Honohan threatens new policy measures to cool house prices
CENTRAL Bank Governor Patrick Honohan has promised to step in and stop house prices in the capital running out of control if a credit-fuelled boom emerges.
"We have a toolbox of measures which can be used to cool down credit-fuelled demand," Prof Honohan writes in today's Sunday Independent. "We will not hesitate to use them to prevent bank credit overheating the market."
His comments echo similar threats from the Bank of England, which is similarly concerned about prices in parts of Britain. Prof Honohan's remarks come as Dublin house prices in June posted their biggest monthly gain since in 2005. Taoiseach Enda Kenny said last week prices are likely to continue rising for at least another 18 months due to supply constraints.
The Central Bank governor says in today's article that "initiatives to stabilise the market should emphasise removing supply constraints rather than fuelling demand".
Prof Honohan says that prices will not automatically continue to increase.
"Yes, there are housing shortages, but it doesn't follow that there will be a return to progressive increases in the real cost of housing."
House building will restore availability and solve the problem of pent-up demand in the Dublin area, he adds.
Certainly, credit expansion has not been, and will not be allowed to become, an out-of-control driver of housing demand, the governor says.
Prof Honohan reiterates that banks have failed to deal with mortgage arrears and defends the Central Bank's controversial Code of Conduct on Mortgage Arrears, which has been dismissed by many observers as toothless.
On the Budget, he calls on the Government to avoid the traditional pre-election spending splurge, as the national debt remains at high levels.
"Government debt is exceptionally high and could easily start rising again if developments turned adverse," he warns. "The electoral cycle cannot be a driver. Even within a fixed overall budgetary envelope, Government is faced with a vast scope of choice."
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Sunday Indo Business