Friday, August 7. 2009
Putting NAMA to Work for Irish Competitiveness
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Some very interesting thoughts here Fergal and Paddy. Whether people agree or disagree with Nama, it looks like it's here to stay now - so the next decision is what to do next.
It could also be used by NAMA to attract FDI through availability of lots of good data centre/hosting/office/storage space with a very available and talented IT pool.
Now that Irish people aren't focused on making a quick buck on property, more money will be available for investment into startups and new technologies
It could also be used by NAMA to attract FDI through availability of lots of good data centre/hosting/office/storage space with a very available and talented IT pool.
Now that Irish people aren't focused on making a quick buck on property, more money will be available for investment into startups and new technologies
I suspect you are giving commercial rents a causal role which I'm not sure they fuly warrant. In theory rents should be a residual payment and so should not directly influence input costs - though in reality they may. Unless people are willing (and able) to pay these rents then they should not persist.
A problem with property is that security of tenure requires leases which inhibts rent adjustments and so rents are slow to fall to an 'acceptable' level.
However to point to these as a cause of our lost competitiveness is perhaps to focus too much on the obvious effects of the housing bubble while perhaps missing less obvious impacts...
Linked (to some degree) to the housing bubbles, is the expansion of financial services, hedge funds etc. A major effect of the booms in finance and housing, is that we are now left with many estate agents, solicitors, builders, accountants, those in finance jobs etc. etc. who now possess relatively non-transferable skills.
Another impact is that due to the belief that increasing the number of people with 3rd level education leads to an educated and skilled workforce - ignoring the obvious resultant drop in standards (unless rigorously monitored), is likely to impact on our reputation [we likely got away with it for a while due to our reputation as a successful economy] leading to diffciulties attracting new foreign corporations.
- Our high costs are OK as long as firms believe our ability is worth a premium!
The neglecting of science, engineering and such educational opportunities for those in boom industries is likely to be a serious impediment to job creation/retention
A knock on effect is that many public jobs - civil service, teachers,... experienced both a slight brain-drain and more worryingly attracted in (SOME) people of lower aptitude than we would desire which no doubt will have less noticeable, though long-lasting, impacts.
My overall point here is that to point to simple 'causes' is to ignore the honest assessment of the impacts of our boom economy which will surely be the first step to reversing them. The above can be summarised by saying that our stock of human capital is in some areas insufficient and in others unsuited to our future needs. This is the big issue in terms of our competitiveness to my mind - cost reduction will help but is insufficient alone - we are effectively in need of a major restructuring of the economy.
In view of this, I think a proposal to give firms access to low rent premises, perhaps not designed for their specific purpose is unlikely to significantly improve matters while depressing rents and potentially increasing defaults, will reduce how much NAMA ultimately recovers. Also there would be issues regarding who gets to use premises, (which firms qualify?)
Incidentall (3) "effectively free alternative " - only free (monetary at least) if NAMA had received the properties for free rather than massively overpaid as seems more likely...
Apologies for the length of the reply
A problem with property is that security of tenure requires leases which inhibts rent adjustments and so rents are slow to fall to an 'acceptable' level.
However to point to these as a cause of our lost competitiveness is perhaps to focus too much on the obvious effects of the housing bubble while perhaps missing less obvious impacts...
Linked (to some degree) to the housing bubbles, is the expansion of financial services, hedge funds etc. A major effect of the booms in finance and housing, is that we are now left with many estate agents, solicitors, builders, accountants, those in finance jobs etc. etc. who now possess relatively non-transferable skills.
Another impact is that due to the belief that increasing the number of people with 3rd level education leads to an educated and skilled workforce - ignoring the obvious resultant drop in standards (unless rigorously monitored), is likely to impact on our reputation [we likely got away with it for a while due to our reputation as a successful economy] leading to diffciulties attracting new foreign corporations.
- Our high costs are OK as long as firms believe our ability is worth a premium!
The neglecting of science, engineering and such educational opportunities for those in boom industries is likely to be a serious impediment to job creation/retention
A knock on effect is that many public jobs - civil service, teachers,... experienced both a slight brain-drain and more worryingly attracted in (SOME) people of lower aptitude than we would desire which no doubt will have less noticeable, though long-lasting, impacts.
My overall point here is that to point to simple 'causes' is to ignore the honest assessment of the impacts of our boom economy which will surely be the first step to reversing them. The above can be summarised by saying that our stock of human capital is in some areas insufficient and in others unsuited to our future needs. This is the big issue in terms of our competitiveness to my mind - cost reduction will help but is insufficient alone - we are effectively in need of a major restructuring of the economy.
In view of this, I think a proposal to give firms access to low rent premises, perhaps not designed for their specific purpose is unlikely to significantly improve matters while depressing rents and potentially increasing defaults, will reduce how much NAMA ultimately recovers. Also there would be issues regarding who gets to use premises, (which firms qualify?)
Incidentall (3) "effectively free alternative " - only free (monetary at least) if NAMA had received the properties for free rather than massively overpaid as seems more likely...
Apologies for the length of the reply
Firstly, 2 disagreements.
I do not see how "Property costs are the main driver of relatively high minimum wages and social welfare benefits" or "The massive expansion of the Public Sector payroll has been accelerated by the inflation in property costs."
On what are these assertions founded?
Surely if this was the case, then would not the 20-30% drop in property values be reflected in both sectors? No sign of that any time soon!
The suggestion of "leasing" suitable vacant properties for a stake in a business is a good one. A variation on this theme is now in operation on the open market, where a lot of lettings are now being done on a percentage of turn-over basis.
I agree that the issue of existing "Upward Only" Leases needs to be addressed, but again, the market has addressed many of theses already, as landlords see the plight of tenants.
At least if occupied, the properties would not deteriorate. Care would need to be given to the distortion of competition. There would have to be some form of payment, even if as suggested, by way of shares.
BTW, I hope NAMA will not come to fruition. I do not feel that we, as taxpayers, should be lumbered with these toxic assets/liabilities. Let the Banks fail. Set up a State bank. The Civil Service could not do a worse job than the current crop of bankers.
I do not see how "Property costs are the main driver of relatively high minimum wages and social welfare benefits" or "The massive expansion of the Public Sector payroll has been accelerated by the inflation in property costs."
On what are these assertions founded?
Surely if this was the case, then would not the 20-30% drop in property values be reflected in both sectors? No sign of that any time soon!
The suggestion of "leasing" suitable vacant properties for a stake in a business is a good one. A variation on this theme is now in operation on the open market, where a lot of lettings are now being done on a percentage of turn-over basis.
I agree that the issue of existing "Upward Only" Leases needs to be addressed, but again, the market has addressed many of theses already, as landlords see the plight of tenants.
At least if occupied, the properties would not deteriorate. Care would need to be given to the distortion of competition. There would have to be some form of payment, even if as suggested, by way of shares.
BTW, I hope NAMA will not come to fruition. I do not feel that we, as taxpayers, should be lumbered with these toxic assets/liabilities. Let the Banks fail. Set up a State bank. The Civil Service could not do a worse job than the current crop of bankers.
Thanks for your input Pat. The dependence of salaries on property prices is well understood (e.g. it is the reason for special supplementary payments to UK public servants who work in London).
The reasons that the fall in property prices (not values - value doesn't change quickly) has not been reflected in lowered output costs include:
1. Rents cannot normally be reviewed downwards, you'd have to move to lower your rent.
2. The vast majority of mortgages date from before this crash, it is their costs which are reflected in high wages in both the private and public sector.
3. Attempts to cut salaries and social welfare levels (most notably suggested by an Bord Snip) to reflect falling rents and mortgage interest, have met with vicious opposition.
Our suggestion is not a panacea, we do not expect it to revolutionise the economy. It is merely a constructive suggestion for a worthwhile way to utilise otherwise vacant toxic commercial properties. It has some possible positive side effects as we describe.
The reasons that the fall in property prices (not values - value doesn't change quickly) has not been reflected in lowered output costs include:
1. Rents cannot normally be reviewed downwards, you'd have to move to lower your rent.
2. The vast majority of mortgages date from before this crash, it is their costs which are reflected in high wages in both the private and public sector.
3. Attempts to cut salaries and social welfare levels (most notably suggested by an Bord Snip) to reflect falling rents and mortgage interest, have met with vicious opposition.
Our suggestion is not a panacea, we do not expect it to revolutionise the economy. It is merely a constructive suggestion for a worthwhile way to utilise otherwise vacant toxic commercial properties. It has some possible positive side effects as we describe.
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