Saturday 23 September 2017

No housing bubble in Dublin despite hike in prices, watchdog reports

Rising property prices means it is getting more difficult to afford a mortgage in the capital.
Rising property prices means it is getting more difficult to afford a mortgage in the capital.
Colm Kelpie

Colm Kelpie

DUBLIN isn’t experiencing a housing bubble despite a sharp hike in prices, the state’s budgetary watchdog has said.

Rising property prices means it is getting more difficult to afford a mortgage in the capital.

Property prices rose by 3.9pc in September, taking the annual increase to 12.2pc, according to the Central Statistics Office (CSO).

But the Fiscal Advisory Council told the Oireachtas Finance Committee that it lacked the symptoms of a property bubble.

Council member and former International Monetary Fund (IMF) official Donal Donovan said a major feature of a property bubble was a credit bubble.

“What appears to be happening is that people who have accumulated savings, people who live abroad, people who had sold property at height of the boom, those people may now becoming back into the market because a high proportion of the sales are in cash,” Mr Donovan said.

“This to my mind, while a source of potential worry, it doesn’t fill the conditions of a classic extended bubble in the way that other property bubbles typically in other countries over decades have taken shape.”

A study released last month showed that more than a fifth of the disposable income of a first-time buyer couple each month goes on paying down the loan on their house, and that's set to gradually increase before the end of the year.

The latest affordability index by lender EBS and economic consultants DKM concluded that a couple owning their first home and earning about €75,000 would have spent 22.4pc of their net income on their mortgage in September.

And that's expected to deteriorate further to 23.7pc by the end of the year.

Chair of the Fiscal Council Professor John McHale said the country is not seeing a repeat of the credit bubble that led to the bust.

“If anything it’s the opposite with credit conditions incredibly tight and we’re not seeing a strong bounce back in construction, which is part of the problem in the sense that it’s pushing up prices in the Dublin area because it’s such a weak supply response.

“At this point we wouldn’t be concerned of the kind of bubble that did so much damage in the past.”

Mr McHale also reiterated the Council’s point that there was now a 1 in 2 risk that the Government would not meet its deficit target in 2015 because it scaled back the Budget adjustment for 2014 from €3.1bn to €2.5bn.

He urged the Government to stick to the plan for €2bn worth of tax hikes and spending cuts in 2015 and warned more may need to be done if growth doesn’t pan out as expected. He said there was no room for tax cuts.

And the Council said it still believes that a precautionary credit line would have been a “good idea”.

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