Anyone who lived through the debate in Ireland around the imposition of property taxes will be familiar with the phrase “asset rich, cash poor”. It was used by opponents of the property tax to describe the position of many families in areas where property values were high, but incomes had yet to recover from the recession. The basic idea is that while your house might be worth 1.5million euros on paper, you shouldn’t be taxed on that wealth as it’s inaccessible to you without selling the house – and your actual cash income might be vastly lower than your home value would suggest.
This is, in economic terms, the difference between being insolvent, and being illiquid: Insolvent is when the total value of your assets, if sold, would not cover your debts. Illiquid is when you do not have the cash to pay your debts, but could raise it by selling assets.
The Peter McVerry trust is illiquid, not insolvent.
As my colleague Matt – who has made much of the running on this story – reported last month, the McVerry trust has over €180m in property assets. Set against this, it has, per the Irish Times, creditor debts of about €6m and a coming revenue bill of about €8m. In other words, it is illiquid to about the tune of €14m, and must find the cash from somewhere. The Government, apparently, is standing ready to oblige:
Any funding which would be provided to the housing charity Peter McVerry Trust would be done with “conditionality”, the Minister for Housing Darragh O’Brien has said.
Speaking at the Fianna Fáil Ard Fheis in Dublin, Minister O’Brien said he had received correspondence regarding a “funding request” for the organisation, which is facing financial difficulties.
He said he would be assessing the funding request in the coming week or two.
The real question here is not what those “conditions” should be: it is why on earth the state would consider bailing out a body whose assets far exceed the value of its liabilities?
As Matt reported in October, a detailed look at the accounts of the McVerry trust suggest that the primary reason for its present cash poverty is the massive expansion in recent years of the charity’s property portfolio. Comparing the accounts for 2021 to those for 2022, it appears that the charity added over €50m in property in one year alone. Those buildings were acquired, it should be remember, from the market. Meaning that this is an Irish charity whose activities – while legitimate – mean that it is directly competing for homes against ordinary Irish citizens.
The normal functioning of that market would demand that a charity that has a massive property portfolio, and which has over-extended itself, should divest itself of some property in order to cover its debts. This, incidentally, would also have the happy side effect of increasing the number of properties for sale in Ireland during a housing crisis.
Instead, the Government is, apparently, considering a plan which would effectively reward the McVerry trust for vastly over-extending itself and running up huge debts. Why?
To the untrained eye, the answer might be as simple as “we need homelessness charities”. But that answer is deeply unpersuasive: Ireland has a shortage of many things, but homelessness charities is not on the list. In fact, consider the following facts, reported, again, by Matt last year:
Even if we just take the five organisations listed above, there is one person employed by them for every three households accounted homeless in Dublin. Their total income amounts to over €25,000 for each homeless household in the region. That would be sufficient to pay rent for more than a year for most houses and apartments.
The homelessness charities are, simply, not short of funds to complete their missions. Combined, the five biggest homelessness charities in Dublin alone employ 1,774 people to tackle homelessness in Dublin. What kind of return is the state (or the public, who deliver a fraction of their funding via donations – most of it comes from the taxpayer) getting in return?
If any other household or organisation was in this position, as a result of its own mismanagement, the solution would be clear: Sell some assets, pay your debts, and learn your lesson. Why is that not the position that would automatically be applied to the McVerry trust?
Consider the precedent being set here, if nothing else: If the McVerry trust is bailed out of its own mismanagement, that sets the bar for future standards. It would amount to the state saying that its favoured NGOs are essentially exempt from the requirement to manage their own affairs carefully.
It is long past time that Ireland’s homelessness industry – which is what it amounts to – was held to account for its failings. The Peter McVerry trust is illiquid, not insolvent. It should be forced to take its losses, sell some property, and learn its lessons.
The idea of the Government bailing it out is indefensible.