Blaming Central Bank for housing crisis is a mistake

Alan Kelly says Central Bank has ‘wrecked’ housing market for buyers and its rules have ‘hammered’ house-building

Nobody wants buyers to be “locked out” of the property market. But nor do we want to return to the old days when young borrowers were put under pressure to take out unaffordable mortgages to “get their foot on the property ladder”

Nobody wants buyers to be “locked out” of the property market. But nor do we want to return to the old days when young borrowers were put under pressure to take out unaffordable mortgages to “get their foot on the property ladder”

 

There have been various hints and nudges from Government Ministers to the Central Bank, to try to get them to change the mortgage lending rules. These rules say borrowers should generally have 20 per cent of the mortgage loan saved, though with a range of exceptions aimed to help first-time buyers. Minister for the Environment Alan Kelly was the latest into the fray this weekend, reported in the Sunday Independent as saying the Central Bank had “wrecked” the housing market for buyers and that its rules had “hammered” house building.

Realpolitik

Lane will know how fatal it would be for the perception of the bank’s independence if – no sooner than he takes the chair on the seventh floor in Dame Street – he is seen to immediately jump to the Government’s tune. To underline the Central Bank’s independence he is now more or less obliged to leave the rules as they are, at least until after the general election.

To heap all the blame on the Central Bank rules for the problems of the housing market is crazy. House prices, in Dublin in particular, had accelerated dangerously after the bust. The new rules, which also impose a limit of 3½ times earnings on loans in most cases, have been one factor in slowing and even reversing the trend in Dublin. To an extent, this is job done. Do we want prices to keep on rising, putting them further and further out of the reach of those on ordinary incomes?

First-time buyers

Nobody wants buyers to be “locked out” of the market. But nor do we want to return to the old days when young borrowers were put under pressure to take out unaffordable mortgages to “get their foot on the property ladder.”

The ladder collapsed for many who did, and they still face the consequences. We can’t go back to the old game of ever rising prices fuelled by more and more borrowing, particularly at a time where the general rate of inflation is near zero and interest rates are on the floor, and thus likely to rise at some stage in future.

There are a whole range of other factors playing in to the low level of house building – availability of finance, planning rules, and the length of time it takes to get houses from construction to completion. And we can all see the knock on in the rental sector, where families are getting squeezed.

Rising borrowing

No doubt the Central Bank rules will be adjusted over time.But the current game where different Government departments are blaming each other and everyone is blaming the Central Bank will get us nowhere. Only some “joined up” thinking is going to solve this one – and even then it is going to take time. Loosening lending rules to encourage young families to chase prices back upwards does not seem like a good place to start.

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