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Banking Inquiry: Housing boom driven by tax breaks - economist Peter Bacon

The man credited with the design of NAMA today criticised its “ethos”.

And in response to questions from Deputy Joe Higgins he said he believed the measure with the most significant impact in the subsequent rise of house prices was the decision to reverse the exclusion of tax deductions of interest for investors.

Economist Dr Peter Bacon said NAMA “more of a debt collection agency than a property value maximiser”.

Dr Bacon was addressing the Banking Inquiry described the “enormous potential” of NAMA with its biggest property portfolio in Europe acquired at rock bottom prices.

He said his criticism was about the “ethos” of NAMA and not about the “general approach”.

The economist described how he had been called to a meeting with the then Finance Minister Brian Lenihan at the height of the banking crisis in November or December 2008 and had “walked away scratching my head”.

He had been called in again for a further meeting in January 2009  and when he gave the same opinions again Mr Lenihan said that he (Dr Bacon) seemed to have developed his thoughts more and the Minister asked him to prepared a report on the crisis.

Dr Bacon explained how recommendations made by him and his team brought house prices under control in the late 1990’s.

He had not been consulted, however, when these were overturned two years later and prices spiralled upwards, he told Chairman Ciaran Lynch.

He said measures recommended by him had halved the inflation in the new house  and existing house market between 1998 and 2000.

New houses  dropped from a peak rate of 24.6pc countrywide and 33.8pc in Dublin to 12.9pc countrywide and 16.2pc in Dublin.

In the case of existing houses the rates also halved from 36.9pc countrywide to 17.4pc and from 41.7pc in Dublin to 20pc.

But in 2001 his recommendations were reversed and “thereafter prices re-accelerated”.

Dr Bacon was addressing the Inquiry on two reports he and his team prepared in 1998 and 1999 on the housing market in Ireland.​

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