Well-placed taxes an antidote to second bubble

In a country that is only 4% urbanised, to have a scarcity of land for building takes quite some doing. In fact, it takes generations; generations in which the political class and those who elect them, ignore the best interests of long-term planning.

The budget next week is an opportunity to begin to undo some of this, but it is increasingly unlikely that it will do so.

Any asset bubble arises when the price of the assets deviates in a persistent way from the underlying fundamentals. In that context, we might be careful about calling the Dublin house situation a formal bubble. There is, by every single account, a vast scarcity of supply. In a situation where supply is limited, or growing more slowly than demand, prices will inevitably rise. That said, year-on-year price increases of 20%-plus must surely be a bubble in all practical terms. It is a bubble in that it cannot continue in even the medium term. The numbers of planning permissions have slumped to approximately 3,000 to 4,000 per quarter, the level last seen in the 1980s. Within that, the proportion of extensions vs new-builds has increased significantly. New dwellings are at their lowest since the CSO database began in 1977.