Government tax incentives fuel house price inflation, ESRI warns

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The Economic and Social Research Institute (ESRI) has expressed concern that the government’s fiscal policies fuel house price inflation during times of acute scarcity, which warns that price increases will continue into the next year.

Kieran McQuinn, professor at ESRI, told Irish Examiner that the existing purchase assistance program available to most home buyers and which has been extended until next year, as well as the shared capital program which is to come into place for first-time buyers. next year “unfortunately” add to the demand pressures.

In addition, the Central Bank is revising its so-called macroprudential rules which, among other things, limit the amount that home buyers can borrow from their mortgage lenders. CSO figures show the rise in house prices is 11%, while Goodbody chief economist Dermot O’Leary said last week that he expects price increases reach 12.5% ​​by the end of the year.

Mr McQuinn said increased levels of demand amid savings built up from the Covid crisis and the economy doing well were pushing up prices. The construction of scaled-down houses and the effect of rising global building material costs made matters worse, he said.

“Unfortunately, supply has been affected, and demand has not, by Covid,” McQuinn said, adding that the supply of social and affordable housing will take time to get started.

And, unfortunately, you will see continued house price inflation until 2022. ”

Mr McQuinn said loosening the mortgage rules at this point “would be very dangerous” and “under no circumstances should they be relaxed”. In particular, the 3.5-fold loan-to-income ratio, although set at a conservative level in 2015, has been the “key” lever, and the central bank will be doing well, McQuinn said.

“The central bank certainly cannot relax them because easing them would only fuel house price inflation,” he said.

“There’s nothing faster to fuel prices than tinkering with the loan-to-income ratio. Even if you were to move it to 3.75, or even up to four, it would add a considerable amount of inflation when it comes to house price inflation. is concerned.


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