April 28, 2010

Putting NAMA to Work for Irish Competitiveness

Posted in Your Ideas ·
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by Paddy Ryan and Fergal Byrne

The Problem

The core issue underlying Ireland’s loss of business competitiveness is, and remains, inflated commercial and domestic property prices and rents.

  • Business rents are still artificially inflating costs, and most businesses are locked into paying inflated rents that cannot be reviewed downwards.
  • The level of salary required to pay for accommodation (rented or purchased) is too high for Irish business to be internationally competitive.
  • Property costs are the main driver of relatively high minimum wages and social welfare benefits.
  • The massive expansion of the Public Sector payroll has been accelerated by the inflation in property costs.
  • Ultimately a huge chunk of the excessive costs in our economy accrue back to the property dinosaur.

NAMA – Part of the Problem, or Part of the Solution?

As NAMA acquires an extremely large portfolio of non-performing loans whose primary collateral are property assets, how is it going to generate income from, or dispose of, this collateral, and protect the Irish taxpayer from huge losses? Indeed, vast tracts of unused commercial and domestic property will rapidly deteriorate if left unused for long periods of time, thus reducing the eventual market value of the assets.

My suggestion is to take these unused and unsellable property assets, effectively owned by NAMA, and make it available to small businesses, for significantly reduced (or free) rents. In return, NAMA could take a modest stake in supported companies, with buyback options for the owners on a 5 to 10 year timescale.

This will have the following effects:

  1. Reduce companies cost base, making many Irish businesses more competitive.
  2. Save jobs, particularly in the SME sector, where rents currently constitute an outrageous portion of costs, often the difference between success and failure for the business.
  3. An effectively free alternative to direct subsidies and investments in “exporting” companies (employment subsidy scheme).
  4. Create real downward pressure on the (not very) free commercial property market sector.
  5. Prevent deterioration of unused property, thus safeguarding those assets until they can be sold on at a decent price.
  6. Generate revenue in the medium to long term from the “buyback” options.