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Renting is the best value – Central Bank

HOUSE prices have plummeted and rents have soared, but the latter is still cheaper, says the Central Bank.

The bank has looked at a number of economic factors in Irish house prices since 1980.

"The estimated user cost for the specific household type used in the analysis has been positive since around 2008 and is currently above market rents, implying that the cost of home ownership is higher than market rents," a representative for the Central Bank said.

Homeowners in the boom were given a incentives to buy.

But stamp duty is now payable by first-time buyers, the household charge of €100 gave way to a 0.18pc property tax and tax relief on mortgage interest payments were phased out last December.

Although the ECB interest rate is at a record low of 0.5pc, there are no new tracker mortgages available.

House prices are at an affordable level in relation to average wages, but their resale value is uncertain.

Home buyers in the boom years expected to earn a significant return on their investment in a house.

SECURITY

Researchers at the bank – Frank Browne, Thomas Conefrey and Gerard Kennedy – looked at the user cost of capital (UCCh) framework, which takes into account the cost of the package of housing services (shelter, security, comfort etc) compared to the private rental market.

"During the housing boom, a time when nominal house prices were growing by an average of 14pc per annum, the expectation of greater and greater capital appreciation drove the UCCh increasingly negative" they said.

"Despite the housing downturn, the influence of this factor remains strong, although it is operating in reverse.

"Subsidies granted to home owners in the form of mortgage interest relief and other grants have exceeded the amount paid in property related taxes," the researchers added.

The Central Bank's paper said that this had a knock-on effect on the price of houses.

"In boom times, the cost of home ownership has tended to fall short of the cost of renting and by substantial margins.

"To avail of this attractive arbitrage opportunity, more dwellings are bought, driving house prices up further."

clairemurphy@herald.ie


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