Coy reporting hides the true value of property

Comment: To tell or not to tell, that is the question. The question is particularly relevant when the issue concerns the state of the housing market, a sector on which the economy now depends more than ever, writes Marc Coleman

Some time last summer the rocket scientists and brain surgeons from the Organisation for Economic Co-operation and Development (OECD) conducted an analysis of the Irish property market.

Their conclusion was as follows: "There is clearly a speculative element and econometric work by the OECD secretariat suggests prices are 15 per cent overvalued." That sentence was contained in a confidential memorandum sent to the OECD General Secretary as part of a biannual process of evaluating the Irish economy.

Yesterday, the final outcome of that process was published in the form of an extensive 150 page report. Buried on page 123 is the following comment on the Irish housing market: "It is worth noting, however, that around 80 to 90 per cent of the increase in house prices since 1995 is justified by the fundamentals."

Those with an understanding of econometrics (a sad breed) know that the two statements are equivalent.

But the latter is an obfustication worthy of the sitcom Yes, Minister by which our modern day Sir Humphreys in the Central Bank of Ireland have succeeded in downplaying a key message of a significant report: as of last summer our housing market was overvalued.

The original memo recorded that officials from the Central Bank agreed that the OECD's findings were "consistent with their own judgement" but that they also held the view that "numerical estimates of overvaluation should be presented only with extreme caution to avoid destabilizing the market".

The strangled prose of the latest report shows that the OECD has bowed to their concerns. The Central Bank was hoping that any overvaluation was passing and would blow over.

But Tuesday's Permanent TSB/ ESRI housing index has elivered a rude awakening. It shows house price inflation rising from 9 to 10 per cent in January. It's not hard to see why.

Assisted by imminent maturation of SSIAs - which have not yet been released, but are being factored into mortgage applications - annual growth in mortgage lending reached 28.8 per cent in January.

To summarise: last summer the OECD thought our property market was overvalued by 15 per cent.

The Central Bank of Ireland agreed but fretted that admitting as much would scare the market. The Central Bank governor then said that house price growth was moderating, but added that he would be concerned about any resumption in double-digit house price inflation.

But that - thanks to runaway growth in mortgage lending - is precisely what is actually happening.

What, if anything, does the Central Bank of Ireland or the Government intend to do about it?

Agreeing not to tamper with future OECD reports would be a good first step. Conducting an independent, thorough and quantified analysis of prices in the housing market would be a good second one.