In the mid-1980s, a colleague and I "torpedoed the property market", or so we were told. As financial reporters, we had examined the drop in house prices over the preceding 18 months. We documented falling prices on individual streets, even published photos of the houses. Our efforts distressed property interests.

One interested party invited us for a drink (we went Dutch) and sorrowfully informed us that this sort of honesty was not good for "some of us who are trying to keep a market going".

This was a frank admission that the emperor wore no clothes, that the level of house prices owes as much to belief as demand for houses. If people expect prices to rise, they hasten to buy. If they expect them to fall, they wait for a better bargain. Rising prices create a sellers' market, falling prices a buyers' market.

I remember this now when I see estate agents and others with a vested interest in the property market forecasting an increase in house prices. They know that such prophecies can be self-fulfilling.

A Dublin man recently wrote to me saying: "My daughter, who is a nurse, cannot buy a dog box, and my other daughter, who is a national school teacher, cannot buy a cat's cradle. In fact, the two of them together cannot buy a cardboard box in Dublin." The National Competitiveness Council warned last year that rising house prices had put many people on low to middle incomes onto local authority housing lists, most recently estimated at more than 55,000 households, or 140,000 people.

"Competitiveness is being damaged: immigration and internal labour mobility are being discouraged," the council said. High house prices worsen labour shortages, and both drive up wage costs. Higher wages drive house prices up further.

In 1999, the cheapest new house available to first-time buyers in Dublin cost around £103,000. That was the average price paid by the 25 per cent of first-time buyers at the bottom of the market. Last year the equivalent price had risen to £129,500.

The third Bacon report on the housing market concluded last year: "The level of average new house prices is outside the reach of many Irish workers. For most couples, two incomes are required to satisfy the mortgage lending criteria at current house prices."

Despite the probability that competing lenders are allowing couples to over-borrow, the gap by which average new house prices exceeded average new mortgages doubled to £47,230 between 1995 and 1999. "For an increasing number, the amounts involved simply cannot be financed. That summarises the affordability issue in a nutshell," the report concluded.

If this is true, why does the Government not want house prices to fall, or rather, continue falling? In the first and third quarter of last year, new house prices fell in Dublin. Secondhand prices fell in the first quarter. Full-year figures are not available yet.

Has the Government celebrated this fall? On the contrary, it has reversed three measures designed to make houses cheaper. It has cut stamp duty for "investors" in property and abandoned both an anti-speculation property tax and a penalty tax on landowners who fail to put lands zoned for residential use on the market.

The first two measures were intended to stop property speculation. In 1999, up to a quarter of house loans were going to "investors", portrayed sometimes as potential landlords, but often simply speculators gambling on making an easy buck in a rising market. To curb such speculation, Bacon recommended an annual tax on dwellings which were not owner-occupied. That's not going to happen now. And a higher stamp duty for investors, which had been credited with reducing speculative purchases, is also to be cut.

All analysts agree that the major problem in the housing market is increasing the supply of houses, but the Government has dropped its plans to penalise landowners who hoard residential land. The ESRI believes land and property prices will go up this year as a result.

All this only begins to make sense if the Government does not want house prices to fall. Why not? Who gains from these Government U-turns?

In the late 1990s, up to 2,000 holiday homes a year were being built for "investors" (contrast that with the building each year of fewer than 3,000 local authority houses). In the middle of a housing shortage, house building per head of population was highest in counties such as Wexford, Kerry and Clare. Increased stamp duty made builders switch from such schemes to starter homes in the cities. But that hurt developers and estate agents in rural constituencies, classic Fianna Fail supporters.

Rising prices suit builders whose profits have soared, landowners and developers making massive windfall gains and speculators. They would be the real losers if house prices tumbled, so that nurses, teachers and even industrial workers might aspire to own a house again. Could developers who borrowed against grossly over-valued land and bankers foolhardy enough to lend to them have the ear of the Government?

Falling prices would mean that recent buyers have loans in excess of the value of their houses, so-called negative equity. Falling prices would lessen established homeowners' spurious gains in wealth.

There is no escaping that this has to happen if we want a society which can house nurses and teachers and allow couples to exist on one salary. Don't expect to hear estate agents say that. But that is what the Government should be saying.

mawren@irish-times.ie