Stimulus for housing will only benefit developers
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Tuesday September 30 2008
IT seems highly likely the Budget will contain some sort of stimulus for the housing industry.
Of course, it will not be presented like that. Instead, it will be dressed up by the Government as a boost for first-time buyers. But call it what you like, the reality is that any budgetary stimulus package for house buyers will end up being a bailout for builders and do nothing for want-to-be homeowners.
This is because any housing package for first-time buyers will distort the market by stopping prices falling to their market-clearing level.
First-time buyers would be better served by allowing house prices find their natural level rather than giving prices an artificial and temporary lift.
Policy makers and cabinet ministers in this country have a short memory. They have forgotten that all previous attempts to tinker with the property market have backfired.
The housing market is collapsing under the weight of its own excess, and putative first-time buyers will not thank anyone who keeps prices artificially high.
Opposition parties have pointed out the folly of attempting to stimulate the market at a time when prices are re-adjusting after years of bubble price rises. And a disparate group, made up of financial advisers, academics and engineers, protested outside the Dail last week to drive home the point that measures to boost house buying will end up being a bailout for builders.
Ireland does not suffer from an epidemic homeless problem. Rents have been coming down and there is no shortage of houses for sale and for rent.
In fact, Goodbody's Dermot O'Leary estimates that there is an 18-month supply of second-hand houses for sale.
Ruses
What the market needs more than anything is for sellers of second-hand houses to cut their sale prices to more realistic levels and for developers to slash their prices. Developers are desperate to avoid cutting their prices. Rather than dramatic price drops, we are seeing ruses such as free cars being offered with houses.
The money for a housing stimulus package would be better spent on the health and education sectors.
A society that values aiding developers over getting school children out of overcrowded prefabs is a society with a skewed set of priorities.
So Mr Cowen, forget the State-sponsored bailout for builders. It will be of no benefit to first-time buyers.
- Charlie Weston
