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Archive for January 16th, 2012

Fans of arthouse cinema in Dublin will welcome the report in the Journal that tomorrow will see the welcome re-opening of the Light House cinema in Smithfield, central Dublin after the landlord, reportedly John Flynn of Fusano Properties, agreed terms with cinema operator Element Pictures. The cinema had closed down last April 2011 after previous operators Neil Connolly and Maretta Dillon were unable to pay the rent. The closure of the cinema was criticised by some last year as evidence of NAMA ignoring its obligation to deliver a social dividend and its closure sparked a Facebook campaign to save the cinema.  It is understood the agreement between landlord and new tenant was reached under NAMA’s auspices.

The Irish Times had previously reported that Element Pictures was the preferred bidder of the Cultural Consortium, an initiative of the Irish Film Board and the Arts Council; Element is both a production company – its repertoire includes current smash “The Guard” and Ken Loach’s “The wind that shakes the barley” – and a distribution company. It is a condition of the planning consent for the cinema that it be used for arthouse screenings, and it will apparently continue to be used for classification of movies by the the Irish Film Classification Office.

When the cinema closed last year, local TD Joe Costello warned that its closure might turn Smithfield into a ghost town. Local residents in the Smithfield square development are likely to welcome the cinema’s reopening.


UPDATE: 18th January, 2012. The cinema was duly officially re-opened yesterday though it will be this weekend before the viewing public can get back inside. It is being reported that the Minister for The Arts, Heritage and the Gealtacht, Jimmy Deenihan said of the re-opening “the Programme for the Government committed us to seek to capture some public good from NAMA buildings for arts and culture facilities. The reopening of the Light House is a tangible expression of that commitment. I believe that this outcome is hugely positive for the art house cinema sector, for the Smithfield area and for employment and economic regeneration locally” You would be hard-pressed to find a more misleading load of political gobsh*tery – the building is a cinema and its planning consent requires it to be used as an art house cinema, the terms reached in a competition between Element and Curzon, are arms-length. The outcome is undoubtedly “hugely positive for the art house cinema sector” and for Smithfield, but the deal has nothing to do with the Programme for Government or social dividend given the planning constraints on the building.

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The Irish Department for Social Protection has now published the new rules and rates for rent assistance in the State. There are reductions in all categories in all counties – no county or category has been spared. The reductions range from 0.0% in Roscommon for a couple in shared accommodation to 28.6% in Fingal for a single person in shared accommodation. The simple average reduction is 13% . Here are the new rental assistance levels, and it should be noted these are the maximums.

Here are the old rates. Note the new rates split Dublin between “Fingal” and “Other”, the old rates didn’t.

Here are the % changes.

It is estimated that 96,100 households are in receipt of rent allowance – Minister for Social Protection Joan Burton responded to a Parliamentary Question in November 2011 and she said “Between 2005 and 2010, rent supplement expenditure increased from €369 million to €516 million. The number of persons claiming the allowance increased from almost 60,200 in 2005 to more than 96,100 as at 18 November 2011, a 60% increase.”. It is estimated* that 150,000 households in total are renters in the State. Therefore the reductions announced today are will significantly affect the rented market.

What will they do to rental levels? Considering only the reduction in rent allowance, the changes should tend to reduce rents in the State. Many properties that are advertised for rent won’t accept rent assistance, but there is anecdotal evidence to suggest that such properties will acknowledge official levels of state support.

Residential rents in Irelandhave risen by 4% over the past year and looked set to continue rising. This morning’s announcement should temporarily reverse that trend. The prediction on here had been that rents would rise between 0-5% in 2012. With these announced reductions which average 13%, that prediction looks outdated, and it is now the view that rents will reduce in 2012.

*The last census for which we have full results was in 2006 when 128,696 homes were rented out of a total of 1,503,291 households which represents 9% of all households. In 2011 there were 1,709,973 households – if the same % of households rent then that would imply there about 150,000 rented properties in the State.

UPDATE: 9th February, 2012. The quarterly DAFT.ie rental report is now available where Minister for Social Protection, Joan Burton provides a commentary and background information on the decision to cut the levels of rent allowance last month. Minister Burton says “Since 2005, rent supplement expenditure has increased from €369 million to some €503 million in 2011. The number of people claiming the allowance increased from almost 60,200 in 2005 to over 96,800 at end 2011, a 61% increase. In terms of overall share in the market, rent supplement accounts for approximately 40% of the private rental market.” Elsewhere the report confirms that rental prices continue to stabilise with rents up 0.3% nationally in the past twelve months (index rise from 75.5 to 75.7) and that the stock of property is at a 3-year low, but before you run around in panic thinking there’s no vacant property left, remember (a) the stock of vacant property is still nearly 16,000 compared to an all-time high of 24,000 in 2009 and (b) the 16,000 is less than 100 lower than the vacant stock this time last year.

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In the dirty little scrap that took place last week after Citibank economist Willem Buiter said Ireland should be planning for the possibility of a second bailout, it seemed to be lost on us all –  regardless of whether or not Ireland needs a second bailout – we will need to continue borrowing. Even by 2015 when we plan to have a 3% budget deficit which will amount to €5bn-plus, we will need borrow. Plus we have debt maturing and we will need to start paying back our first bailout. So we will need to borrow. That’s an unassailable fact.

The argument is about whether or not we will be able to borrow from the open market, mostly the sovereign bond market, at so-called “sustainable” rates.  But should we really be concerned whether we get the funds from the open market or a second bailout though? The perceived wisdom is that a bailout will have strings attached, and we don’t want foreigners sticking their noses into the running of our country, we don’t want them turning up each quarter assessing our progress and we don’t want to have to ask permission any time we think of a policy. We want to, in the words of An Taoiseach Enda Kenny, “wave goodbye to AJ (sic) Chopra and the IMF”

But let’s step back for a moment and consider the immense benefits – both achieved and in prospect – of the bailout

(1) It’s cheap. Whilst Irelandis paying an average interest rate of just 3.7% on its bailout, the mugs in Italyand Spainhave been paying 6-7% in recent months on the issuance of new long term debt.  France’s 10-year bond closed at 3.1% last week, and it may come under renewed pressure following the confirmation of the S&P downgrade. Ireland’s 10-year bond is at 7.8%, and hasn’t been much below 5% in the past five years. So 3.7% is an absolute steal.

(2) Independent fiscal advice council. This was announced last July 2011, just about meeting a commitment date in the bailout Memorandum of Understanding. The Fiscal Responsibility Bill is currently wending its way through the Oireachtas but what we should have by the end of March 2012 is an expert economics panel who will give their views openly on Government projections and the effect of any policy announcement. The existence of this council should combat the tradition of gombeenism which promises and legislates in a way which runs counter to the interests of the country as a whole, in favour of short-term electoral victories and benefits to vested interests.

(3) The legal and medical professions. Some pretty limp-wristed legislation was introduced last year to combat the high cost and competitive distortions of our two leading professions. Limp-wristed but a start. It will be at least a couple of years before we see the effects of the new measures, but if we still end up with the second highest legal costs in Europe (after Moscow), it will not go unnoticed by the IMF.

(4) Personal insolvency. Ireland had the most draconian personal insolvency (bankruptcy) legislation that I have seen, which was effectively non-existent judging by the very small number declared bankrupt each year (single digits were not unusual annual figures). Last year, under pressure from the IMF, the Government made some light amendments to the legislation, but this year, we expect to have spanking new legislation that will haul Irelandinto the 20th century, and allow people with unsustainable debts a humane and economically efficient means of getting on with their lives. Do you think this would be happening without the IMF breathing down our necks?

(5) House prices! By mid-2012 we should finally have an open database of house prices in this country. Called for at least since 1973 with the publication of the Kenny Report, successive governments have superficially all welcomed the Kenny Report recommendations but somehow seem unable to enact them when they get into power. It was laughable during the previous government’s term to hear data protection being held up to shield the administration from enacting something promised in its programme for government, Hand on heart, I don’t believe we would now be getting a House Price Database unless it was required by the Memorandum of Understanding.

(6) Political pigtroughery. Despite having an independent media in this country, it is still only occasionally that we get an insight into the ludicrous cost of Government, which will naturally enough act to protect its own perks and privileges. At least with the IMF controlling the purse-strings, we may have whipsaw pressure from the public and the IMF, so that we can have get the cost of Government down to a reasonable level.

(7) NAMA. There had been signs that the Government last year was going to politically interfere in NAMA on a grand scale, farming out its asset management functions to 3-4 asset management companies for example. Although Government interference has increased and NAMA has a dedicated contact number for politicians and rumour has it that ministers do ring the NAMA CEO Brendan McDonagh to ask for decisions to be expedited and in some cases reversed. But for all of that, the IMF understands NAMA’s objectives and will help the independence of the Agency by identifying damaging political interference. NAMA was one of the first bodies to meet the bailout teams last week; if Brendan McDonagh complains of political interference, it is likely the comment will appear in the IMF’s assessment.

(8) Stress tested banks. Remember before the bailout, our own financial regulator, Matthew Elderfield had overseen not one but two stress tests of the banks. The first turned out to be hopelessly inaccurate in underestimating the losses in our banks, and the second suffered from poor credibility after the first fiasco. The IMF and EU oversaw the stress tests in March 2011, which received no small amount of welcome from markets.

(9)Croke Park (agreement with unions to protect pay levels in return for reforms), social welfare and income tax rates. To close the budget deficit, it is likely that Ireland will need some form of wealth tax. It is also likely that top salaries in the public sector will need be significantly cut. But even that will not balance the books and the view on here is that Croke Park which protects salaries amongst all levels of the public sector, social welfare rates and income tax levels will need be adjusted. All are political hot potatoes which governments will try to avoid. The IMF will make it happen.

(10) Our economic sovereignty. On current projections, it will take eight years, from 2008-2015 for Ireland to adjust to the collapse of our financial and property sectors. Eight years. And it will be a challenge to have a near-balanced budget by 2015. But without the up-close-and-personal involvement of the IMF, do we think we could balance the books ourselves under the traditional standard of Irish political competence? Whilst remaining a member of the euro?

So the next time politicians poo-poo the notion of a second bailout, perhaps we can remind them of the politically difficult but beneficial reforms the IMF has effected in this country, not to mention the rock-bottom interest rates charged on the bailout. The reforms however are far from complete, so a second bailout and further oversight from our friends at the IMF, might just be in the interests of the country as a whole.

Amen

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