Sometimes it can be hard to get away from home. Headline in the opinion section of the July 3 Irish Times we picked up in the Dublin airport: “Brought to our knees by bankers and developers.” It was a scathing piece by one Morgan Kelly, identified as professor of economics at University College, Dublin, documenting in exhaustive detail the relationship between Ireland’s building boom and its current disastrous economic bust.
I told you so, he says: “Writing here two years ago I pointed out that the exuberant lending of Irish banks to builders and property developers would sink them if the property bubble burst. Since then, the bubble has burst, the banks have sunk, and we are all left wondering how to salvage them.”
The evidence is everywhere as we’ve driven across Ireland to the west coast. Brand-new spec houses stand empty outside every small town. Professor Kelly derided “the delusion that the collapse of our property bubble is a temporary downturn,” and the belief that “in a few years when the global economy recovers we will be back building houses like it was 2006. All the ghost estates, empty office blocks, guest-less hotels and weed-choked fields that Nama [National Asset Management Agency] has bought on our behalf will once again be worth a fortune.”
He denounced the “recklessness that impelled banks to lend hundreds of millions to builders to whom most of us would hesitate to lend a bucket.” In Ireland, Nama bought up these bad loans in order to keep such banks afloat. A similar plan has been proposed to save U.S. banks but was never implemented.
Our Hertz van broke down midway across the country, so the six of us (grandparents, parents, grandkids) were forced to take refuge in one of the “guest-less hotels” for a night while we waited for a replacement. We got a good deal on the rooms, about a third of the published rates in what was advertised as a luxury hotel. We had the place pretty much to ourselves, except for a TV crew that was using it as a filming location. The on-site “fine dining” restaurant seemed to be closed, perhaps permanently, a casualty of the burst bubble like many of Ireland’s former foodie shrines.
Kelly’s analysis seemed also to apply also to what’s been going on in our city, and in San Francisco, Oakland and the rest of the United States. He concluded that:
“While there has been considerable speculation about dark motives for bailing out developers and banks, I do not believe the government’s behavior has been corrupt: it has been far worse. At least corruption implies a sense that you are doing wrong, and need to be paid in return. Our government actually thought it was doing the right thing in risking everything to safeguard the interests of the developers who had given us an economy that was the envy of Europe.
“Instead of recognizing bankers and developers as parasites on our national prosperity, the government came to see them as its source.”
It all sounds depressingly familiar. When we left Berkeley the City Council was moving quickly to revise the downtown plan in order to make it even more developer-friendly. Similar developer-motivated zoning changes were being touted by city staff for West Berkeley. A for-profit developer who seemed to have come on hard times with his lenders was proposing to change his project to senior housing in order to replenish his capital from the city’s housing trust fund.
But just as in Ireland, there’s no reason to believe that our own government’s behavior—local, state and national—is corrupt: it’s just irrational and poorly informed. We don’t have a net shortage of buildings, we have existing buildings poorly allocated because of a malfunctioning market. Downtown Berkeley buildings are empty because rents are too high. Residents are being evicted from nice houses with pleasant yards in East Oakland and Richmond because they’ve been sold toxic mortgages at usurious interest rates. Yet Berkeley councilmembers continue to be enablers for the over-building addiction.
Kelly again, predicting the future:
“The reality is that, because of our surfeit of empty housing, there will be almost no construction activity for the next decade. Empty apartment blocks in Dublin will eventually be rented, albeit at rates so low that many will decay into slums. However, most of the unfinished housing estates [subdivisions] that litter rural Ireland—where the only economic activity was building houses—will never be occupied.”
Substitute Berkeley (or Oakland or San Francisco) for Dublin, and Stockton for rural Ireland, and you get the picture. At least our guest-less hotels are on hold for the moment. Berkeley is trailing Ireland in the boom-bust sweepstakes, and it’s possible that informed citizens who recognize that developers are parasites on our local prosperity will be able to pull back on the reins before government goes any farther in foolishly pandering to development interests.