The EBS Building Society has issued its strongest warning about overheating in the housing market and has called on the Government to put planning and affordability at the top of its agenda to avert a crisis.
EBS chief executive Mr Pat O'Reilly said the mutually-owned society was gravely concerned about the level of indebtedness within the economy and was reluctant to "chase a market" that is moving out of kilter.
"The position is becoming more precarious as time is going on. And while the proposed increased supply of housing should resolve problems over the next three to four years, our concern is about what will happen in the intervening period."
Mr O'Reilly said the building society's growth might return to levels of less than 20 per cent this year due to fears about excessive lending in a spiralling market. He stressed it would make no apology for its prudent stance.
He called on the Government urgently to address this problem and to ensure the planning process was moving at sufficient pace to ensure housing projects would be completed on schedule. "Houses have become a speculative asset and that's a very dangerous situation," he warned. This is the second such warning this week. Writing in the monthly publication Finance, Mr William Slattery, the former deputy head of banking supervision at the Central Bank, said property prices could fall by 30-50 per cent if the huge growth in lending was not curbed. "A substantial decline in property prices is inevitable. The cost of building houses is substantially less than the current sales prices, reflective of very high profit margins for buildings and inflated site costs."
Mr O'Reilly said the "feel good factor" being enjoyed by homeowners at the moment was stifling meaningful debate on the problems visible in the housing market.
"When you make these statements you are almost accused of spoiling the party. All homeowners are enjoying the wonderful feeling of owning an appreciating asset. But the reality is that young people are being completely excluded from the market." The EBS's concerns are such that it has made an almost threefold increase in its provisions for bad debts in its 1999 accounts. This provision rose to €4.3 million from €1.3 million last year. Its head of lending, Mr Martin Walsh, said the provision was general and did not reflect concerns about the quality of its loan book.
Mr O'Reilly said there were grave concerns throughout the economy about the high level of indebtedness. Most first time buyers usually will top up their mortgage with funds borrowed from other sources, such as credit unions or family, which raises long-term issues in terms of their capacity to service those debts.
"We find ourselves in a dilemma. We are worrying about people who won't be able to pay their debts while we also don't want to be in a position where we are repossessing houses," he explained.
Mr O'Reilly said house price increases were being driven by excessive speculative demand. "This cannot last and is likely to cause severe damage to individual borrowers and the economy over the next few years. Leadership is now required on a scale similar to that which was applied with success to issues such as economic partnership, the national debt, the peace process and combating organised crime."
The Irish Permanent house price index recently recorded some slowdown in the rate of acceleration of house prices. In January it showed a 17.9 per cent year-on-year increase in the Republic compared to a rise of almost 30 per cent in 1998. These figures broadly concur with Department of Environment forecasts and should be confirmed when its official figures are issued later this month.
Meanwhile, sources within the Department have pointed to some optimistic signs in the short-term. One source said the amount of fully serviced development land due to be developed for housing is in some cases twice as much as had been envisaged. Depending on the speed with which planning is approved such developments could take some of the heat out of the housing market.
