Ireland’s economic crisis has its roots in a housing bubble that collapsed in 2007. Commentators have pointed to a number of bankers, politicians, developers and builders who share part of the responsibility for the orgy of lending and borrowing that preceded the crash, but the key role of the media has not yet been systematically examined. This is the task that a research project at University College Dublin seeks to address, on which this piece reports. The full academic article can be found here.
In the two decades before the crisis erupted, Ireland’s real GDP grew at an average rate of 6 per cent annually, while unemployment dropped from 16 per cent in 1994 to 4 per cent in 2000. The so-called ‘Celtic Tiger’ years were in fact made up of two different and successive booms. In the 1990s, the economy expanded thanks to export growth fuelled by American multinational corporations taking advantage of low tax rates in Ireland, which allowed the country to emerge from economic stagnation. However, as the growth of exports decreased significantly after 2000, a credit-fuelled construction boom sustained high economic growth rates. Real residential property prices tripled between 1994 and 2006, and construction ultimately accounted for more than 20 per cent of the size of the economy (the average for a developed country is about 5 per cent). As of April 2013, average house prices have dropped by a little more than 50 per cent nationwide relative to their peak in 2007.
It is not too difficult to identify a housing bubble in the making, based on simple indicators such as the P/E (price/earnings) ratio and the price-to-income ratio. This is what a few analysts did, such as The Economist magazine, which stated in 2002 that Ireland’s real estate market had been ‘displaying bubble-like symptoms in recent years’ and estimated that it was then overvalued by 42 per cent. However, the Irish media were almost without exception cheerleaders for the booming property market, only dampening their enthusiasm months after prices had started to decline in late 2007 and 2008.
One way to illustrate this claim is simply to count the number of references in the press to the notion of a ‘bubble’ in the housing market before and after the crash. The figure below shows this for the Irish Times, Ireland’s newspaper of record. It can be seen that before 2008-2009, there were comparatively few articles that even mentioned that the market might be in bubble territory. On average, the newspaper had 5.5 times more articles on the bubble per year in 2008–2011 than in 1996–2007. For the newspapers Irish Independent and Sunday Independent, which boast a high readership, it was even worse: they had on average 12.5 times more articles mentioning the bubble in 2008–2011 than in 1999–2007. And that doesn’t mean that such articles published before the crash warned of a bubble—very, very few did, and many only talked about it to attempt to reassure readers that in fact, it didn’t exist.
Figure: Number of articles on the housing bubble in the Irish Times
Source: Julien Mercille, The Role of the Media in Sustaining Ireland’s Housing Bubble, New Political Economy (2013).
Some Irish Times articles’ titles give an idea of media coverage: ‘Bricks and Mortar Unlikely to Lose Their Value’ (11 December 2002), ‘Prices to Rise as Equilibrium is Miles Away’ (18 March 2004), ‘House Prices “Set for Soft Landing”‘ (22 November 2005), ‘Property Market Unlikely to Collapse, Says Danske Chief’ (2 February 2006) and ‘House Prices Rising at Triple Last Year’s Rate’ (29 June 2006).
Another way to look at the performance of the Irish media before the crisis is to consider that between 2000 and 2007, the Irish Times published over 40,000 articles on economic topics – but only 78 were about the real estate bubble, or 0.2 per cent of the total. In other words, any article that might have been critical about the housing market was effectively lost in a sea of uncritical reporting. That’s a very poor record for one of the most important economic events in Ireland over the last decades.
Television displayed the same behaviour as the print press. During the boom, the state broadcaster, RTÉ, fed the national obsession with property by airing shows like House
Hunters in the Sun, Showhouse, About the House and I’m an Adult, Get Me Out of
Here. In particular, Prime Time, a leading current affairs programme, remained essentially silent on the dangers inherent in the rapid growth of the property market. Between 2000 and 2007, it presented over 700 shows, but only 10, or about 1 per cent of the total, talked about the housing boom. Worse, the majority of these had guests arguing that there wasn’t any bubble. This is not surprising, as most of them were either affiliated with the property and financial industries or politicians from Ireland’s establishment parties (Fianna Fail, Fine Gael and Labour), which all had direct or indirect political or economic interests in sustaining the fiction that the Irish economy was booming, and would not stop booming. They were quickly brought back to their senses, but alas, too late.