Dáil Éireann Debate, Tuesday - 14 February 2006
103 Mr. Gilmore asked the Minister for the Environment, Heritage and Local Government the action he intends to take to address the renewed increase in house price inflation; and if he will make a statement on the matter. [5381/06]
Amharc ar fhreagra
A consistent element of Government policy has been to promote adequate supply of housing to meet demand. Despite strong demand pressures and increased levels of mortgage lending, house price increases have moderated significantly in recent years from rates of around 40% per annum in the late 1990s. This is attributable to the large increase in housing output that has been achieved, including a new record of almost 81,000 completions in 2005, almost two and a half times the 1996 level. The Government will continue to focus on maintaining overall housing supply at a level consistent with the continuing strong demand and maximising the availability of affordable housing.
Our strong economic performance impacted significantly on housing demand in 2005, particularly through substantial increases in employment and immigration. Demand can also be further fuelled by additional factors such as excessive lending. On a number of occasions since mid-2005, I have expressed concern that developments in mortgage lending might impact adversely on the trend of house price moderation. The Department raised this matter with the Central Bank and I communicated on the matter with a number of lending institutions involved.
While it would not be appropriate to focus unduly on price variations over relatively short periods, there have been recent reports of higher rates of house price increase in the latter part of 2005. I would again like to call on all concerned to pursue prudent lending policies, particularly having regard to the already strong demand pressures in the housing market arising from real demographic and economic factors.
Does the Minister agree that while there was some degree of moderation in the level of house price increases, house price inflation appears to be taking off again? That was the general thrust of the ESRI and Permanent TSB report earlier this year. Apart from calling on the lending institutions to curtail their lending activity, is the Minister of State contemplating any measures to address the renewed increase in house price inflation?
Last year was the opposite of the previous year, where from early 2004, on a quarterly basis, the rate of increase declined. This time last year, experts were talking about a 5% or 6% increase. It seemed, however, that another wave of increases took place as the year went on. We do not have our own figures for the fourth quarter but the ESRI figure would have increased 1% on the previous year, where its prediction might have been there would be a drop. The third and fourth quarter saw increases once more, which might be due to extra numbers in employment, more people entering the State and 100% mortgages and other products.
What are we doing about it? Our policy in recent years has been to encourage supply because only by having supply to meet demand can the problem be solved. We are doing everything to maximise supply while putting schemes in place to help those caught in the affordability gap.
I do not understand the Minister of State's emphasis on 100% mortgages, which after all only give a benefit to those at the poorest end of the market who cannot afford to get a mortgage any other way.
Looking at the 80,000 houses built last year, half of them were bought by investors and 15,000 of them were second homes which are hardly reliant on 100% mortgages. Will the Minister of State explain why he places such emphasis on the 100% mortgage which is used by those who are stretched to pay for their first house? If the law of supply and demand means anything, and supply is increasing dramatically with more than 80,000 units built last year, why have house prices continued to rise? Even in a year where the level of supply increased so much, house prices surged again. Has the Minister of State studied this? Something is happening that does not make economic sense.
House prices entered another cycle of increases during the year because of three factors. There are 90,000 extra people working in the economy, 70,000 extra have entered the State and some financial institutions have an overly generous approach. Credit is by definition inflationary. It is not just 100% mortgages; there are interest-only mortgages and terms of 35 and 40 years. Some people are even talking about inter-generational mortgages.
Those types of mortgages are not being taken up by buyers of investment properties.
No, they are being taken up by everybody.
The take-up is not in the investor area.
The issue is fundamentally one of demand. The economy and credit are booming. We are trying to meet strong demand and the only way to do so is to tackle supply. At the same time, we are not losing sight of those who are being squeezed out of the market. I have been invited to attend an open day on the northside of Dublin tomorrow to view affordable houses which are being sold for €165,000. In addition, houses built in Clondalkin and Tallaght as part of a land swap for property on Harcourt Terrace are being sold for €142,000 for a two bedroom property and €172,000 for a three bedroom property. Houses are being provided at affordable prices. The fundamental issue is to meet demand and we are doing everything in our power to encourage developers to increase supply.
