House prices could crash, warns Central Bank head

Philip Lane.

The head of the Central Bank has warned of another potential crash in house prices in the next two to three years.

Appearing before the Finance Committee this morning Philip Lane has warned of a "material risk of a reverse in house prices" as more homes, apartments and student accommodation come on stream.

The latest figures from the Central Statistics Office reveal that property prices continue to climb with the cost of homes outside of Dublin increasing by 13.4% in the year to March and rising by 12.1%.

Prof. Lane also warned that Government will have to focus on delivering surplus budgets and not just deliver balanced budgets in the coming years to avoid an overheating of the economy.

While he said public spending should not be cut, it is likely that Government would not be able to significantly cut taxes if they are to focus on delivering a significant surplus.

He said the "big question" for the Central Bank and for Government is "what is the appropriate budget balance when you face the risk of overheating?"

Prof. Lane told the Committee: "I will be working more on this in the coming months before I give my pre-budget advice but I would generally flag that the debate here is maybe too narrow.

"So trying to target a budget balance of around zero is maybe not going to be enough.

"So having a conversation actually around significant budget surpluses is not something I am hearing too much here, I don't think it is an issue for now but maybe in the next year or two it may be the case where we have to go to a situation where to ensure stability in the economy running a significant surplus may be important," he said.

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