Vol. 503 No. 3
83 Mr. Enright asked the Minister for Finance his views on the very significant increases in the price of houses and other property; his further views on the way in which asset inflation will impact on the pursuit of claims for increased pay; and if he will make a statement on the matter. [10034/99]
The very significant increases in the price of houses and other property reflects the exceptional performance of the economy in recent years. Nominal GDP is estimated to have increased by almost 30 per cent since 1996. The rapid rise in house prices is largely explained as a lagged response to sharp rises in incomes, employment and household formation in the face of inadequate housing supply. This was one of the main conclusions of the Bacon Report which examined developments in the housing market and made a number of recommendations.
In response to the Bacon Report the Government implemented a number of measures aimed at both dampening housing demand and improving the supply of housing. In order to review the effectiveness of these measures, the Government commissioned a follow-up study to the Bacon Report. In this report, it was concluded that the Government's measures had achieved some slowing in the rate of increase in house prices. However, it was noted that it will take some time before the supply measures which have been introduced will have a significant impact.
As regards the link between wage developments and the increase in house prices, the Government is concerned that excessive house price increases might result in wage inflation which undermines the economy's competitiveness. In some sectors there is evidence of wage inflation, most notably in information technology and construction, where there exists an imbalance between the supply and demand for labour. More generally, and despite some pressures, wage inflation is being contained and is broadly in line with the terms of social partnership agreements. However developments in both the housing and labour markets are being monitored closely.
