NAMA and independence from political interference

Much has been made of NAMA’s independence from government and the Department of Finance. But as NAMA is emerging from the ashes of what many have described as a catastrophic nexus of politicians/councillors, banking and business it will be interesting to see how NAMA defends its independence from political interference. There are three contemporary areas where NAMA has an opportunity to demonstrate that independence and where its independence might be tested.

NAMA codes of practice – at the Oireachtas Joint Committee hearing on 13^th April, 2010, the NAMA CEO stated that the NAMA codes of practice were presently with the Department for Finance for review stating “The NAMA board was required under a section of the Act to submit codes of practice on various items within three months of its establishment. It submitted the codes to the Minister who is now reviewing them and will revert to the board shortly with his views. If he approves them, they will be published on the NAMA website.”  Indeed Section 35 of the NAMA Act (available here) sets out in broad terms the matters to be addressed by the codes of practice but they include the disposal of bank assets. The Minister has the power to direct NAMA to amend the codes, or to prepare codes to deal with matters not specifically referenced under Section 35. It is to be hoped that the codes, which will be published, make it transparent how NAMA will deal with any assets coming within its influence. It would have been helpful if there was a code to set out how NAMA will deal with the development pot of €5bn – plainly NAMA will only pursue sound projects but there are already questions as to how NAMA will prioritize requests.

NAMA Business Plan –  the NAMA CEO stated at the Oireachtas hearing referred to above “Mr. Corrigan indicated the revised business plan must be approved by the NAMA board before being submitted to the Minister. Once submitted to the Minister, it will be published and be in the public domain.” – it is unclear to what extent the Minister will have power to change the business plan. It is to be hoped that what is published in June 2010 is subjected to rigorous examination by all political parties representing their constituents, and that the citizenry will have sufficient information to understand what is happening with their money.

NAMA development pot – this was quantified in section 50(3) of the NAMA Act as up to €5bn and is seen as vital to developers who want to complete developments. Right now, the first NAMA borrowers are producing and submitting first and second draft business plans to show how they will be able to repay their loans. A significant number of plans are understood to seek development funding from NAMA’s pot. Given NAMA’s pivotal role and the fact that at present NAMA is for many developers the only practical source of finance (credit is still in short supply and once a developer is earmarked for NAMA, there have been suggestions that other sources of credit might become constrained), the question of who decides what projects get further funding comes to the fore. In particular, a concern that NAMA acts exclusively in the interest of the tax-payer (or citizenry) and not be swayed by political interference, particularly at a local level where politicians may be unhappy with certain developments. In the Dail on the 21^st April, 2010, Deputy Joe Costello asked a question in relation to an area of historical importance worthy of preservation owing to its significance to the foundation of the State. Deputy Costello referred to a NAMA-bound developer (and scheme) that was to develop an area close to the GPO and Deputy Costello was concerned this development would lead to the loss of an important part of our heritage and leave us with what Deputy Costello described as “the shell of a national monument”. Separately the Limerick TD, Kieran O’Donnell posed a question around the importance of regeneration in the Limerick region and emphasising the need to build new houses as opposed to houses bound for NAMA which are not needed. The full text of the exchanges are available from the Oireachtas website here. Plainly it is easy to see why concerns might arise to suggest political pressure may be directed towards NAMA with respect to how NAMA spends its development pot.

In the Swedish government’s response to that country’s financial crisis in the early 1990s which saw the creation of two asset management companies, Securum and Retriva, the government was careful to ensure that the two companies operated independently and that upfront they had access to all the funding they needed so that there wasn’t a need for the companies to come back with the begging bowl to the government who would then have had leverage over the independent operation of the companies. It is unclear whether NAMA has this degree of independence though hopefully the codes of practice will bring some clarity to the area. Another key to Sweden’s success was that the asset management companies enjoyed considerable broad-based political and public support which tided the companies over when they had to confront difficult decisions which disadvantaged one group or other. I would tend to think that NAMA does enjoy broad-based political support (not the concept but how it is being operated and implemented now). I think the public is still broadly sceptical but that may be more to do with the national mauling being suffered from the consequences of our financial crisis. I think Brendan McDonagh enjoys growing approval as he becomes better known and ultimately that public confidence might offer NAMA the protection it needs to carry out is work independently.

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Update on the Register of Property Prices (or the House Price Database)

As we pore over the very limited information contained in the latest index on actual property prices from the ESRI/Permanent TSB, I return again to the current status of the promised Register of Property Prices. Before I do, it is again worth pointing out the weaknesses in the ESRI/Permanent TSB index (Click here to see the full methodology):

1. It relates to property which has been bought with the help of a mortgage. The State has just under 2m dwellings. Less than 800,000 are subject to mortgages.
2. It relates to property which has been bought with the help of a mortgage from Permanent TSB. Permanent TSB is a subsidiary of Irish Life and Permanent and the group has an estimated 20% share of the Irish mortgage market.
3. It relates to property which has been bought with the help of a mortgage from the Irish Life and Permanent group when the mortgage was drawn down which may be some time after the sale agreement.

So it’s better than nothing but the index is plainly limited both in terms of the sample and timing of the information. Also since the publication of the December 2009 index, the index is now published on a quarterly basis because of the low volume of sales. So we’ll have to wait until the end of July 2010 before we know what has happened with actual property prices in the State for Q2, 2010. The only other actual price statistics are produced by the CSO with a 6-month lag, ie the current statistics are for Q3, 2009. Although the CSO examines all mortgages it is not what the statisticians call an hedonic index, ie no account is taken for the of properties analysed – at least Permanent TSB/ESRI examine changes in different size of property. In addition to the Permanent TSB/ESRI index and the CSO statistics we also have a range of statistics based on asking prices eg  DAFT.ie, myhome.ie – although these benefit from large samples and information on property size and location, their legitimacy is serious challenged by the fact that the prices are asking not settled. So, back to the Register of Property Prices (or the House Price Database as politicians have named this thus-far mythical beast) …

First called for in 1973 with the Kenny Report, there have been many calls over the years to put in place a public register of all property sales transactions. Recent calls have been from the IAVI (Irish Auctioneers and Valuers Institute), CIF (Construction Industry Federation), politicians (Joan Bruton, Olivia Mitchell, Ciaran Lynch and many others, every four weeks or so, are formally asking in the Oireachtas about the status of the House Price Database – see bottom for transcripts of recent questions and answers) and consumers.

I describe below the availability of house price data for two of our neighbours:

UK – sale price, transaction date, costs £1 from the UK’s Land Registry and is freely available from a wide variety of sources eg www.nethouseprices.com, www.upmystreet.com There are in addition, subscription services like lonres.com which provides a wealth of detail on property for sale and property sold in London. There can be issues with massaging sales prices where for example a developer wants to inflate the price paid in order to secure higher prices for other property within a development. Where fixtures and fittings are included, the sales price can again acquire a degree of vagueness. However overall a fairly accurate picture of prices can be obtained freely or very inexpensively.

USA – nearly all US states provide public disclosure of actual sales data (the five state exceptions are Utah, Wyoming, New Mexico, Texas and Kansas). In addition to the state, the data is freely available from a wide range of sources eg http://www.zillow.com.

So  where are we in Ireland. According to the Property Registration Authority in Ireland (PRAI) in April 2010  “A national house price register is currently under consideration by the Department of the Environment – a number of Government bodies including the Property Registration will be involved in discussions about providing data for such a register.  For further information, you could contact the Department of the Environment at 01-888 2000 or email qcsofficer@environ.ie.” The PRAI and  the Land Registry hold what they term the Instrument which is the conveyancing document which contains the actual transaction price. Treatment of the Instrument is governed by the Land Registry’s rule 188 enacted in 1972 which states that only the owner or person acting for the owner can access the Instrument. The Land Registry also capture on their systems the actual price in the transaction as this is used to calculate the registration fees. If you were to ask for a copy of an Instrument or the actual sales price in a transaction, the request would be denied by the Land Registry and they would cite Rule 188. The government, though not the Land Registry, cite the Data Protection Act (1988 and its amendment in 2003 – click on the years for links to the Acts)  as the reason actual sale prices cannot be disclosed. However the Data Protection Act doesn’t seem to include characteristics of a land transaction as being personal data.  The UK enacted its Data Protection Act in 1998 (10 years after our own) and in response to an EU Directive in 1995. Widely seen as a good piece of legislation, it does not in any way preclude the publication of property sale prices.

Our Opposition politicians continue to harry the government for the introduction of the Database but as you can see below, they seem to have found a brick wall called Michael Finneran.

Submitted Priority Questions 22^nd April, 2010 – click here for full transcript

Joan Burton – To ask the Minister for the Environment, Heritage and Local Government his views on the need to bring forward proposals, and make the necessary legislative changes, for a house price database to record details of residential and commercial property sales in view of the cessation of the ESRI/Permanent TSB monthly house price index; and if he will make a statement on the matter.

Ciaran Lynch – To ask the Minister for the Environment, Heritage and Local Government the progress made towards the establishment of a house price database which will provide accurate and reliable information regarding specific house sales; and if he will make a statement on the matter.

Minister of State at the Department of the Environment, Heritage and Local Government (Deputy Michael Finneran): I propose to take Questions Nos. 30 and 158 together. The need for a more comprehensive house price index to inform national economic and social policy by providing a more meaningful indicator of housing market and wider macro-economic conditions, while also serving to form the basis of key decisions made by home buyers, home sellers and mortgage providers, has been recognised by the Government.The renewed Programme for Government sets out a clear commitment to create and maintain a comprehensive House Price Database based on sales prices.My Department has held meetings with a broad range of interested parties to gather views on the shape that such a register might take. Once the work of this group has concluded recommendations will be made to Government. The timing of the establishment of the register will be determined by a range of factors including the possible need to amend the Data Protection Acts to allow for achieved sales prices to be published.

Written Questions 25^th February, 2010 – click here for full transcipt

Deputy Joan Burton asked the Minister for the Environment, Heritage and Local Government his views on whether a public register of recorded house sale prices would add to the stability of the residential housing market and the broader economy; if he has taken action to provide for such a register; and if he will make a statement on the matter.

Minister of State at the Department of the Environment, Heritage and Local Government (Deputy Michael Finneran): The renewed Programme for Government sets out a clear commitment to create and maintain a comprehensive House Price Database based on sales prices. My Department, the Department of Justice, Equality and Law Reform, the Property Services Regulatory Authority, and the Central Statistics Office, as well as representatives from consumer and industry representative organisations, will be engaging shortly on the development of the new house price index. Among the issues to be considered in that context is the degree to which the existing legislative framework supports the development of such an index. For example, the Data Protection Act currently precludes the publication of data relating to specific sales prices achieved for individual houses without the consent of the purchaser and vendor involved in each transaction. Amendment of the Data Protection legislation to allow publication of the sale price of property is a matter in the first instance for the Minister for Justice, Equality and Law Reform. [You can access the renewed Programme for Government here, specifically the Programme says on page 33 “We will amend the Data Protection Act to allow the publication of the sale price of property and create and maintain a House Price Database in the Department of the Environment where details of residential and commercial property sales will be maintained for statistical purposes”]

Written Questions 21^st January, 2010 – click here for full transcript

Deputy Willie Penrose asked the Minister for the Environment, Heritage and Local Government when the new house price database will be available; if it is intended that the necessary legislative changes will have been made to enable the publication of house selling prices when the house price database is available; and if he will make a statement on the matter. [2465/10]

Minister of State at the Department of the Environment, Heritage and Local Government (Deputy Michael Finneran): I refer to the reply to Question No. 308 of 15 December 2009. The relevant Government Departments and agencies will be working in the coming months with a view to the development, as soon as possible, of the new house price database.

Written Questions 15^th December, 2009 – click here for full transcript

Deputy Olivia Mitchell asked the Minister for the Environment, Heritage and Local Government the role he will have in publishing final sale price statistics of residential property;the contact he has had with representatives of the residential property industry to overcome impediments; his views on the issue of over-valued property; and if he will make a statement on the matter. [46673/09]

Minister of State at the Department of the Environment, Heritage and Local Government (Deputy Michael Finneran): I propose to take Questions Nos. 308, 309 and 325 together. The renewed Programme for Government sets out a clear commitment to create and maintain a comprehensive House Price Database based on sales prices. My Department, the Department of Justice, Equality and Law Reform, the Property Services Regulatory Authority, and the Central Statistics Office, as well as representatives from consumer and industry representative organisations, will be engaging in the coming months on the development of the new house price index. Among the issues to be considered in that context is the degree to which the existing legislative framework supports the development of such an index. For example, the Data Protection Act currently precludes the publication of data relating to specific sales prices achieved for

individual houses without the consent of the purchaser and vendor involved in each transaction. Amendment of the Data Protection legislation to allow publication of the sale price of property is a matter in the first instance for the Minister for Justice, Equality and Law Reform.

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