The ghost of Ireland’s property boom

A strange headline from an Irish newspaper: “Buyers queue for ghost estate sale as homes go for half price”. Ghost estate? No, not an outbreak of the supernatural, just a reflection of the new normal in post-boom Ireland.

From the early 1990s up to just a few years ago, Ireland enjoyed an extraordinary run of economic growth, transforming itself from one of western Europe’s poorest countries to one of its richest. But during the 2000s, the Celtic Tiger’s boom gave way to a bubble as the economy became increasingly reliant on property. In the 12 years or so up to the peak of the market in 2006, house prices almost trebled. Construction came to account for more than a fifth of Irish GDP – getting on for double the EU average – and employed more than one in eight workers, or twice as many as in the mid-1990s.

It couldn’t last. From their peak, prices have now plunged – estimates vary from between about 37 and 42%  – with even steeper falls in the capital, Dublin.

Those declines may well continue, in part because Ireland has a huge stockpile of empty houses – the so-called ghost estates. Again, estimates vary, but a figure of more than 300,000 vacant or abandoned houses is widely cited. To put that in context, Ireland has a population of just 4½ million. 

 Why did property prices explode in Ireland? In reality, it wasn’t alone. As a paper by the OECD’s Christophe André discusses, many OECD countries experienced what was effectively a synchronised property boom beginning in the mid-1990s. The boom was unusual for a number of reasons: It was very long – at about 12 years, it lasted for was about twice as long as previous price upturns; and it was very deep – prices rose by about 120% on average, more than double the 45% rise seen in previous property booms.

So, Ireland wasn’t unique, but it was unusual. While the financial crisis and recession that struck most OECD countries two years ago had its roots in the global economy, Ireland’s woes were – in the words of one official inquiry – largely “home-grown”. As another inquiry report explains, there was an excess of “budgetary measures aimed at boosting the construction sector” – in effect, tax breaks for property developments.

Irish banks played a major role, too, embarking on a lending binge to developers fuelled by cheap money borrowed on international markets. As the Financial Times reports, “[a]t the height of the lunacy, around three-quarters of the total lending by Irish banks – €420bn or about two and a half times the size of the economy – got bound up in property, construction and land speculation of one sort or another”. 

This combination of policy incentives and easy lending can be blamed in part for another curious legacy of the Irish property bubble – the zombie hotel. Thanks in part to those generous tax breaks, a rash of new hotels opened over the past decade, and today there’s an estimated excess of 15,000 rooms. In a normal market, many of those empty new hotels would simply shut their doors. But to continue availing of allowances and tax breaks, they need to stay open. As a result, room rates have plunged, and are now back levels last seen in 1999. Good news for tourists, if no one else.

The lingering burden of such a property hangover would be heavy enough for any economy. But in Ireland’s case, the problem is exacerbated by the scale of its banks’ exposure to devalued property assets. To prevent collapses, the government has had to nationalise one financial institution, Anglo Irish Bank, and provide substantial support to another.

To cope with banks’ broader problems, the government has also set up a “bad bank” – the National Assets Management Agency, or Nama. This has already begun the process of transferring around €80 billion in devalued property assets from banks, which – in theory at least – will free their hands and allow them to begin lending again. The idea is controversial: The government says establishing Nama is the best way to restructure the country’s banking system; critics argue it’s forcing taxpayers to pick up the tab for banks’ recklessness.

Whatever it succeeds or not, Nama has already added another word to the lengthening lexicon of Ireland’s property bust, joining “ghost estates” and “zombie hotels”: The FT’s David Gardner spoke to one local who pointed to one of Dublin’s best-known hotels and told him, “That building there, it’s just been Nama-ed.”

 Useful links

 OECD work on Ireland  

OECD Insights: From Crisis to Recovery

Jolly Green Giant

Aviation endangers biodiversity. And vice-versa in this case.

Towards the end of the 1933 King Kong movie, one of the pilots sent to kill the upwardly mobile but soon to be downwardly plummeting ape helpfully points out the target to his dimwitted gunner, who otherwise may not have recognised the world’s most famous skyscraper and the world’s most infamous monkey.

The movie has been interpreted as everything from a parable of the Great Depression to a return of the repressed, but everyone agrees that the Empire State Building, completed two years before the film, was an inspired choice for the final symbolic showdown.

The building itself embodies the rivalry between its main financer, John Jakob Raskob, creator of General Motors, and rival automaker Walter Chrysler, whose Chrysler Building had been the world’s tallest building.

But it was also intended to represent modernity, and the architects actually carried out a long-term forecasting exercise to make sure the design would meet the needs of future generations.

Today, this could no doubt be presented in terms of sustainability, as could a just-completed $20 million retrofit to make it more energy efficient and environmentally friendly. The new approach uses technology (such as better insulation and continuous monitoring and control of temperature and other conditions) as well as changes in tenants’ behaviour, such as moving desks to allow in more daylight or not over-using air conditioning.

Payback time for the retrofit is calculated at around three years and it is expected to reduce the building’s carbon footprint by 100,000 tonnes over 15 years – the equivalent of taking 20,000 cars off the road.

The “sustainability” incorporated in the original thinking was there to make sure the building remained a good business proposition for many decades to come. Likewise, the latest changes were carried out: “not because it’s the right thing to do, but because it makes business sense. If we don’t reduce our energy consumption, we will lose money and be less competitive against China, India, Brazil and the other expanding economies” according to owner Anthony Malkin, speaking to the The Guardian.

This echoes the thinking behind the OECD’s Green Growth Strategy: “Together with innovation, going green can be a long-term driver for economic growth, through, for example, investing in renewable energy and improved efficiency in the use of energy and materials”.

The green growth link will take you to a number of resources, including an interim report published in May. The Green Growth Strategy Synthesis Report to be presented to the 2011 OECD Ministerial Council Meeting will propose tools and recommendations to help governments identify the policies for the most efficient shift to greener growth.

Energy is obviously a major aspect of this, and with IEA projections  showing that cities will consume nearly 75% of world energy in 2030 compared with around 66% today, the Empire State Building’s example is worth following. The Guardian article claims that if just a fifth of the largest buildings in America replicated the Empire State Building’s performance, it would save 2.3 billion tonnes of carbon emissions, equivalent to the amount of greenhouse gas pollution produced by the whole of Russia each year.

Useful links

Interim Report of the Green Growth Strategy: Implementing our Commitment for a Sustainable Future

Declaration on Green Growth adopted at the Meeting of the Council at Ministerial Level on 25 June 2009

Green Growth: Overcoming the Crisis and Beyond

From Grim to Green – OECD Messages on Green Growth

France still No. 1 for tourists

If the beaches seem a little less crowded in the last couple of years, don’t be too surprised. International tourism took a knock during the global recession, as our charts show, with annual growth slipping to just 1.9% in 2008, or 5.2 percentage points lower than the growth rate registered during the previous four years. By the time figures for 2009 are finalised, they may show an actual decline of over 4%. That’s to be expected: International travel tends to respond quite sharply to economic slowdowns, while domestic tourism (people holidaying in their own countries) is more resilient. In OECD countries, about three out of four tourists are domestic. There have been some signs of growth in the first half of 2010, though whether this spells a recovery or reflects a particularly weak 2009 remains to be seen.

Despite any recent declines, tourism remains one of the world’s great growth industries. According to the UN’s World Tourism Organisation, just 25 million people travelled abroad for holidays in 1950. Today, the figure is more than 800 million, representing an annual growth rate of about 6.5%.
Just as it’s been for the past 15 years, France remains the world’s favourite destination, attracting just under 80 million visitors in 2008 (the most recent year for which full data is available). The United States is second, with about 58 million visitors from abroad, while Spain is third, with just over 57 million.
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High energy, higher costs

one black mass of jigs and jimjams...

Based on your own experience, complete the following sentence found on a promotional website: “There can be no doubt that Paris is the place to be in summer 2010 for anyone interested in…”.

If your excited answer includes Physics Beyond the Standard Model (with capital letters) you’re probably reading this on a smartphone as you wait for French president Nicolas Sarkozy to open the 35th International Conference on High Energy Physics, or ICHEP.

What excites physicists rarely gets a mention outside scholarly circles, but the international media have devoted a fair amount of space to CERN’s Large Hadron Collider. Partly this is because of entertaining claims that the LHC would produce mini black holes that would transform the Alps into a gigantic Swiss cheese before munching their way through the rest of the planet. Citizens against the LHC even tried to stop the collider experiments in court.

 A more common objection, and one that doesn’t need any knowledge of physics to grasp, is that projects like these are a waste of money . That was the view of the US Congress in 1993 when they stopped funding the Superconducting Supercollider. The LHC’s predecessor would have been three times more powerful, but it would also have been four or five times more expensive than the LHC’s $6 billion, and with the end of the Cold War, a favourite argument for the need to fund nuclear physics evaporated.

So what are the taxpayers’ billions being spent on? The sound-bite friendly answer is the “God particle”, or Higgs boson. The Standard Model does not include gravity and some of its features are arbitrary and unexplained. To overcome these shortcomings, physicists study symmetry, which in this context means that certain features observed in a system remain unchanged even following a transformation, such as rotation.

 Theory predicted the existence of special particles to ensure this symmetry, and over the past few decades experiments have confirmed the predictions in collisions of particles at ever-higher energies. The Higgs boson is a major piece of the puzzle. According to the Standard Model, elementary particles get their mass by colliding with the Higgs particle, and if it exists, the power of the LHC is needed to detect it. If it doesn’t exist, high-energy physics will have to rethink its fundamentals.   

Apart from giving insights into the origin of mass, LHC experiments study the “dark matter” that 96% of the Universe (and you and I) are made of, the secrets of the Big Bang, antimatter, and hidden dimensions of space.

So what? Couldn’t the billions be spent on something relevant to more pressing problems? The short answer of course is “yes”, but that would miss the point of how science works. Science’s goal is not to apply knowledge and know-how to creating useful things – that’s what technology does. Science creates the knowledge.  The quantum effects physicists study are now an important parameter in designing digital cameras for instance (this post gives other examples).

The lack of understanding of what science is and how it works is due in part to the education system, but suspicion of science, and hostility towards it, is partly the scientists’ own fault. As the OECD Global Science Forum points out, “dialogue” is too often seen as simply improving the public’s understanding of science, rather than listening to what the public has to say.

Useful links

OECD work on science and innovation

Encouraging Student Interest in Science and Technology Studies

PISA 2006: Science Competencies for Tomorrow’s World

National Security and Public Health—Why the Controversy?

Defending the nation?

This post is contributed by Harvey Rubin, a member of the steering group of the OECD Future Global Shocks project and Director of the Univerity of Pennsylvania Institute for Strategic Threat Analysis and Response, and Nicholas Saidel, a Research Specialist at ISTAR. 

Thinking about certain aspects of public health and infectious diseases as “existential threats” to human security arguably began as early as December 10, 1948, when the General Assembly of the United Nations adopted and proclaimed the Universal Declaration of Human Rights, in which Article 3 states: “Everyone has the right to life, liberty and security of person.” This was reaffirmed in the United Nations Development Programme (UNDP) of 1994 and again in the 2003 UN Commission on Human Security. These efforts conceptualize security as human-centric rather than the traditional state-centric and include protection from the shocks that affect human safety and welfare – such as disease, hunger, unemployment, crime, social conflict, political repression and environmental hazards.  In this formulation, the nature of an existential threat depends in part on the particular threatened sector.

The traditional national security threat is understood to be the threat to the survival of the sovereignty, territory and physical condition of the nation. To the medical community in general, and especially to the public health and infectious diseases sectors, survival clearly refers to taking every action to minimize morbidity and mortality as well as to minimize the effect of disease on the economic, social and political stability of communities, nations and transnational organizations.  HIV/AIDS is frequently discussed in the context of securitizing public health issues.  This discussion originated with the UN Security Council Resolution 1308 (2000), which placed HIV/AIDS squarely in the cross-hairs of the security debate by stating: “Stressing that the HIV/AIDS pandemic, if unchecked, may pose a risk to stability and security.”  More recently, obesity has been identified as a national security issue by retired generals and admirals in the report Too Fat to Fight, concluding:  “If we don’t take steps now to build a strong, healthy foundation for our young people, then it won’t just be our military that pays the price – our nation as a whole will suffer also.”   Even Michelle Obama identified obesity as a national security issue in the announcement of her ‘Let’s Move’ campaign.

Where will the securitizaton of medicine and the medicalization of security lead with regard to the future of public health, and conversely, with regard to the future of national security?   These issues are generally addressed in the literature of the political scientists.  For example, Stefan Elbe’s new book, “Security and Public Health,” analyzes the framing of health problems as security concerns and whether this framing helps or hinders controlling these problems in national and international political, social and economic venues.  Elbe convincingly uses HIV/AIDS, SARS, and H5N1 influenza and bioterrorism as case studies of the effect of medicalizing security. Much like traditional security issues formulated in military language, a responsible reaction to threats is the development of countermeasures.  Widening the security gambit to include an “inflated list of possible medical threats to security (Elbe)” can lead to a corresponding extension in funding for medical countermeasures – new vaccines and therapeutics.   From our point of view—why is this bad? 

The controversy over sovereignty rights concerning epidemiological data and, more specifically, on influenza sequence data that continues to engage the international community, is fascinating.  This issue crystallizes many of the concerns of the national security community, including potentially weakening the traditional military agenda by widening the spectrum of security threats, removing the discussion of policy issues from the biomedical and public health practitioners and placing it in the hands of the diplomats, the military and possibly even the intelligence community, and focusing attention on the needs of the economically and militarily stronger countries and not on global health.

  
Understanding and dealing with the interdependencies of public health and national security spans widely divergent disciplines of clinical medicine, public health, basic biomedical science, economics, political science and international relations and deserves a deep and broad analysis by the interested parties. In this respect, Dr. Lincoln Chen’s comments in his address to the Helsinki Process Track on Human Security are instructive.

Given the perpetual tension between the demands of national security and the need to protect civil liberties, a balance must be struck whereby states can deal with national emergencies efficiently but without an unreasonable erosion of citizens’ privacy rights.  Moreover, an international system that fosters, rather than inhibits, cooperation between states in terms of data sharing and bio-surveillance is required.  For these reasons, we propose the implementation of a Global Compact for Infectious Diseases.

Useful links

OECD work on health

OECD Forum on Neglected and Emerging Diseases

OECD Working Paper on tackling obesity

OECD Observer article on democracy and sovereignty

Immigrants take the brunt of the jobs crisis

Immigrants were key drivers behind the economic boom, as they added skills and productivity to lift performance. Now, almost everywhere migrants are feeling the brunt of the crisis. Immigrants are particularly vulnerable during prolonged economic downturns, and this crisis has had the effect of throwing many immigrant workers out of work at a higher rate than for native-born workers. One reason is that immigrants tend to work in sectors which are sensitive to swings in the economic climate, that is, where demand for workers rises sharply in good times and drops fast during bad. (more…)

Afghanistan at the crossroads

Click on the image to go to the Kabul Conference website

As the Kabul International Conference on Afghanistan brings together representatives from over 70 partner countries, Sarah Cramer and Asbjorn Wee of the OECD Development Co-operation Directorate look at what’s been achieved and what remains to be done 

Nine years after the international community supported the establishment of a new government, Afghanistan now stands at a crossroads.

In the midst of questions about the future of the international military operation to stabilise the country, the first international donors conference to actually take place in Kabul will hopefully result in the acceptance of the first ever Afghan government-led plan for improved development, governance, and stability.

Afghanistan has been the testing ground for donor efforts to increase aid effectiveness and mutual accountability in post-conflict situations. Assessment of post-conflict needs has resulted in the establishment of a joint plan, pooled funding instruments, budget support, etc. Importantly, it has also been the laboratory for improvements in “whole-of-government” approaches to stabilisation and development, such as through the use of Provincial Reconstruction Teams (PRTs ). The conference as such is an opportune moment to take stock of these experiences and highlight changes needed.

Afghanistan was one of the six countries that participated in the 2009 monitoring survey of the Fragile States Principles (FSP). This process brought different stakeholders together for a frank discussion about how donors are adhering to the FSPs, and now seems an apt time to review the five key principles identified by participating stakeholders as most pertinent for Afghanistan, as the Afghan Government and donor countries gather for this important stage of the “Kabul Process” of shifting toward full Afghan leadership and responsibility.

Take Context as a Starting Point (FSP 1): While there is a growing consensus that taking context as the starting point is essential for better engagement in Afghanistan, opinions diverge on what that context is, some seeing Afghanistan as a country at war and others seeing the country in post-conflict terms. A unified understanding of context will need to be developed in order to achieve a coherent approach for donors and the Afghan Government.

Do No Harm (FSP 2): This principle has been violated repeatedly in terms of security, loss of life, corruption and the perception of the state. The need to “Do No Harm” has an impact on all aspects of the reconstruction process: security (reform and training of security forces, long lasting impact of foreign military intervention); governance (support – or lack of it – to national systems, parallel implementation units, and corruption); economic (market distortions on salaries and imports, misguided economic strategies); Social (discrimination/exclusion).

Statebuilding as the Central Objective (FSP 3): State-society relations are still regarded as the biggest missing link in the reconstruction process. The international intervention of the past nine years has created both weaknesses and strengths in the legitimacy of the state (e.g. shifting or un-coordinated policies; ambivalent impact of the military intervention). The unpredictability of aid and the limited discretionary funds available to government contribute to uncertainties in funding the development part of the national budget, and affect the consolidation of the government priorities and reach.

Recognise the links between political, security and development objectives (FSP 5): Many stakeholder participants of the monitoring survey felt the overarching political and development agenda is overly influenced by security and stabilisation objectives in the field, resulting in development actors having to adjust their initiatives based on evolving political agendas, rather than a need-based development agenda (as outlined in the “whole-of-government” approach of the Afghanistan National Development Strategy ANDS). In other words, there should be a greater balance of the 3Ds (Defense, Diplomacy and Development).

Align with local priorities in different ways in different contexts (FSP 7): the 2009 monitoring survey of the FSPs identified increasing awareness of the need to support and use the national frameworks – such as the ANDS – more extensively. Concern remains however as to the degree to which PRTs are aligning their civilian activities to local development plans.

From the above, it seems clear that donors will need to improve their efforts to actually implement the FSPs.

Looking forward, the proposal to promote more effective utilisation of international assistance thorough better alignment of international aid with government priorities and the channeling of increased assistance through the Afghan national budget seems particularly interesting. The challenge is to find mechanisms for channeling funding that build rather than undermine government ownership, while at the same time facilitating accountability and adhering to minimum fiduciary standards. “Joint accountability” or mutual accountability mechanisms are promising in this regard (e.g. the case of Liberia).

Secondly, the fact that the new plan highlights critical peacebuilding and statebuilding priorities is promising. Many of these priorities align with those cited in the Dili Declaration, which identifies seven peacebuilding and statebuilding goals as stepping stones to reach the MDGs in conflict-affected and fragile states.

The experiences of Afghanistan and other signatories of the Dilli Declaration will provide important evidence for the fourth High Level Forum on Aid Effectiveness to be held in Busan, Korea from November 29 to December 1st 2011. The issues being discussed at this conference on Afghanistan represent a growing and increasingly central challenge for donors and developing countries alike as they seek to make aid – and all development policies – effective.

Useful links

OECD work on conflict and fragility

Aid statistics