Mr. Frank McDonald:

It is fair to say that the close relationship between the construction sector in this country, including property developers, and the world of politics, is well-established not only in Ireland but throughout the world. It is not an unusual phenomenon. The Galway tent, notorious in its own way, was our version of it until recently. Back in the 1960s, the nexus of connection between the construction sector and politicians became evident with the formation of Taca, a Fianna Fáil fund-raising organisation which used to run £100-a-plate dinners to raise money for the party and which were pretty scandalous at the time. It is known that there were close connections between leading property developers and senior politicians, as the latter could facilitate the former in securing State tenants for planned office buildings, particularly in Dublin, to cater for our growing Civil Service.

Politicians at local level also played a crucial role in facilitating ambitious plans. Since the 1963 Planning Act came into force in October 1964, it has been a "reserved function" of councillors to make decisions on the content of city or county or indeed, town development plans. What this meant was that they were in charge of zoning land -- making decisions about which land would be designated for development and which land would not be so designated. They had the power, in other words, to transform the value of agricultural land anywhere in Ireland, multiplying it by a factor of ten or more. So there was a lot riding on such decisions.

Between 1963 and 1971, land values in the Dublin area soared by 530% as the scale of the development opportunities became evident and speculators scrambled to buy up land likely to be rezoned for housing, industry or whatever. The then Fianna Fáil Government established a committee on the price of building land, chaired by a renowned constitutional lawyer, Mr. Justice John Kenny, to recommend ways of curbing such speculation. It proposed that all land required for development should be designated and then acquired at its existing use value, plus a premium of 25%. Sadly, over the past 40 years, however, nothing was done to implement this recommendation by any Government in the entire period.

It was inevitable under these circumstances that land speculation would continue and that zoning would become tainted by corruption. Allegations that "brown envelopes" were changing hands, first surfaced in 1974, but a Garda investigation got nowhere. Subsequent Garda investigations in the late 1980s and again in 1993 also got nowhere. The latter investigation, the 1993 investigation, incidentally, arose out of a week-long series of articles in The Irish Timeswritten by Mark Brennock and myself, on suspicious land rezoning decisions in County Dublin. It led off with a news story on the front page, headed, "Cash in brown paper bags for councillors". An advertisement placed by a firm of Newry solicitors offering a €10,000 reward on behalf of then anonymous clients for information that would secure the conviction of persons for engaging in land rezoning corruption ultimately led to the establishment of the planning tribunal, chaired first by Judge Feargus Flood and later by Judge Alan Mahon. The tribunal heard voluminous evidence from witnesses with first-hand experience of corrupt payments and drew a number of conclusions in this regard that were later deemed technically unsound following a Supreme Court ruling. However, I have no doubt personally that corruption lay at the heart of Dublin County Council’s most contentious land rezoning decisions.

One has to remember that the planning tribunal was dealing only with County Dublin as it then was. I have no doubt that there has been corruption elsewhere; otherwise, decisions made by elected representatives against the advice of planning officials are almost inexplicable. After all, we have a political system that is based on clientilism - as the members of this committee know very well. I would define clientilism as doing individual favours for individual constituents, in effect, turning citizens into clients. How much more of a step is it really to seek "political donations" in return for performing such "services" as rezoning such-and-such a parcel of land rather than such-and-such another parcel of land? I would suggest that there is not much of a step between those two things.

Local area plans that were intended to give people more control over what happened in their own areas were turned instead into vehicles for land speculation and the enhancement of land values. This applied right across the board. Laois, Monaghan, Westmeath and Wexford were among the counties that fell victim to this trend. However, every council in Leinster, it seemed, wanted to secure a slice of Dublin’s development. There was massive over-zoning of land during the boom period. In some cases, so much land was being zoned under county and local area plans that it could cater for decades of housing development. In one case, enough land had been zoned in a particular county plan that would have catered for housing demand up until the year 2070. Every county was making these decisions in disregard for what other counties were doing, or not doing, as the case may be. Pressures from farmers and other landowners to have their patches of land zoned for development reached fever pitch in 2007, as the property bubble inflated to its full overblown size. It was little short of a frenzy, as I recall. There was a sense of "It’s now or never" in the air, and some feared that they had already missed the boat or, rather in this case, the hot-air balloon.

Pumping up this balloon for most of the period under review was an array of lucrative tax incentives. There was the long-established section 23 incentive for buy-to-let apartments or houses, and other tax breaks for the development of run-down seaside resorts - a measure introduced by the rainbow coalition in 1996 - hotels, multi-storey carparks, student housing and a specific area-based tax incentive scheme called the upper Shannon rural renewal scheme, which applied to all of counties Leitrim and Longford as well as parts of Cavan, Roscommon and Sligo. In theory, nearly anything developed anywhere within this vast designated area would qualify for tax incentives under the scheme introduced in 1998 by then Finance Minister, Charlie McCreevy. It is hardly surprising then that among the counties severely hit by the phenomenon of ghost estates were Leitrim and Longford, because not only was there massive over-zoning, there was also massive over-development. Laissez-faireplanning policies, largely landowner or developer-driven, created the framework for it all to happen while the advent of motorways facilitated and encouraged the sprawl of Dublin and other urban centres by leading people to imagine that they could live up to 100 km from where they worked and get there and back by car. In Gorey, County Wexford, for example, more than 70% of new residents were commuting to work in Dublin, nearly 90 km to the north. The same was happening all over Leinster and even in parts of Ulster. I would instance Virginia, County Cavan, or Carrickmacross in County Monaghan, which have suburban housing estates that are really part of Dublin, in effect.

Yet, the strategic planning guidelines for the greater Dublin area, which were adopted in 1999, had stressed the importance of consolidating the metropolitan area. In other words, the guidelines were anti-sprawl. Although if the guidelines were to mean anything they would have to be enforced, incredibly, no effort was made to do this either by local or central Government. If the suburbs of Dublin were springing up in such unlikely places as Rochfortbridge in County Westmeath, which is 80 km from the capital, it was attributed to market forces and people would come to their senses when houses lost their value, which has happened.

The Government even used escalating house prices in Dublin to promote its controversial decentralisation programme, noting that public servants with homes in the capital would do well on selling them and buying a much cheaper house in one of the 53 locations to which more than 10,000 of them were to be dispersed. The other beneficiaries were the business communities in the towns where new Government office blocks were to be built, including estate agents, shopkeepers, publicans, providers of other local services and those who had sites for sale. It was the same with property-based tax incentives. As more investors availed of these incentives, a whole sector of society had a major vested interest in ensuring the incentives continued for as long as possible.

The banking inquiry committee needs to ask why the property-based tax incentives were continued for so long even though the construction industry was having its biggest, most profitable spree ever. Although it was perfectly justified to introduce the section 23 tax incentive in the late 1980s when the construction industry was on its knees and desperately needed a lift, to persist with these incentives when the construction industry was leading the boom was the height of folly. The Government was adding fuel to the fire, stoking an already hot furnace. The committee needs to ask former Ministers for Finance of the period precisely why they decided that a range of property-based tax incentives should remain in place, given that no public interest reason can be offered to justify such an irrational fiscal policy.

The availability of lucrative tax incentives combined with cheap credit and laissez-fairepractices in the banking and planning sectors created and sustained the property bubble. Bankers also played the role of touts for developers. Frequently, it was bankers who spotted development opportunities at well located sites and lined up client developers to run with them, with the bank providing the loan financing. Thus, developers ended up "leveraged up to their eyeballs" as one observer put it. The banks were counting on these developers as men with the Midas touch to repeat their previous performances again and again as more sites came onto the market, even with eye-watering price tags.

So many of us were caught up in the bubble that we could not see it in perspective or at all. It became normal that a fairly average semi-detached house could be worth €1 million or more and that the price per square metre of residential accommodation was higher in Dublin than it was in Paris. Every day, banks sought to persuade us to take out loans for new cars, holidays, home improvements, houses or whatever, and many of us did in droves. That is why economist Professor Morgan Kelly's warning of an imminent collapse in the property market, published by The Irish Timesin December 2006, was regarded by many as being as heretical as Martin Luther nailing his theses to the great west door of the Wittenberg cathedral.