Housing crisis and quantitative easing

 

Sir, – The explanation most commonly provided for soaring property prices and rents in the Irish market has been a lack of supply. While there can be no doubt that inadequate supply is a large part of the problem, there is another significant contributor to inflation in the property market but which has been almost entirely overlooked in public discussion, namely the European Central Bank’s policy of quantitative easing (QE).

QE is the purchase by the European Central Bank of large amounts of government and private bonds. Its aim is to increase the price of those bonds, thereby reducing the amount investors can earn from them. The idea is that investors will then purchase other riskier assets (including property) instead of bonds and that people will spend more as these assets increase in value and as they grow wealthier.

Given that the most acute problem currently facing this country is runaway property prices and rents, and given that QE has a tendency, and indeed the express aim, of reinforcing these deleterious trends, it is the wrong policy for Ireland at this time, however well it may suit other countries in the euro zone. Economist Dan McLaughlin has recently argued that QE has increased the presence of investors in the Irish property market. They now account for more than a third of all purchases in the Irish market. This has contributed significantly to the recent explosion in property prices and rents.

The miseries associated with crushing rent increases and astronomical house prices are well known, as are the problems of supply in the Irish housing market. However, QE, in pump-priming investor demand for property, is also a significant culprit. This ought to be more widely known and the wisdom or otherwise of the ECB’s expansionary monetary policy ought to be more widely debated. – Yours, etc,

STEPHEN BRITTAIN,

Templeogue, Dublin 6W.