Enlarged EU could affect housing market

The housing market is not set for a British-style collapse, the chief economist at Barclays has said.

Mr Brian Martin said the market would not tumble as a result of higher rates, but might suffer as result of EU enlargement.

Poland, the Czech Republic and Hungary all offer cheap, often well educated labour and are well located. Once they are members of the EU, multinationals could choose to move away from areas where wages and property prices are higher.

He added that to balance this risk, the State must now tackle labour market reform, deregulation and continue competitive wage settlements.

There was also an argument for State intervention in housing, he added.

"The Government can either legislate for the amount banks can lend to individuals or can act on the supply side."

He also noted that the Government missed a "golden opportunity" to revalue the pound against the other euro zone currencies by about 10 or even 15 per cent last year, when negotiating its entry rate to the euro.

"Instead the pound was revalued by 3 per cent which does not fit the needs of the real economy."

With the euro set to decline further against the dollar and sterling, the economy will be boosted again.

This will put further inflationary pressure on housing and on wage rates. "The State will lose competitiveness over time," warned Mr Martin.