Friday 20 September 2019

Market regulations - and the reversal of them - could alter the course of people's lives

'With layers of rules applied over the years by Government, the Central Bank and local authorities, the red tape involved in solving the housing crisis has become a Gordian knot. Each strand has produced its intended effects and unintended ripples. But there are side-effects to removing those interventions.' Photo: Gareth Fuller/PA Wire
'With layers of rules applied over the years by Government, the Central Bank and local authorities, the red tape involved in solving the housing crisis has become a Gordian knot. Each strand has produced its intended effects and unintended ripples. But there are side-effects to removing those interventions.' Photo: Gareth Fuller/PA Wire
Mark Keenan

Mark Keenan

Change and counter-change in State-induced property market policy can have unforeseen economic ramifications - but it can also indirectly change the paths of Irish lives. Take a look at the ripples that recent interventions have caused these past few years, both economically and socially.

The latest results of the Irish Independent/REA quarterly average homes survey show just how quickly the market reacts to State intervention - this time to the recent removal of borrowing restrictions and the easing of the tax regime for first-time buyers. Today's survey results demonstrate how those changes resonate in unexpected places.

So first, the State restricts borrowing in Dublin so more people rent in the capital and more people move out to buy. Therefore, prices are controlled in Dublin, but less expected was that they would shoot up artificially in outer counties. Now that the measures have eased, the reverse is happening. Consider also that the decision two years ago by the Central Bank to restrict mortgage lending has already ensured that more Dublin children have ended up moving from school to school than ever before. This is because more city-based parents have been prevented from buying and have been living the renter's nomad existence of a move every two years from lease to lease. In many cases, their children have had to be reschooled. An indirect ripple of that policy is increased instability in young lives which, in turn, could cause social problems down the road.

Next, consider Dublin couples who, since restrictions were brought in, stuck resolutely with the notion of buying. They took their only option - to move out in search of cheaper homes. The Central Bank pen strokes of two years ago mean that many children whose families bought in commuter counties as a result will stay put for life. They will play Gaelic football in the colours of Kildare, Louth or Meath instead of in Dublin's sky blue and navy. Their lives in smaller towns in rural areas will be very different.

While warranted, the Central Bank's recent decision to ease up its borrowing regime for first-time buyers, along with the Help to Buy Scheme, means those families won't be leaving the capital in such great numbers. So more children will play their Gaelic football in Dublin. Those changes will also mean fewer families renting in the capital and less moving about for their children. So maybe less crime in the future. But when the regime was first imposed, more layers of red tape were added, making solving the housing crisis more complicated. Not only are there fallouts - expected and unexpected, economic and social - in applying interventions in the first place, there are also ripples caused by the very removal or easing of those interventions.

So the tough lending regime imposed two years ago had the intended effects of controlling Dublin borrowing and prices.

But it indirectly caused artificial property inflation in Kildare, Louth and Meath, while also causing more children to move from school to school in Dublin. Now the partial undoing of a tough State lending policy, which pumped prices up in commuter towns in the first place, is causing those prices to freeze and they might even fall for a time.

With layers of rules applied over the years by Government, the Central Bank and local authorities, the red tape involved in solving the housing crisis has become a Gordian knot. Each strand has produced its intended effects and unintended ripples. But there are side-effects to removing those interventions.

Today's REA survey shows that reworking the two-year-old lending regime for first-time buyers, alongside the introduction of help-to-buy, have artificially hiked prices in Dublin and frozen those in commuter towns, where they may fall in future. You might also want to watch out for the Dubs at Croker in 2037.

Irish Independent

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