What the landlords did with their massive fortunes

Augustus Frederick Fitzgerald, the 3rd Duke of Leinster, painted circa 1850. Photo: Getty © Provided by Independent.ie

The fortunes of Irish landlords peaked in the opening decade of the 18th century. Fuelled by economic prosperity due to the opening up of the Americas, and the massive growth in the demand for land from a rapidly expanding population, the few thousand landlords who monopolised ownership prospered. One of the results was a building boom in big houses and the development of towns and cities. However, as is so often the case, the seeds of destruction were sown when life was at its best.

Extravagant lifestyles, economic downturns, and shifts in political ideologies exacted a toll which would see landlords’ social, economic, and political power more or less obliterated by the end of the 19th century .

By the time the then chief secretary for Ireland, George Wyndham, introduced his great Irish Land Bill in 1903, landlords were very much on their uppers; in fact, Wyndham believed that “the landlords of Ireland were financially ruined”.

What distinguished the 1903 Act from its predecessors was its scale, its generous terms to landlords, and its ambition to once and for all address the Irish land question. At a time when there was little if any market in land, it was in effect a “get out of jail card” for landlords.

By 1914, the Wyndham Act and its 1909 amending legislation (Birrell Act) had resulted in over 5,000 landlords selling 9.2 million acres of land to 257,000 former tenants, in the process receiving £82m (equivalent of $1.9 billion today)..

While the Wyndham Act may not have achieved the objective of finally solving the Irish land question, it did go a long way and ultimately laid the basis for its 1923 equivalent.

Despite their precarious financial and political position, Irish landlords in the early 20th century proved a resilient lot.

Arguably, the generous terms of the 1903 Act were testimony to their negotiating skills. In essence, the Wyndham Act tried to ensure that landlords would not be financially penalised by the sale of their estates.

If proceeds were invested prudently it was hoped that landlords would be no worse off in terms of income than when they were receiving rents. The target investment return was 3.5pc interest per annum. Thus, if a landlord had an annual net rental income of say £1,000, he would have to receive net sales proceeds of approximately £28,500 which, if invested at 3.5pc per annum, would give him an equivalent return.

The investment environment prevailing for the first 14 years of the 20th century was conducive to landlords seeking to invest profitably. Financial markets thrive on stability, and so the absence of any significant wars, economic depressions, inflation, or corporate collapses in the previous 50 years, coupled with continued industrial growth, meant that there were ample opportunities to invest.

Indicative of this was that the value of all securities traded on the London Stock Exchange had increased almost eightfold between 1853 and 1913 from £1.2bn to £9.6bn.

Examining post-Wyndham investment portfolios reveal a number of key trends.

Firstly, portfolios were largely made up of fixed income bearing securities as seen in the portfolio of Lord Clonbrock from Galway.

Economic crash

With the exception of a small number of ordinary shares, all the holdings were income bearing. The portfolio generated an annual income of £8,036 compared to a pre-sale net rental income of £6,329 per annum, leaving Clonbrock better off income-wise than he was prior to the sale of his estates.

The same was true for a good many of his peers. An outlier, however, was the case of the Duke of Leinster’s estate. The sale of over 44,000 acres in November 1903 generated a sum of £766,000(equivalent of £76.5 million today). Instead of investing in quoted securities, the Leinster trustees invested over 90% of the net sales proceeds in private mortgages. While the granting of personal mortgages was common enough at the time, the scale, relatively low returns, and the default risks, makes it very difficult to understand the investment strategy adopted by the trustees. In the long term it proved debilitous.

Economic stability came to an abrupt end in August 1914 with the outbreak of war in Europe. Financial markets were shocked by the commencement of hostilities and reacted accordingly. Britain became a creditor rather than debtor as national debt swelled, and inflation which had lain dormant for almost 100 years, became rampant. The immediate post-war years were no less turbulent as countries tried to return to peace-time economies while grappling with demobilisation of huge armies, rebuilding infrastructure, and dealing with massive unemployment. The result was a period of falling demand and falling prices as deflation replaced inflation as the main economic problem.

It was into such an environment that the 1923 Land Act was launched. Whereas the 1903 Act paid landlords in cash, the 1923 legislation paid them in British government-backed 4.5pc land bonds. These bonds could be held by the vendor or, if he wished, he could sell all or some of them on the Dublin or London Stock Exchanges.​

What ultimately became of landlord investment portfolios?

In a nutshell, their focus on income was rewarded for many years particularly in the deflationary 1920s. However, towards the end of the decade, significant erosion in the value of railway stocks and many of the overseas bonds meant that capital was seriously depleted.

The stock market crash of 1929 and the subsequent global economic depression that followed further eroded capital values. The absence of any ordinary shares from portfolios meant that there was little if any scope for capital appreciation. In 1932, the British government reduced the rate of interest payable on War Loan Bonds from 5pc to 3.5pc, which significantly reduced their value. Such bonds were a common feature of many landlord portfolios.

Falling bond yields meant that to maintain standards of living, investments had to be sold thus eating into capital.

Had the Dukes of Leinster managed to hold on to their 44,000-acre Kildare estate, it would probably be worth about €660m today.​

Tony McCarthy is a PhD graduate of Maynooth University

Source: The Irish Independent