Now we are forced to buy homes as rental costs spiral
People are now being forced into buying a home due to concerns about spiralling rents, the Central Bank has warned.
In a reversal of the traditional pattern in the housing market, people are coming under pressure to get on the property ladder, according to deputy governor Stefan Gerlach.
In a stark warning, he said a dysfunctional property market could plunge the country back into recession and put people under severe financial strain to service hefty mortgages.
While insisting the Central Bank's remit was not to devise housing policy, he warned that regulation of the market had "implications for the soundness" of the entire financial system.
Countries with a well- functioning housing market had weathered the recession better than others, he said.
Mr Garlach noted that purchasing a home was the riskiest financial decision most people would ever take.
"The way we structure this will have implications for the soundness of the system.
"In economies with rental markets which are not well developed, many people feel they have no choice but to buy so they borrow many times their income.
"If the economy suffers a downturn and employment begins to suffer, they might easily end up in a situation when servicing a mortgage is difficult.
His comments were delivered at the Creating an Affordable, Sustainable and Equitable Housing System conference organised by the Taoiseach's advisory body, the National Economic and Social Council.
There is major concern about spiralling rents across the country, with prices up 8.5pc in the last year in the capital and by 8.7pc outside of Dublin.
The national average rent, according to property website Daft.ie, currently stands at €934 per month, compared with €860 in the same period of 2014.
In Dublin, renters are paying an average of €1,368 compared with €889 in Cork and €818 in Galway.
"From an international perspective, Ireland is really a nation of owner-occupiers ... but housing is a risky asset, which is something people tend to forget," Mr Gerlach said.
"Since 1971, in one year out of every three, house prices have fallen in real terms. Central Banks are not involved in housing policy … (but) the way the housing system is organised can raise financial stability concerns, which is where the Central Bank comes in.
"There must be some form of security of tenure with a long-term contract available. It cannot be that rents can be adjusted at short notice, but rents must also make it attractive to be a landlord.
"Buying a home is a risky business and people should not have to do so because of a lack of alternatives."
Last March, Environment Minister Alan Kelly pledged to bring in measures to prevent landlords imposing hefty increases in a market where there is a shortage of properties for letting.
The measures have yet to be announced, but the Department of the Environment said proposals on rent certainty and other housing-related matters would be brought to Cabinet "as soon as possible".
Bairbre Nic Aongusa, assistant secretary for housing in the department, said that a "system-wide" approach was needed to address problems in the sector, and that a "key challenge" was affordability.
"If we're to move forward, it's essential we start looking at the overall system," she said.
"A key challenge is the question of affordability, particularly for that middle section which may not qualify for social housing. Rent regulation and affordable rents are also on the agenda."
She said that investors had indicated to the department that future developments would include a mix of housing types which would help avoid creating "ghettos".
Some 10pc of all units would be set aside for social housing, another 30pc for affordable units and the remainder for the private market.
"If that can be developed to a successful conclusion, it may lead to an acceptance of rent being acceptable for everyone," she said.
The conference also heard from Prof Mark Stephens from Heriot-Watt University, who warned that repairing the housing system could take "quite a long time" and required consensus and a "long-term commitment" from the Government.
"For the squeezed middle, there is an inadequate security of tenure," he said, adding there was "no way" for the State to avoid providing subsidies to help those on low incomes.