Housing crisis and economic realities

Sir, – In macroeconomics, the necessity to make pragmatic trade-offs is often characterised as a “trilemma” or an impossible trinity. No country or finance minister can seriously hope to control the value of their currency, the movement of capital across borders and their monetary policy simultaneously. While Ireland’s EU membership probably raises questions about our ability to fully dictate any of them, even the most independent nation has to accept the reality of this bind. They can control any two, but must let the third then be determined by the consequences of those choices. This comes to mind reading Randall Plunkett’s comments on the Sinn Féin leader’s aim to reduce house prices in Dublin to €300,000 (Letters, December 29th).

It seems that any politician aiming to make the purchase of houses more feasible must accept that to do so requires accepting repercussions that will be profoundly detrimental to some or all of us. One such might be negative equity for those who have recently managed to overcome the existing barriers to buying, as Mr Plunkett points out. Alternatively one could relax the restrictions on bank lending, allowing financial institutions to permit more borrowing. This in the past lead to economic collapse and an IMF bailout.

Or one could seek major increases in wages, so that at existing lending criteria higher prices might be rendered affordable. This will negatively impact on foreign investment and make Ireland a less tempting place to do business, reducing employment.

Unlike the impossible trinity of three desirable but incompatible macroeconomic objectives, the Irish property trilemma contains a triad of options that each border on political self-destruction. It would be useful if any politician, or possibly anyone at all, wishing to make property here more affordable would clarify which of these strategies they would pursue. It’s very difficult to envisage an entirely positive solution to the matter, which is itself a consequence of our economic success and prosperity. – Yours, etc,