between the farm and the factory, rather than the farm and the house. To work in a factory, rather than to own a factory, that is what is un-Irish according to the speculative house-builder’s logic.
And yet, rather like the smooth-talking Lyle Lanley and his monorail plans for Springfield, the Irish people eventually went along with it, to such an extent that even the most educated people, the soppy-stern in old-style hats and coats, will proclaim that home ownership in Ireland dates to the Famine.
I wrote something on the myths of Irish home ownership before, this little post just came out of reading I’m doing this week.
Final quote from the Irish Times, 1975, which illustrates that when it comes to pimping the property market the Irish Times has form.
Mr. McInerney [deputy chairman of McInerney Properties Ltd.] said that besides being a great social need, housing in Ireland was a leading industry and was like the motor industry in America. When building boomed, the nation boomed. He would, he said, appeal to the government to give earnest consideration to a suggestion that first-time buyers should be helped by measures similiar to those announced in Britain, which included a reduction in the rate of mortgage repayments for the first five years.”
As we know now, and as some knew then, if your economy is based on building houses, you don’t have an economy.
Anyway, more from the seventies during the week.