The Nationalisation of the New Home Market

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1:00To understand the economy, you have to understand human nature. This podcast is powered by Acast. How you doing there? It is podcast time. John has got his bucket hat on, he's got his wellies on, he's prepared for Electric Picnic on Friday. Yeah, mad for it. He's going to be. He's manful tonight, you. Thanks. Anyway, we are going to be doing, as we told you last week, Electric Picnic on Friday. But last week, you'll remember, we were talking about Dutch disease. And what we were saying was, when a country gets a sort of a one-off windfall or a new source of revenue, or let's say, for example, finds a commodity, loads of money gushes into the economy.

1:48and although you would think this is always good, sometimes it can lead to very complex, complicated and not necessarily the most optimum outcomes. Why? Because there's money gushing into the economy which drives up prices. Last week, I kind of made a throwaway comment that John picked up on, which was the state, as a result of having all this money, has become the largest purchaser of homes in the country. And John said to me during the week, you have to drill a little bit deeper into that throwaway comment. So today's podcast is going to explain how the state in Ireland has become the number one buyer of property and how the state, because as we've seen in various different things like the Children's Hospital or the Metro North, where the state suffers from what I call fiscal incontinence, that it can't actually control itself when it comes to spending money.

2:48The state in Ireland is the single biggest reason that Irish house prices are rising. So this is the point of today's podcast, which is why are Irish house prices rising? Why have Irish house prices risen by 7.8 % in the year to June, where wages are only rising about half that? we are saying here on the podcast that the main culprit is the state which claims to be driven by an agenda to bring house prices down. But in fact, in practicality, John, it is pushing prices up. How are you, Ed? I'm good. I'm good. Yeah, you're right. When we were talking last week, I was so engrossed in the conversation last week that you made that throwaway comment and I made a mental note.

3:36We must circle back to that. And I must ask him to explain that. And of course, we are done and finished and I'd forgotten. My mental notes aren't just what they used to be. Mine too, man. Mine too. I've got this kind of spaghetti junction head where things go in and out, in one ear and out the other way. Go on anyway. No, but I am curious about this because I was surprised when you said that the state is the biggest buyer of new houses, which is then leading to further price increases for first-time buyers, etc., rather than reducing the price by addressing the supply issue. So I need you to explain this fully.

4:10Let's get into this. Well, John, A, this was prompted by a conversation with yourself. But second, it was prompted by a conversation. Rarely, I think, in public life have I ever felt sorry for estate agents. They're not necessarily my favorite people. Yeah. You know many of them, though. I know loads of them. But I, and actually I play football, one of them, and it was a result of a conversation with one estate agent. who was basically saying, you know, there's loads and loads of developments going up all over the place, but we're not seeing any of the action. So the estate agent, usually in the old days, what happened was a developer came in, built a block of apartments, contacted an estate agent.

4:52The estate agents sold those apartments on behalf of the developer, did the marketing, had the lovely, like, nice brochures. Glossy, glossy, 8x4s and all the rest. Great hair and lovely teeth and brilliant orthodontics bills and all that sort of thing. You know, people playing paddle, okay? Right? That's my new thing, though, steady on. Yes, I know. You too can be a paddle player if you buy this apartment, right? That sort of shite, okay? And the estate agent was there, they're hyping it up. We know the creature, right? We know the creature. And they're all over the country, right? And every main street in Ireland has an estate agent or two.

5:26Yeah. But recently, these creatures, this caste is becoming an endangered species. They're living off scraps, right? And if you talk to any estate agent, what they'll tell you is that although there's loads and loads of housing developments springing up across the country now, very few of these homes are being sold to punters via the estate agent channels. So the question of if the estate agents aren't selling to buyers, but the buildings are being built, who is buying and why does that matter? Yeah. And the reason it matters is because house prices continue to soar. So the latest house price shows the house prices are up 7.8%, as I said, at the top of the show.

6:08Now, people have become kind of inured to these figures. They're like, oh, yeah, whatever, right? Yeah, yeah, yeah. It's like when you start talking in billions, you soon lose kind of context of the whole thing. Yeah, exactly. What's the difference between 10 billion and 20 billion? Exactly. Is this serious money or not? Exactly, exactly. But the point is, if house prices are rising faster than the average wage, it means the average potential house buyer who is depending on the wage for the income to buy the house is falling further and further behind. And the question is, who is doing all the buying?

6:43And the reason this is important is that when you look at house building, everything is entirely political. As you said, the state is trying to encourage house supply, builders to build homes. But what I'm suggesting in this podcast is not only does the state now own the demand for the houses, but it also owns the supply. So we've got into a really strange situation where the Irish government is basically turning the housing market into a massive, massive council house scheme. probably the most expensive council houses on earth. Right, but is this a new development, excuse the pun, but is this a new development?

7:27Yes, it is. It is. Okay. It is. It's very, very new. It's very, very new. So what I decided to do was, rather than look at the CSO figures in the aggregate, and the reason I didn't want to do that is because every time there's published numbers on housing, it becomes a political football. Somebody says, oh, look, we're building X amount of houses. That's great for us. Or, you know, Sinn Féin says, oh you're off and you're not building enough houses. Fianna Gales. So I decided one way of looking and trying to examine what's really going on in the housing market is to kind of poke around the accounts of the big home builders.

8:00Right? Yeah. Now there's lots of home builders, but there's a couple of them are PLCs. So they publish their accounts. And after a bit of digging, I decided to have a look at one of the largest home builders in the country is a company called Cairn Homes. Right? You'd see them all over the place. Right? They're a public company. So they publish their results. They tell you what they're doing. And if you look at the preliminary results, their announcement, right? You can just Google it online. What you find is something really, really unusual. So the company made last year 895 million euros in revenue.

8:34So nearly a billion euro revenue company. It's a big company. Nice. But huge company, right? And again, as I said, it's a really well-run company. But it's interesting. I looked at the accounts and what I found in the accounts was something on the P &L called a forward sales order book. Okay. A forward sales order book, this particular item in the balance sheet, doubled, almost doubled from 534 million euros in 2023 to 946 million in 2024. I thought, what is this? Of course, a forward sales order book is probably manna from heaven for any business. What is it? You need to explain what is that.

9:17Okay, so what it means, it's an accounting term to describe when a buyer, in this case the state, acquires land directly from the builder, buys the land, which has been serviced, and then contracts the same builder to build all the houses. Now why this is incredibly important for the builder is it de-risks the entire thing. Right. So basically, number one, the builder in the old days would have taken all the risk, right? They buy the land. They then have to get the land service. They've got to go through planning permission, all that sort of stuff. They then have to build the 200 flats. Let's say they're building on the estate.

10:01And then they have to market those flats to the estate agents, to the punters, to get 200 first-time buyers to buy those particular flats. And the glossier the better in the market. The glossier the better. But this all costs money. Yes, of course. Glass costs money. Glass costs money, as we know. But imagine now the state is coming in. So the forward order book shows the state purchasing of homes. Now, what happens now is the state comes in. It buys the land first. So the builder's quids in. So whatever, let's say the builder bought the land when it was unzoned, unregulated, unzoned. The builder gets all the uplift, right?

10:41The state buys it. The state then says, okay, don't worry. It's actually the state that decides how the land is going to be used. Exactly. So it's the state that creates the value. So think about what's happening, right? So there's a field which is worth agricultural prices. Builder buys it, waits for the state to rezone it. The land is rezoned. The builder then says, wow, the land's gone from 10 million to 100 million. Then he sells the thing to the very agency that made it valuable, called the state, right? This is in the forward orders. Then the second part of this is the builder typically has what we call home builder risk.

11:17Home builder risk is you can't sell all the flats. It takes you time to sell all the flats. You can't get the right price for the flats. You have to change your price, all that sort of stuff, right? But surely the flats sell themselves. In this case, there's no risk because the state undertakes to buy it all. So the forward order, so basically the state has said, we will buy all these flats from you in, let's say, 2028. you can bank that money now because we're not going to default on you. Yeah, yeah. It's completely de-risks. The cost of capital to the builder goes through the floor. The profit for the builder goes through the roof.

11:52And then what happens to the price of the apartments? If the state doesn't negotiate a massive, massive discount, and normally bulk buyers negotiate a massive discount, house prices rise because the state is pushing up the price. And if you look at, for example, in Cairn Homes, and again, this is not picking on this company, it's just looking at this company as a representative, what's going on. Yeah, yeah, yeah. Cairn made an announcement that the government have forward-funded and purchased 2 ,150 units as of February 2025 at an average selling price of 382 ,000 euros. So that is the state saying this is the minimum price for houses.

12:39For a first-time buyer. For first-time buyers. Now, if the central bank stick to its three times ruling, it means that the average wage in this country is 40 grand. Yeah. 44, 45 grand, right? Nobody on the average wage can come close to buying this house. Nobody. and even a couple on the average wage with a combined wage of, let's say, 100 grand, three times earnings means they have to have saved at least another 100 grand or at least 85 grand to get even close to this. Yeah. So what you can see is the first-time buyer and the first-time buying couple are being elbowed out, not by other people, but by the very government they're paying tax to.

13:24So they're in competition with the state. Oh, my God. Yeah. So what I'm saying is, right, once you start digging into the accounts of home builders what you really see is what's really going on because they're at the coal fees they're the people who are actually doing the building the home builders are now in the pocket of the state the state is now in the pocket of the home builders and both of them together have no incentive on bringing them the price. Why? Because the home builders want to get the best price they can. And the state, because of all the American money flowing into the spigot we talked about last week, doesn't give a shite.

14:07All they want to do is get the numbers for the PR statement up. We built 40 ,000 houses. We built 50. Hang on, that's quite a statement. that you're saying that this is a PR-driven exercise? Completely. It's all PR, right? Because the government, the coalition government right now is absolutely terrified of being outflanked on the housing issue by Sinn Féin. Everything is political, right? And Sinn Féin and the general left parties, right? And the general left parties, you know, the people before profit and the Social Democrats and the Labour Party and the Shinners, know that the key issue is housing.

14:48And so too do Fianna Fáil and Fianna Gael. So how do Fianna Fáil and Fianna Gael make sure they're on top of it? They keep coming out and saying, we're building 40 ,000 houses or 50 ,000 houses. How are they doing this? Is they are forward ordering from the builders. And of course, therefore, the builders are saying, well, look, we don't care who we sell to. Of course, yeah. And the entire market has become completely and utterly dysfunctional. Because not only is the state the buyer of last resort, it's the buyer of first resort. And all the while, if you look at these Cairn figures, right, what it's saying to me is that Cairn's forward book, which is the orders the state has already placed for the next couple of years, amounts to 946 million last year, right?

15:43their total revenue last year was 895 million that means their forward book is bigger than their total revenue and what that means wow is that it could be as much as 80 or 90 percent of everything they're built of everything this company is building is being bought by the irish government now that is the nationalization of the property market if ever you've seen it by the back door. Well, first of all, you have to applaud Cairn and all the other developers. I mean, that's a brilliant bit of business going there. It's brilliant for them. Yeah. But it's disastrous for the country. Yeah, but it's not their fault at the same time.

16:26David McWilliams: No, of course not, because somebody just knocked on their door and said, listen, I'll buy all your stuff. Yeah, we'll take that, please. Yeah, thanks. Yeah, yeah, yeah. It's like if you're selling cars and somebody says, we'll buy the entire fleet. Yeah. And not only will we buy the entire fleet, We'll buy the entire fleet, but you don't have to deliver the fleet to us for a couple of years, but we'll pay you now. And we'll stick the petrol in it too. So you can bank it, so you can go to your shareholders and say, we've got all this. So again, if you look at those house builders in Ireland, they're making profit margins of 21, 22 % per year.

16:56These are phenomenal profit margins. What is happening is the house builders in Ireland are making house builders profits, but they're acting as subcontractors. So a subcontractor usually gets, is a business of about 5 % margin every year, right? Yeah. Because you just build the things out. You don't take any risk. The reason that house builders have higher margins is they take risks. You know, the development mightn't work. They mightn't be able to sell things. Their cost of capital rises, all these sort of things. What we're seeing now is Irish house builders are in effect being turned into subbies, subcontractors, but they're still getting entrepreneurs, risk takers, profit margins because the state isn't actually negotiating down the prices.

17:40It's negotiating up the prices. So let's just go back to this for a second. So everybody's been screaming at the government that the biggest problem in this country is supply. So they said, okay, we're going to try and fix supply at any cost. And so in fairness, that's what they're doing. They put into the program of government and all the rest. but what you're saying is how they're actually going about it it comes back to this procurement problem as civil servants looking after procurement that it's not possibly not their expertise is that what you're saying? It's not their money, that's the key It's not their money, yeah They've no skin in the game They've no skin in the game So this comes back to our Dutch disease idea The money is gushing in from America 29 billion euros of corporate tax receipts last year without even factoring in the 13 billion of the Apple money, which is sitting in the jar over the telly and we're all pretending it doesn't exist, right?

18:41Okay. What they're doing now is in order to get the housing market or get on top of the housing market so that they will have a good PR statement so that they can actually go to the next election, say we are building houses. Yeah. They are abandoning all cost controls completely. And they are basically enlisting the home builders into building what I would call the most expensive council houses in the world. And from looking at these numbers, I would say that about 80 % of the total output of private sector home builders in Ireland has been sold maybe 85 % to the state. Now, what does that do?

19:25That elbows out all the first-time buyers. And what they do is they rent for a while and then they emigrate. Come back to our story of the guy in Australia. Yeah. Right? So what you can see when you start to join up the dots is the social implication of what is happening and the social implication of the great spigot gushing out American money is the massive dislocation and dysfunction in the housing market, which is leading to a situation where the housing list, i.e. people queuing for these state houses, becomes enormous and that squeezes out the first-time buyers. So the process of creating personal wealth through the housing market, which has been something that has been intergenerational in Ireland, stops completely because the state is the buyer and the state as the buyer will always have more money than anybody because the state gets money at 0%.

20:37The rest of us have to borrow at 5 % or 6%. So after the break, John, we're going to look at the housing market through three distinct time periods since the crash to explain what is going on and who has benefited and who has lost out since the great financial crash of 2008. We'll talk about that after the break.

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22:45so Mark we've been talking about the housing emergency issue for years now and you know it's mainly as a result of a supply issue but how did we get to this point you know you mentioned there about three phases so can you explain this a bit more yeah John what I want to do now is

23:04David McWilliams: we zoomed in on the micro which is a balance sheet of a specific company to tell the story of what's going on in the sector. But in order to tell the story of what's going on in the society, I think you have to look at there. There are three distinct phases in the recent history of the Irish housing market, the buyers, the sellers who got involved. What I mean, I'm talking about three distinct phases since the crash. So since 2008, right? First phase is probably from about 2008 to 2015, the central bank in Ireland, having completely missed the boom-bust cycle, they were asleep at the wheel when they should have been regulating, they then got all macho and decided, we weren't regulating before the crash, but now we're going to get really, really macho.

23:51David McWilliams: And they tightened up all sorts of lending regulations. So suddenly, they probably, I think, made a mistake, not for the first time. They identified that the cause of the crash in Ireland was too much lending to little people. Okay. I actually think the cause of the crash in Ireland was too much massive lending to a certain amount of big people, right? That was when the balance sheet bust, you know, when the developers went bust, because the developers were getting like 120 % loans on massive amounts, right? And when they went bust, they brought the whole thing down. Yeah. And then they were all looked after afterwards.

24:29David McWilliams: Because the Irish Central Bank sets up NAMA, but then decides to punish the little people. So what it did was it tightened up the rules. So just when Irish house prices collapsed, which was the opportunity for Irish people to buy houses cheaply, the central bank attacked the little people and said, no, we're going to tighten up regulations so the banks couldn't lend. So that opportunity of the average punter to buy houses cheaply that had fallen by 50, 60 % from 2008, 2009, 10, 11, those years, property was really cheap, Irish people couldn't avail of that, right? So that's the first phase. Then the second phase is probably the kind of what I call the so-called Vulture Fund phase, right?

25:14David McWilliams: That's from about 2015 to 2000 and let's say 2021, right? And that was when, because Irish people couldn't buy houses because the central bank had tightened up all sorts of lending criteria, who bought the houses that were being built? These large American, largely American investment funds. Some were vulture funds, some weren't. They were large funds. So what of course happened then is the equity upside as house prices started to rise didn't create wealth in Ireland, it created wealth in America. Yeah, it was all sent back, yes. It was all sent back and the potential first-time buyers in Ireland from 2015 to 2020 were told you can only rent.

26:03David McWilliams: You can't buy because these blocks are being buy to let. You know, we'll sell the big blocks. And of course, the developers, the Irish home builders, this was great for them. Yeah. Because they could sell the block in one. So again, a twist was missed. And the rent went directly to the American corporations. Irish first-time buyers were turned into what I would call reluctant renters. They were forced to rent when they would have much preferred to buy and get on the ladder and have equity and all that sort of stuff but they didn't have much choice though at the time you know i mean the irish government because they had all this property on their books that they had to offload as it were they had to they had to offload they had to liquidate but all the while again it's the idea is that everything has unintended consequences yeah yeah yeah so they had to they had to sort NAMA out.

26:51David McWilliams: They had to sell things cheaply. They had to sell things cheaply to the people who had money. The only people who had money then was the large American funds. They came in, they buy all this. But then having tidied up the NAMA side of the thing, they doubled down with the Yanks and they began to favor the Yanks tax-wise so that they could repatriate money. So Ireland became a bonanza for international property funds. And in so doing, it elbowed out the incipient or the embryonic first-time buyers in the country, right? And this is a story you hear all the time from people who've emigrated. They say, look, I emigrated because I couldn't get a gaff.

27:30David McWilliams: Yeah, of course. Rents were too high and I couldn't buy. And I didn't feel I have a permanent stake in the place. So I fucked off. Yeah. And then, of course, regulations were changed after two elections because people got really pissed off. And there was, remember, the big vulture fund sort of crisis that people were really angry. So regulations were changed, tax treatment was changed for rental income, and it became unattractive for the Yanks to continue playing this Irish property game. So they left the market just before the pandemic. So you would have thought, okay, now is the chance for the market to rebalance.

28:05David McWilliams: The legacy of the crash is over. The NAMA balance sheet has been cleaned up. There's a rising population. You get the pandemic. That skews the market yet more. But you would have imagined that this phase was when, you know, you go back to the traditional idea of younger people buying and etc, etc. Yes, yeah, yeah. But no, this is when the state came in. So the state has now come into the market where the Americans left the market, where the monetary policy, which is one part of the state organized by the central bank, is tightening things up still for first-time buyers. While at the same time, the state is buying all the property.

28:47David McWilliams: So in effect, the state is now the competition to the first-time buyers. So what's happening? First-time buyers are getting elbowed out again. Now, the reason this is important is because whether we like it or not, traditionally in Ireland, people bought their own gaffes at a certain stage. And that was the sort of conveyor belt, what I would call the social conveyor belt to wealth creation. this is the way it has been for many years and this is what people expect but now what we have a situation is that conveyor belt is being broken by the state itself yeah because the state is buying all the stuff from the home builders and the home builders are really happy but who are the shareholders of the home builders foreign institutions again right if you look at who owns these things so the money is going back to the foreigners i mean you couldn't make this up The money is running through Ireland like a dose of salts, right?

29:44David McWilliams: Now, where is the money coming from? It's from the American multinationals. It's back to our Dutch disease. Yeah, yeah, yeah, yeah. You see what's happening? It's like a spice bag. It's like you're going to have a hoop, like a porcelain ardent. But think about it, right? That's what's happening. Yeah. So when you put things together, what you see is we go back to our Dutch disease, John. Yeah. So the money's coming in, which is supposed to make life easier for the average worker. But it's making life harder. Why? Because the public administration in the middle, okay, doesn't have the wherewithal to understand what it's doing, why it's doing it, and what are the ramifications.

30:27All it's interested in is now, Fianna Fáil and Fianna Gael said,

30:31David McWilliams: we need to fix the housing problem. What is that? We need to build houses. How do we do that? We forward order for the builders. We give them a free lunch. So rather than allow the private market to lead, what we're doing is we're nationalizing the housing stock. But hang on a second. If the government ends up owning a huge swathe of property, well, then they do also have the opportunity to sell it, but to sell it at a discount. This might be a little bit naive, but if they do sell it at a discount, then, you know, then the policy looks kind of okay. John, that would be amazing if they did that.

31:11Yeah.

31:11David McWilliams: That would be amazing because that's what Singapore does. Singapore government sells homes to first-time buyers at a discount, enabling them to build equity, enabling them to have a stake in society without totally destroying the market. Yeah. But I am not sure in Ireland that we have the political guts to do this. Now, why is that? It's because lots and lots of people will say, well why not just give the houses for free people on the left why not just give them out for free in the old council house way with very very peppercorn rent etc. A certain amount has to be done that. There has to be state houses but my fear is that it's so biased now and jaundiced now towards state housing that what we're creating is the most expensive council houses in the world and because they're expensive there will be ideology driving how they are offloaded.

32:09My other fear is that if this keeps going on,

32:13David McWilliams: what happens in 20 or 30 years' time when all these renters are beginning to retire? Traditionally, you retire in Ireland, you own your own GAF, you probably sell it on, you trade down, and that's how you actually finance your retirement, which is a huge, huge burden away from the state in financing retirement. What happens, we know the Irish population is aging rapidly. What happens if it ages rapidly, but there are renters who age rapidly? Ultimately, then there's going to be a massive retirement problem, wealth problem down the road. And also, of course, what it always does is if you squeeze the first-time buyers, what you're doing is you're enriching the people who already have homes, which are older people, and you're punishing the people who don't have homes, which are the first-time buyers.

33:06David McWilliams: And what do they do? They emigrate. And why do they emigrate? Because they think, well, look, if there's a housing list, you know, immigrants are going to get onto that housing list, they're going to get their houses first. You know, people who are in social welfare, they're going to get their houses first. And ultimately what you find is that if you nationalize an asset, particularly something like housing, it leads, I think, long-term to all sorts of societal problems. Because the society, unlike, for example, Germany, where people rent all the time, isn't set up for that. It's not in the mentality.

33:36Yeah, yeah, yeah.

33:37David McWilliams: And the mentality, even after the crash, hasn't changed, you know? So what is fascinating for me is that we're back to Dutch disease. As we said last week, Dutch disease manifests itself in a variety of ways. This is a really specific example because the state has the money. rather than planning for the future, rather than planning a transport strategy, a housing strategy, a population strategy, an immigration strategy, a commercial investment strategy, what they're doing is they're trying to fix the very short-term issue. Build houses now, no matter how you do that. They're obviously being driven by political concerns.

34:25David McWilliams: They're shit scared of Sinn Féin. Yeah. owning this. And all we get in Ireland, again, is always short-termism, short-termism, short-termism. Nobody thinks about 20 years' time. Nobody thinks about the long term. And rather than solve the problem permanently, we put a few little sticking plasters over it and we hope that it goes away. But Macca, maybe they are actually trying to do something, you know, So he's setting up the new housing agency and putting a new guy in there. And he's only there like a wet week. So, you know, maybe we should give this a bit more time. No, we definitely should give it a bit more time.

35:04David McWilliams: But I'm just saying people want to know. The reason people listen to the podcast is they want to get a sense of what's happening right now and why it's happening. Yeah, yeah, yeah. Why are the estate agents twiddling their thumbs, number one? Yeah. Why are first-time buyers who've got good incomes being priced out? Why are clever Irish nurses, teachers, doctors emigrating in huge numbers? This is the why. And then why, if we have all this money coming from America, why does it not seem to be making people's lives better? Yeah, well, that's absolutely true. And so the job, our job is to basically, it's like you're like a detective.

35:40David McWilliams: You're a sleuth. You're actually tying all, you're reading balance sheets that other people don't read. You're tying that connection. is, and it's not that people can wave a magic wand and fix everything. But I think without measurement, without analysis, all you get is PR, puffery and guff. And that's what we're getting. And our job is to be a little bit pragmatic, John, a little bit dull, a little bit more precise and look at the numbers and then say, what are the numbers telling me? Jeez, I hope we're not dull. Not at all. Not at all. As I said before, statistics are the sign of a civilized society, John.

36:19David McWilliams: Talk to you next week.

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