Mark Keenan: Stop-gap lending rules limit home ownership to rich
WHEN the Central Bank tightened up on mortgage lending by introducing a stringent new set of lending criteria in February 2015, it was against a backdrop of house price inflation running close to 20pc per annum in the capital and rising to worrying levels in other cities.
The property market was overheating, just as it had done in the run up to the boom (albeit for different reasons). This time shortage was the issue. And just as a mortgage lending war of old looked like kicking off between the recovering banks, the Central Bank, whose role it is to take the punch bowl away when the party get going, jumped in smartly to snatch away borrowing capacity.
Perhaps we didn’t imagine back then that almost four full years later, shortage is still the issue and that the same stopgap lending controls are today proving vital in protecting us from property inflation, albeit by keeping thousands out of home ownership.
The property crash had incapacitated the construction sector and mothballed new home construction for almost a decade. Into this mess came a belt tightening succession of Fine Gael led Governments which was ideologically opposed to spending on state built social housing. The housing lists began to climb towards 100,000. It meant that those who needed social housing had to find their lodgings in the private rental sector, thus throwing them into competition with students, singles and couples who could now no longer get mortgage loans. No new homes were being built and landlords were pulling out of an increasingly regulated and restricted sector twice as fast as they were investing in it.
The results of today’s Irish Independent/REA Average House Price Index show that the Central Bank’s measures have now caused house price inflation to slow right down or even squeak to a complete halt in our cities. However the intervention has caused numerous other market distortions which have affected Irish society irreparably. Since the measures, home ownership has become the status of the middle to high earners only. In some Dublin locations, only the rich can now buy a family home. Rents have surged as those who would have normally bought their own new homes jostled with the homeless, the socially housed, students and single professionals for what was left in the rental sector. Now couples who stay in the city are paying more in rent than they would for a mortgage they can’t qualify for. Their ten year olds have often been moved from home to home and from school to school as leases expire and landlords sell up. Other city dwellers who couldn’t face the insecurity of renting are moving out in droves to locations two counties away. Their commutes will be hours long and their children will suffer because of it.
None of this is the Central Bank’s fault. This time around at least, the organisation did its duty and did so in a timely fashion. Cutting off the lending taps in the wake of heated inflation was always the Central Bank’s job and it was the right thing to do given the circumstances.
But when it introduced its measures back in 2015 and in the process distorted the market, the Central Bank perhaps believed it was providing a short term emergency stop gap to buy vital time for Government get home building moving.
Enough homes for all would ease the pressure on prices and restrictions could be eased amidst a market which had found equilibrium again. Surely that would only take a year or two?
Almost four years on and around 8,000 new homes have been completed in the first half of the year, when it is estimated that we needed 20,000 provided in that six month period. Of the 8,000 less than 5,000 are developed scheme homes. Only now is home construction starting to get into gear. The Government’s record through those four years speaks for itself.