Central Bank Rules – Required to Keep a Lid on Costs for Irish Workers
The Central Bank will publish the outcome of its internal review on mortgage lending rules in November. These restrictions, which came into force in 2015, stipulate that people buying a house require a deposit worth 20% of the property's value and are restricted to taking out a loan equivalent to 3.5 times household income. This applies to the vast majority of mortgages, with some loosening of requirements for first-time buyers. Despite a lot of pressure, it is widely predicted that no changes will be implemented. That would leave many parties unhappy, including the government; however, their opposition to these rules is difficult to justify.
The argument goes that hard-working people looking for the security of owning their own home are being penalised. It's an understandable viewpoint. The Bank's rules are a big problem for people trying to raise funds for a deposit (the average house in Dublin requires a deposit of about €40-45k). Opponents also point to rocketing rents as evidence that the rules are not fit for purpose. However, the problem of affordability in Ireland has not been caused by the Irish Central Bank. The reason these rules were instituted was in response to a housing market in Dublin which rose 20% in 2014. The Bank felt it had to do something to take the steam out of the market, and it seemed to have helped when prices rose by 3% in 2015 rather than the 5-10% many analysts expected. Consider that if house prices had gone up by 10% in 2015, the rise in the average house price at the end of that year would have simply added to the overall cost of a mortgage, dwarfing the benefit of lower deposit ratios, and contributing to a pattern of house price inflation and indebtedness.
The Central Bank has done its job, but it is not in the house-building game. What is needed to make houses more affordable (and rents, for that matter) is an increase in supply. This does not mean we should continue to build outwards into the commuter belt; we have other options. Firstly, there are large amounts of zoned land available for development in Dublin that currently lay unused. The owners of that land should be taxed now (not in 2019 as planned) to ensure it is put into productive use. Secondly, we should encourage the renovation of spaces above shops and offices in city and town centres. This has a double benefit: reducing accommodation costs and helping local businesses by bringing customers directly to their doorstep. Finally, we need to build upwards. Increasing the height of buildings utilises space more efficiently, thereby reducing costs and allowing for more efficient provision of public services.
When the crash of 2008 occurred, we were told that Ireland had become uncompetitive in attracting international investment and jobs – largely because of high wages. However, wages are a function of the cost of living, and the expense of accommodation is an increasingly large part of Irish people's monthly expenses. There is little commentary on how accommodation costs affect our ability to create jobs and the impact it has on those already employed (something we see reflected in strike actions across the country).
In summary, we need new solutions to Ireland's housing problems. These issues have knock-on effects on investment, job creation, and quality of life, and they have been allowed to persist for too long. Once affordability is addressed, we can revisit the Central Bank's rules.
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