I would like to start by thanking Dr. Kenna and his colleagues for inviting me to address such an auspicious gathering of academics, policy-makers and practitioners on such an important topic. Never was it so timely to examine the housing market and its travails, not only in the Irish context but in the European context. Ireland's current difficulties are prevalent in other European administrations to a greater or lesser degree and are well documented. In order to address the future we must look to the past.
I have heard some commentators trace the origin of the credit splurge to the loosening of regulation in major banking centres in the 80's and thereafter. Of course the capital markets are global, and in order to compete successfully one sector will seek to enjoy the same laxity of control as their competitors in other jurisdictions. Pressure is brought to bear on administrations to mirror rival administrations and soon the race to the bottom is in full swing. A glut of capital in these markets in recent decades, historically low interest rates and a pernicious culture of performance-based bonuses for lenders, made for a heady cocktail. The challenges to explore even more audacious lending models led to the now infamous bundling of sub-prime lending with less risky ventures in order to sweeten the pill.
The property sector in any country is no different to any other commodity provider, and given the chance to make greater profits from a demand driven market, will respond with enthusiasm. The tenets of sound commercial practice soon evaporate and the acceleration of supply inevitably leads to an oversupply. When the market receives a sudden sharp shock, as happened in 2008, the resulting turmoil was inevitable.
In Ireland, we have traditionally had one of the highest rates of home ownership in Western Europe. This love affair with bricks and mortar was nurtured by successive administrations extending all kinds of incentives to individuals to own their own homes. The desire to own one's own house was a social imperative and drove many people to borrow beyond what was sustainable, given their individual circumstances. There is anecdotal evidence that this paradigm may now be changing. The newest generation of home owners have seen their dreams shattered and their lives blighted by acquiring a mountain of debt for properties which in many instances have halved in value.
The application of regulations, even light regulation, should act as a buffer against catastrophic system failures, and yet as we now know, those who we entrusted to guard the gates fell asleep in the sentry box. Prudent conditions which applied to the granting of mortgage finance were either side-stepped or in some cases ignored. Stress testing was based upon unrealistic expectations and a belief that the housing market, like the universe, was a constantly expanding entity. Even amateur cosmologists know that our universe will slow and contract in time. Canny commentators who predicted a similar contraction in our housing sector were at best ignored, and often derided, to our collective detriment.
When this administration came to office, it was like walking into a casino in the harsh light of morning. The bankers were hungover, the developers in a daze at the extent of their losing streak, and the regulators in shock that the house had lost too. The champagne was decidedly flat and the balloons had burst. There is only one thing to do with a mess and that is clean it up. We have had to apply all of our energy and endeavour to commence the mammoth task of putting our house in order.
We have worked with determination to recapitalise our financial institutions and restore a fully functioning and adequately regulated banking sector. We have surveyed the construction sector to establish the level of overhang in the market, and devise suitable absorption policies. We are addressing the problems associated with unfinished housing developments, especially the health and safety aspects, and working with all of the stakeholders to achieve satisfactory outcomes. We have adapted our social housing models in order to re-align them in favour of tenant based solutions, and towards delivery options more relevant to the 21st Century than the nineteenth. And we have commenced the policy of diverting some of the housing overhang to social use by collaborating with the National Assets Management Agency and the Voluntary and Co-operative sector. Most importantly, we are addressing the problems of home owners who are in difficulties to resolve their problems, even where the loan is deemed unsustainable.
These developments have occurred in the short period of time we have been in office. We have many challenges ahead. In order to achieve a re-alignment of the housing market away from unsustainable acquisition, for example, we must induce a vibrant and properly regulated private rental sector. This new market must reflect the needs and rights of both tenant and landlord by defining standards of accommodation, their respective responsibilities to maintain properties, and ensuring security of extended tenure for tenants.
In other areas we must re-examine planning regulation and standards to address the mistakes of the past, a process which I have already initiated by means of a legislative review group. We have to ask ourselves fundamental questions, such as the appropriate levels of regulation which allow a market to function while guarding against collapse? Or are variable interest rate mortgages appropriate to home loans?
In short, we have to conduct a root and branch examination of the housing sector and establish a profile of the way our society should look in the future, and the components of that profile.
Throughout Western Europe, and beyond, the scenarios which I have outlined to you are replicated to varying degrees. The responses to the issues raised by our recent profligacy are in the hands of people such as yourselves. For these reasons I look forward to the opinions and proposals which will emanate from this conference. I am confident that your deliberations will inform the future direction of thinking in this area, and wish you all a successful and productive stay here in the city of the tribes.
Thank you.