Sunday 17 November 2019

Noonan's proposal for Nama to build homes 'will have little effect'

Michael Noonan
Michael Noonan

Peter Flanagan

Nama's new role as a house builder is not likely to have much of an effect on the housing crisis and will do little to spur additional demand, according to industry experts.

Finance Minister Michael Noonan announced in the Budget that Nama would build 20,000 homes between now and 2020. More than 90pc of those will be in Dublin.

The new role for Nama has raised fears that the State bad bank may distort the market because it has such a huge portfolio of development land.

However, both trade groups and developers believe it will do nothing to spur construction from the private sector because of the lack of finance available in the market and cost of new construction.

Activate Capital - a fund backed by the Government for housebuilding - offers finance at 14pc. Most other lenders are offering similar rates, while the banks will only fund at most 60pc of a development.

The Construction Industry Federation said that until financing was addressed, then the Nama plan would have little effect.

Meanwhile, the deputy governor of the Central Bank has strongly defended its restrictions on mortgage lending, saying they were already taking the heat out of the property market. Stefan Gerlach, who is stepping down from his role as deputy governor at the end of the year, told the Society of Chartered Surveyors annual conference that it was too early to say if the rules have had a direct effect on mortgage lending. But the rules have already had a major indirect effect on the sector.

The rules demand house buyers have a 20pc deposit and restrict lending levels to 3.5 times salary.

"The measures may have removed the speculative element [from the property market]," Mr Gerlach claimed.

"This is most evident in the moderation of future house price expectations which has occurred since the introduction of the measures, as reported in survey evidence.

"Episodes of rapid house price increases have typically a speculative element. For instance, buyers may enter the market simply because they believe that prices will rise rapidly for some time so that capital gains can be reaped by entering the market," Mr Gerlach said.

It was too early to say if the rules have cut bank lending yet, but by cutting out speculative buyers, he claimed the banking system was already safer.

He added that it was not the job of the Central Bank to fix the housing crisis.

Irish Independent

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