IMF: Rent certainty could dampen housing supply

Rent certainty measures introduced by the Government in a compromise move to ease the pressure on tenants could dissuade much-needed construction in the housing market, according to the IMF.

The warning was made in its latest post-bailout report which identified an increase in the supply of homes as one of the country’s most pressing issues as the lack of accommodation becomes more acute in urban areas.

Measures to reduce the cost of building could jump start construction activity, according to the IMF report’s authors.

The rental measures introduced by the government late last year which provide for a two-year freeze on rent increases could reduce the return on investment properties and dissuade construction, however.

A lack of supply in the market has seen house prices climb rapidly over the past two years.

Figures from the statistical agency Eurostat show house prices climbed by 8.9% up to the third quarter of last year, following an increase of 16% the previous year.

Although the cost of new homes continued to rise last year, the pace at which asking prices increased slowed.

This was largely attributed to the Central Bank’s macro-prudential lending rules.

“The rise in the residential property markets has somewhat abated in recent months in the wake of the macroprudential measures enacted by the Central Bank of Ireland in February 2015, while the supply of new residential housing remains modest,” the report reads.

The Washington-based organisation credits the rules which, imposed loan-to-value and loan-to-income limits on borrowers, with moderating house price expectations and seeking to support the resilience of banks and households.

The fund also recommends that the rules be reviewed periodically and recalibrated where appropriate.

Details of demand for credit contained in a separate EU report also points towards the impact of the Central Bank’s lending rules as dampening demand for mortgage lending which remained flat in the final months of last year.

The Euro Area Bank Lending Survey showed increased demand from businesses and consumers but a flat mortgage market.


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