Follow the Money by David McWilliams

Author:David McWilliams [McWilliams, David]
Language: eng
Format: epub
ISBN: 9780717155576
Publisher: Gill & Macmillan

Chapter 13

| MANUFACTURING CONSENT

JAPANESE HOMOPHOBIA

When looking at what can happen to house prices in Ireland and the slump, you have to consider that so many countries have experienced this carry-on before. A terrifying case in point is Japan, and Japan’s experience is made all the more scary because it was and still is the second largest economy in the world with a track record of extraordinary innovation. Up until the day everything went pear-shaped in the Land of the Rising Sun, people believed that Japan had found the elixir to everlasting economic vibrancy.

In 1989, the New York Times warned of an economic Pearl Harbor and added that ‘forty years after the end of World War ii, the Japanese are on the march again in one of history’s most brilliant commercial offensives, as they go about dismantling American industry’.

Japan was experiencing the most inflated property bubble of the twentieth century. The land on which the Imperial Palace in central Tokyo sat was valued at more than the entire real estate of Canada—the world’s second largest country. With paper profits from property back home, Japanese investors were busy buying up trophy assets in the us—from the Rockefeller Tower in New York to Columbia Pictures in Hollywood. The best-selling book of the year was Michael Crichton’s Rising Sun, which he said he wrote ‘to make America wake up’.

Corporate America was in the grip of a Japanese hysteria and both mainstream commentators and the political elites believed that the Japanese march to world commercial domination was unstoppable.

Today, 20 years later, the Bank of Japan has announced it is still fighting a deflation battle. This deflation followed a ten-year recession in the 1990s. Instead of taking over the world, powered by its roaring property market, Japan suddenly, and for most people shockingly, went into an economic crisis that lasted almost 20 years. How did everyone get it so wrong?

People say that pride usually comes before a fall and, in the case of the Japanese economy, this was certainly true. The Japanese property bubble lasted almost a decade and was driven by cheap credit, massive financial deregulation and a fair amount of pop-psychology as the herd reacted to the property boom. This led to almost panic buying, financed by a banking system that lent out money for just about anything.

What is interesting for Ireland is not that this happened, because it happened here as well, but what happened to house prices in Japan after the boom.

Prices roared upwards and then collapsed, ending up below where they started at the beginning at the boom. Property prices fell 70 per cent peak to trough in Japan and never recovered. Having been burned, the Japanese became homophobic—this describes not an attitude to gay men, but to investing in homes. They rejected the idea of ever buying other people’s homes as an investment.

This is likely to happen here; development land is likely to settle back to 1996 prices and houses prices will continue to collapse. When we hear some property lads talking about green shoots—the lesson from Japan should be heeded.

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