Monday 24 November 2014

Editorial: Distorted housing market a real cause for concern

Published 26/06/2014 | 02:30

What the latest surge in house prices shows is that the Irish property market is still not functioning properly. Photo: Frank McGrath.
What the latest surge in house prices shows is that the Irish property market is still not functioning properly. Photo: Frank McGrath.

It is at least a year since the possibility of a 'bubble' developing in the housing market was first mooted, yet officialdom has been very slow to catch up with the causes.

What the latest surge in house prices shows is that the Irish property market is still not functioning properly and until we get that we are still in danger of an overheated market. This is particularly evident in the market in certain parts of Dublin. While the market has surged 22pc nationally, including a 10.6pc increase in May, when you take Dublin out of the equation the national rise was just 1.8pc.

This clearly proves it is a distorted bubble in that it is confined to houses in specific locations in the capital and, fortunately, is not yet a credit bubble with the banks giving out too much money in mortgage lending. There is also the flipside of any bubble in that for many people in negative equity price rises of this magnitude and the fact they have been able to pay their mortgage during the downturn will mean they're now out of that poverty trap.

However, yesterday's housing data has raised alarm in some quarters – and certainly it should be a cause for concern in government circles – so much so that one analyst remarked that parts of Dublin are now "showing the same frothy price inflation as London". When three-bed semis are changing hands for €1m it means that far from being 45pc per cent 'off the peak', some areas of the capital are surging to a degree that makes a mockery of the Local Property Tax estimates.

Another factor playing into the 'bubble' is that there are still investors out there with large sums of cash, and with interest rates at rock bottom and DIRT tax at 40pc these individuals are looking for a home that will give them a return on their money and thereby pushing up prices for genuine house seekers.

Despite rising prices, many smaller builders are reluctant to get back to building because of various disincentives, such as the difficulty of securing bank lending, high VAT and low margins on what is still considered a risky venture. As prices rise the risk lessens, but slow planning decisions have also curtained supply. In Dublin particularly it is estimated that there is still 150 acres available for building.

The sooner work begins on new housing developments and supply rises to meet demand the sooner we will have a properly functioning property market. Dublin is not London and when prices seem to match we should be very worried.

EU must act now after disruption to passengers

Despite the end of the French air traffic controllers' strike last night there was a stark contrast between the EU leaders jetting off to the latest Summit in Belgium and the tens of thousands of air passengers stranded or delayed at various airports for the last two days, unable to get to their destinations.

Ironically, the strike, by French air traffic controllers who were due to be joined by Belgian colleagues has resulted from the EU's own 'Single Sky' policy which is aimed at improving the design, management and regulation of airspace over Europe. Surely Air Traffic Control is one of those services that should be under the remit of the European Union, because it is a vital public service that transcends borders. Police forces and army personnel in most European countries are prohibited from striking, as are Air Traffic Controllers in the United States, although they can always use other forms of industrial action to make their point.

While it is difficult to argue with Ryanair's contention that the ATC unions are "attempting to blackmail ordinary consumers with strikes" there is little chance of an EU wide ban on them. However, following this rolling dispute it would now seem imperative that the EU press ahead with a 'Single Sky' policy.

Whatever the reasons for the strike it has to be very disheartening for ordinary people to have their travel plans disrupted so dramatically by a dispute which is not of their making.

Irish Independent

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