Central Bank again in the firing line as Dublin housebuilding stalls

Dublin Economic Monitor says housing completions in the city are down close to 14% in the second quarter

Rather than try to force the hand of the Central Bank  might the Government not be better advised to address how to limit the cost of the largest component of a new house price – the land on which it is built?

Rather than try to force the hand of the Central Bank might the Government not be better advised to address how to limit the cost of the largest component of a new house price – the land on which it is built?

 

The only certainty about housing policy in Ireland is that everyone has an opinion; to date nobody has actually found a fix. The latest furore comes with the publication of the Dublin Economic Monitor, produced by EY and DKM on behalf of the four local authorities in the capital.

The alarm focuses on the revelation that housebuilding is stalling in the city. Housing completions are down close to 14 per cent in the second quarter, it notes, the first fall in over four years. Commencement notices at the other end of the building chain are also down, by 18.5 per cent.

So who is to blame?

Unsurprisingly the first response was to lash out at the Central Bank which has in place a set of rules governing how much people can borrow.

Essentially the limit is 3.5 times earnings, and the loan can not cover more than 80 per cent of the purchase price. There is some dispensation for first-time buyers, who can borrow up to 90 per cent of the house price, and if they buy a newly-built home secure another 5 per cent by way of a refund of income tax paid under the Help-To-Buy scheme.

Central Bank rules are there for a reason. Most of us – though apparently not everybody – still recall the damage that loose mortgage rules and excessive leverage caused for a generation of Irish homeowners. Many are still fighting to emerge from the arrears built up after the financial crash. Others must contend with the ongoing negative equity which limits their capacity to move.

The rules are not out of kilter with other jurisdictions. All countries have lending rules.

In the UK, where the average property price is slight above the Irish average of €263,000, it is common to be able to borrow four times your earnings. But in France they are more careful about the loan-to-value rates, and also have rules limiting how much of your income can be accounted for by property-related outgoings – 30 per cent seems to be the threshold.

And of course this being Ireland, there is the wriggle room.

The Central Bank rules allow for “exceptions” which can account for a fifth of all lending to existing homeowners moving house – the very group identified as constrained in the commentary around the economic monitor.

Some 20 per cent of lending to first-time buyers, the primary market for new homes, can also exceed the earnings multiples.

Rather than try to force the hand of the Central Bank – an idea that is getting worryingly close to consensus – might the Government not be better advised to address how to limit the cost of the largest component of a new house price – the land on which it is built?

And maybe some of those homeowners struggling to sell might resign themselves to not matching the outsized sums they initially paid back in the boom era.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.