Restrictions bought us time to build a way out of the housing market crisis - but we've blown it
The Central Bank mortgage lending restrictions introduced more than two years ago were necessary to control shortage-induced rampant house price inflation in Dublin and to a lesser degree, Cork and Galway cities.
But they were only ever a temporary damper to buy time to allow measures to help increase supply of property to the market - the only plausible long-term way to bring house price inflation under control.
Without some form of damper on the market, we were definitely headed towards another housing bubble - this time produced by lack of construction and the worst famine of new homes and second-hand supply to the market in generations.
The social cost of these measures was a market in which only the wealthy, who could obtain large cash amounts from parents or elsewhere, could hope to get a foot on the property ladder in the capital. Couples who could plausibly afford to repay a mortgage on an average family home were forced instead into the private rental sector where they ended up paying out far more per month than they would on a mortgage.
Rents have surged as a result. Rocketing rents have in turn impacted upwards on prices.
Meantime those who have been locked into negative equity for years are now finding that years of property price inflation has pulled them out of that mire. Those stuck in smaller homes are eager to trade up. An intense scrap has now developed in the capital between buyers in areas that still offer affordable three-bedroom family homes for under €300,000. In many areas where average couples can still buy a three-bedroom house with a mortgage, the affordability ceiling is being reached.
Couples are throwing in big bids to scare off the opposition in a desperate effort to secure a three-bed home. Ironically, these 'knock out' bids are responsible for inflation of up to 10pc in three months in some of these locations, as seen in Balbriggan for example. In these locations, one property after another is being caught up in a bidding whirlwind which sees them suddenly add tens of thousands to their values in weeks as groups of unsuccessful bidders move from properties which go "sale agreed" to the next most attractive option.
A relaxation in some aspects of the strict lending criteria announced before Christmas, alongside the Government's own Help-to-Buy scheme has also helped city inflation move up at pace. In other countries anything over 5pc per annum is considered inflationary, but now parts of Dublin are back with house price inflation headed for more than 20pc over a year.
In rural areas, lack of construction driving double digit annual house price inflation is linked to the fact that home values have not reached a level that will make construction profitable for builders. Even at current rates of inflation, the Real Estate Alliance believes it will be past 2020 before new building becomes economically viable in many areas. While the situation in rural parts cannot be put right until construction is economically viable again, a strong supply of decent affordable family homes in large numbers is the only way to deal with bubble era inflation in the cities.
What we are seeing is that State-imposed measures to impose sanctions on lending (the Central Bank restrictions) can only do so much before runaway rents and continued reluctance to build causes inflation again anyway. They bought us time, but we blew it.