Friday 24 February 2017

Reality

LIKE a teenager with pimples, Irish finance ministers just can't stop scratching away at tax incentives for property owners. They know it will disfigure the economy but calculate it will make them look good with the voters. Ministers must always be seen to be doing something, and giving people money to do what they want to do anyway makes you popular in the short term.

Mortgage interest relief, empty Section 23 holiday homes, unsafe apartment blocks, ghost estates, massive one-off houses that nobody can afford to heat; we have seen it all and the result is the biggest housing bust in the western world.

Last year, the single most important report into Ireland's economic collapse, highlighted mortgage interest relief one of the explanations for the economic bust.

Yesterday, it was Michael Noonan's turn to tinker with the property market by changing mortgage interest relief to blackmail young home buyers.

He hopes that a cut in stamp duty for commercial property will do the same thing in the high street.

This strategy is flawed on three levels: it won't work; it would be bad for the country if did work; it is likely to do the opposite of what Mr Noonan intends.

While there may well be a short-term bounce in house prices next year, the net effect is likely to be similar to the last government's ill-conceived incentives aimed at encouraging people to buy cars -- sales will spike and then plunge until consumer confidence returns.

There is no evidence that people are holding back from buying houses because they cannot afford it. Consumers are reluctant to buy because they believe house prices will fall further. Even if they do want to buy there is no guarantee they will get a mortgage. Nothing Mr Noonan said yesterday will change these fundamentals.

Nobody can predict what will happen to house prices with certainty. The unpleasant reality for many homeowners is that house prices should continue falling. It is not good for society to have expensive housing and it makes it almost impossible to reduce wages.

The tough reality is that we still have high prices and, therefore, high wages. The State and businesses must get costs under control. That won't happen until housing costs fall further. By attempting to use taxpayers' money to stop prices falling, Mr Noonan is sabotaging the economy's eventual recovery.

By distorting sales once again, and manipulating prices in the short term, it is likely that confidence will take further knocks in the years ahead and push prices lower than they need to fall.

Mr Noonan is playing with political dynamite. The chances are high that he will trick the vulnerable into buying in 2012. They will then spend the rest of the decade cursing the Limerick man. It is difficult not to be saddened by this return to failed policy.

Irish Independent Supplement

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