Dublin, already one of the most expensive cities in Europe in which to set up home, will see house prices rise by an estimated 15 to 20 per cent again this year, Prof John Fitzgerald, of the Economic and Social Research Institute, warned yesterday.
Addressing the Oireachtas Committee on the Environment and Local Government, Prof Fitzgerald said Dublin was more expensive in accommodation terms than most cities, including Brussels, and much more expensive than Amsterdam, Madrid and Rome. He said prices in Dublin were now so high that the net immigration of recent years had slowed. Dublin prices were being fuelled "by expectations of price rises" and he warned that "any sudden shock to the economy" could cause a serious recession.
If anything, including measures beyond Government control such as a fall in the price of US technology stocks, caused employment fears, and demand for houses to drop, the result "could cause house prices to fall dramatically", he warned. While there was still the prospect of a soft landing with an increase in the supply of serviced land and a price adjustment over time, the Government should move now to "take money out of the housing market". The necessary steps should already have been taken in the last few budgets, he warned, adding "the possible dangers are certainly enhanced by the current stance of policy". The Minister of State with responsibility for Housing and Urban Renewal, Mr Robert Molloy, said it was "generally accepted" that interest rates were at the lowest point of their cycle, and he warned financial institutions of their "inescapable duty of care" to ensure that borrowers did not take on commitments "which they might not be able to meet".
Fine Gael TD Brian Hayes said "the most basic" house in Dublin still required a total household income of more than £50,000 a year and if the Government's policy was to moderate house prices, it would still leave an enormous number of people unable to afford their own house. "Even if the policy is just to moderate the house-price increases, it isn't working," he added.
Mr Hayes said while the Bacon report had deprived the investors of tax relief on rental income, there were still plenty of investors "going along for the inflationary wave".
The committee was also addressed by Dr Sheila O'Connor, of the National Economic and Social Council, who said "the affordability of rented accommodation has almost certainly worsened during the 1990s".
She agreed with Prof Fitzgerald that a severe negative shock to the economy could have very serious effects "and worse than elsewhere in the euro zone, if it triggered a fall in house prices which revealed that there had been a bubble in the Irish market".
"This consideration makes it all the more important that decisive progress be achieved in resolving the shortage of accommodation in Ireland today," she concluded.