Thursday 25 April 2019

'Buyers presumed the price of property could only go up'

A “NATIONAL obsession” with buying property was one of the main factors that contributed to the economic crisis, the Oireachtas Banking Inquiry was told.
A “NATIONAL obsession” with buying property was one of the main factors that contributed to the economic crisis, the Oireachtas Banking Inquiry was told.

Clodagh Sheehy

A "national obsession" with buying property was one of the main factors that contributed to the economic crisis, the Oireachtas Banking Inquiry was told.

The head of Europe's bailout fund, Klaus Regling, said cheap money and the country's lust for property allowed a "blind spot" to develop into a financial meltdown.

Mr Regling said these factors were "ominous" for a country that never experienced a property crash.

The German economist, who carried out an investigation into the Irish financial crisis, said it was "striking" how many people had invested in property.

"Unfortunately, it's hard not to overstate the impact of this cultural attitude," he said.

"Property acquisition, as a topic, was almost a national obsession, though not something we could easily quantify in hard data."

He added: "The buyers all presumed the price of property could only go up ... People bought apartments for their children who were still in school because they thought once they got out of school, university and start a job they would not be able to afford a house."

Mr Regling said the situation was worsened by a shift in the tax base which became "fragile" and "increasingly dependent on the property sector". He said it was unusual that Ireland did not have a property tax during the boom, but was offering tax incentives to invest in property.

Mr Regling believed a soft landing for the property market was possible, if different policies had been introduced by the Government.

But instead, Government decisions and banking practices "added fuel to the fire" of the property bubble.

Trinity College Professor Philip Lane told the inquiry the construction boom "obscured the underlying deterioration in fundamentals" needed to properly run a banking system.

Prof Lane said recessions in other countries prior to the worldwide credit crunch had been relatively brief.

He said this led to a situation where bankers misperceived the collective risk.

Prof Lane said that when bankers are making the same decisions "you get a systemic problem".

Irish Independent

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