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Property Valuations

Dáil Éireann Debate, Thursday - 7 May 2015

Thursday, 7 May 2015

Ceisteanna (66)

Bernard Durkan

Ceist:

66. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which house property prices continue to impact negatively or positively on the economy in general; and if he will make a statement on the matter. [18042/15]

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Freagraí scríofa

According to the Central Statistics Office, national residential property prices increased by 16.8 per cent over the 12 months to March. Looking at more recent trends, prices decreased by 0.9 per cent in the first quarter of 2015, although the latest figures for March indicated a monthly price increase of 0.9 per cent. It is too soon to say whether the recent developments in prices represent a break from the property price inflation pattern exhibited over the past two years.

Rising residential property prices can impact on the economy through a number of channels.

The current situation is one where housing supply has not yet responded commensurately to the increase in demand in urban areas, the latter driven by underlying demographic factors and by the economic recovery. In this context, an increase in residential property prices can be expected to lead to an increase in the supply of new housing to the market.  An increase in property prices improves the profitability of construction and should encourage developers to construct new housing, resulting in an increase in the level of supply. There is some evidence to show that housing supply is beginning to respond. Over the last year over 11,000 housing units were completed nationally representing more than a 30 per cent increase over the previous year.

Furthermore, rising property prices add to market liquidity as owners and investors bring second hand properties to the market. A more liquid property market should help support individuals' mobility within the economy.

Residential property price increases are also relevant in alleviating the extent of negative equity and household over-indebtedness. The reduction in negative equity should improve mobility amongst those affected, further supporting the economy's recovery. In addition, increasing property prices may lead to an increase in consumption though a wealth effect.

Rising property valuations also have a direct impact on our bank investments. To the extent that they feed through positively to impairment provisions, it further strengthens the banks' capital positions and consequently improves the valuation of the State's shareholdings. In addition rising values can also assist the credit channel through the provision of stronger collateral.

On the other hand, excessive property price increases could adversely affect the affordability of accommodation.  This could restrict individuals' mobility and harm our economic competitiveness. In light of this, a return to affordability levels seen at the peak of the property bubble would be unwelcome.

As the Deputy will be aware, it is Government policy to tackle the impediments and barriers to housing supply which should contribute to a reduction in property price pressures. Construction 2020 sets out the Government's strategy for addressing issues in the property and construction sectors.  The strategy involves ensuring that any critical bottlenecks impeding the sector in meeting residential and commercial demand are addressed. It incorporates 75 time-bound actions encompassing the development of an overall strategic approach to housing supply, identifying and implementing further improvements in the planning process, and seeking to improve financing options for development and mortgage provision. This work is complemented by the Social Housing Strategy which was launched last November. This Strategy aims to provide more than 35,000 new homes to meet social housing needs by 2020 and to deliver up to 75,000 units of long term accommodation through local authority housing support schemes for tenants.

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