It could be a few weeks before there is any government initiative to tackle the actions of so-called cuckoo funds and stop them from buying up entire housing estates. Little can be done overnight, but every minute counts.
Dedicated real estate funds will always achieve the highest return. Hence, it was assumed that when they founded in Ireland in 2013 they would build high quality luxury developments in the centers of Dublin and Cork. Nobody ever wondered if they would develop a taste for blood and want more; Also, no one has asked whether the apartment they live in Dublin should only be reserved for the upper classes.
On my Sunday radio show, I heard sobering intervention from a former political adviser who had spent two years in the Department of Housing under Alan Kelly. He said the process of drafting, passing and legal reviewing a new planning law could take three years. Even then, this would only apply to developments for which planning permission has not yet been obtained. Otherwise, a developer could have a lawsuit claiming their project is now unprofitable due to government action. Hence, only a sudden and urgent change in tax law could work.
But where does that end in the meantime? If these cuckoo funds clearly have more firepower than any private buyer, what can stop them from simply buying up every other mass development that occurs anywhere in the country? Why not, as a viral tweet suggested last week, just send an agent on every one-bed rental visit and buy it up on behalf of an overseas mutual fund? What’s stopping them from buying literally every residential property that is ever brought back to the market in Ireland?
Suddenly one begins to understand why millennials in Ireland see increasingly little future for them when the rental costs are so high that they can barely afford a pension, let alone bail for a permanent home. Sentenced to a lifetime rent, where do you go when your work days are up? It’s not like a profit-focused company leaves a retiree on site and pays a fraction of the rent when someone else can offer the full blow.
Ironically, it’s those who have a pension who do the best: REITs are designed so that the company doesn’t pay corporation tax itself, but instead passes its profits on to shareholders who are then taxed on their dividends … but retirement plans in Ireland that Because of the high and predictable returns generally behind such companies, is exempt from withholding tax on dividends. The primary form of taxation for real estate funds does not apply to their primary owners.
And now there is more than cuckoo money buying up housing estates. It is the local authorities who are unable to cope with new developments because the political parties are obsessed with whether it is the right type of housing and the divide between private, social and affordable annoyance, which is a bit like arguing about which route the fire truck should take and set off for an inferno. It’s a coexistence where family apartments could have been European style. There are hotels soaring as the natives become homeless. It is every replacement unit in the Dublin channels that will be put on Airbnb instead of Daft. It is young adults who emigrate because the cost of living in Ireland is so high. They are families for whom traveling between the counties does not matter.
And it’s the desperate realization that those funds were invited, the red carpet rolled out, and there was no way to turn back the clock.