Market View

Doom merchants and indulgent parents are bad for the market, says Marc Coleman

Margaret Thatcher claimed to want to destroy the "nanny state"; that 30-year experiment with cradle-to-grave protection that followed the second World War. A bit strange this, as some theories of electoral psychology attribute Thatcher's electoral success to male voters' nostalgia for nannies being firm with them as children (actually, let's not go there).

Now in Ireland we don't have a nanny state: instead we have what I would call a "mammy state". The propensity of Irish mammies to mollycoddle and spoil their children rotten (especially sons) is renowned.

As often as not, fathers either join in or turn a blind eye. As someone who left home at 19 and never had a property bought outright for me by my parents, the extent to which parents will lash out on buying apartments for their children astounds me. All right, so I'm jealous, but that's beside the point: no one objects to parents giving their offspring help with the deposit. After all, helping your offspring onto the first rung of any ladder is what parenthood is all about. It's when you carry them on your shoulders all the way up the damn thing that some questions have to be asked.

First up, will there be social consequences? Most likely there will and they will be significant. Masses of housing equity has been accumulated over the last decade by those in their 60s and 70s. As they pass on this equity to their offspring, income inequality in this country will be significantly worsened. To a reasonable extent inequality is warranted if equal opportunity exists and where personal merit determines the outcome of the race. Neither is true in the case of the Irish housing market.

Then there is the human aspect of this to consider. Part of the joy of living is experiencing the satisfaction that comes with knowing that you are who you are - rather than being a material extension of your parents - and that you enjoy what you have worked for with your own sweat. Give your children everything on a plate (and buying property for them comes close to this) and the common-or-garden struggles that life will present them with later on - when you are no longer there to help - will be much more difficult.

And while we're on the topic of childhood experiences: the tendency to reach for the teddy bear when things appear to be getting tough is in us all, but most of us manage to restrain the instinct in adulthood. Not so some commentators on the property market. In outbursts that strongly suggest a lack of affection given to them as children, some are predicting the downfall of the market, the collapse of the economy and the sky falling on our heads. It shouldn't surprise you that the very same people were, a year ago, predicting decades of double-digit growth. They were talking nonsense then and they are talking nonsense now - dangerous nonsense at that.

In the case of the property market, irrational predictions of doom can be self-fulfilling. Some people just need to pull themselves together and adopt a stiff upper lip: the market is correcting, not collapsing. Growth should steady to low single digits for the next year or two, remaining below nominal income growth and thus eroding the modest amount of overvaluation in the market. With interest rates set to peak this year and start declining next year - and with the possibility of supporting the market by cutting stamp duty always at hand - the safety nets for house price levels in 2008 are effectively already in place.

Offspring buying property need help with the deposit and good advice on where to buy. The market needs firm logic, a mop-and-broom approach to stamp duty and a few words of comfort about interest rates peaking soon. That is, a bit of firm nannying in both instances.

Marc Coleman is Economics Editor of The Irish Times