Irish house prices undervalued by 13%, says commission
Government needs to boost the supply of housing in Dublin
The European Commission report stated that the Irish Government needs to help boost the supply of housing in Dublin and that all mortgages with Irish banks that are in arrears of more than 90 days should be restructured.
A European Commission report has concluded that house prices in Ireland may have “undershot desirable levels”, with the average house price undervalued by 13 per cent.
The report uses an “equilibrium price” – a figure that takes account of data including personal disposable income, population and the real mortgage rate.
The in-depth economic review of a number of EU economies, including Ireland, also stated that the Irish Government needs to help boost the supply of housing in Dublin and that all mortgages with Irish banks that are in arrears of more than 90 days should be restructured.
The report noted the lack of housing supply in Dublin. “Policies should aim at boosting the supply of housing in Dublin to avoid steep price rises. The scale of the Irish housing market boom and bust has been nearly unprecedented among advanced economies. Between 1993 and 2007, house prices rose by a cumulative 415 per cent.”
However, it added that, while the housing market should continue to recover with rising employment, high mortgage arrears and low levels of bank credit should avoid the recurrence of another boom.
The report highlighted the vulnerability of the Irish financial sector, referencing the high level of non-performing loans. Nearly 27 per cent of loans at the three main domestic banks were non-performing as of mid-2013, the report found, noting that the percentage continues to increase, albeit at a slower pace.
However, it noted consumption behaviour of only 10 per cent of Irish households is directly affected by mortgage arrears resolution.