Ireland’s National Asset Management Agency (NAMA) and the British property market: Disposing of crisis

A watershed year for the global economic system, the year 2008 also marked the demise of what had been broadly heralded as the ‘Celtic Tiger’ economic miracle as a triple crisis (financial, fiscal and banking) took hold in Ireland. Through the early 2000’s, much of the ‘growth’ sustained by a speculative property bubble facilitated in part by generous mortgage relief . The easy availability of credit coupled with low interest rates and fiscal incentives for property development, that had long run their course, fuelled the construction boom: in Ireland, at its peak, the number of houses completed was somewhere between 33-50% the number of homes being built in the UK. Whelan has calculated that “the total stock of mortgage loans in Ireland exploded from €16 billion in 2003:Q1 to a peak of €106 billion in 2008:Q3, about 60 percent of that year’s GDP” . A growing dependence on consumption-based taxes, became apparent with property-based taxes accounting for 20% of all Irish tax revenue in 2006. By the late 2000’s, property supply ‘overshot’ what was required, the market stagnated, and credit was closed off. Rather than relying on deposits, banks had engaged in high-risk practices borrowing short from the international money markets to lend to long-term projects, leaving the sector exposed when the global financial crisis and credit crunch hit in 2008. In response, the Irish government in September 2008 issued a blanket guarantee of the Irish domestic banking system in an effort to stem the withdrawal of large deposits and help facilitate capital raising. In early 2009, Anglo-Irish Bank was nationalised and three other banks recapitalised. Nonetheless the scale of their exposure was such that while loans made to property developers remained on their books, domestic banks could not raise funding nor stem capital outflows. In an effort to address the critical uncertainty regarding the banks’ exposure to property related loans, and facilitate the recovery of the sector, the Government announced the establishment of the National Asset Management Agency (NAMA) in an emergency budget in April 2009.