Bank wants to take heat out of housing market

Ireland needs to make renting much more attractive to tenants and landlords to take the heat out of the housing market and prevent the chances of another housing bubble, a deputy head at the Central Bank has said.

Bank wants to take heat out of housing market

The call by deputy governor Stefan Gerlach will be seen as the Central Bank continuing to apply pressure on the Government to make renting as attractive an option as buying.

Despite pressures from across the political spectrum, the Central Bank, led by outgoing governor Patrick Honohan, this year stuck to its controversial plans to impose new restrictions on mortgage credit for first-time and second-time home buyers.

Politicians and industry figures continue to say that the controls that require first-time buyers to save large deposits to cover portions of the mortgage loan are too onerous because house price increases in some regions are making home purchases unaffordable for many prospective buyers.

However, Mr Gerlach, speaking at a conference in Dubrovnik, Croatia, said that the rental market could be the key to bringing stability to the housing market in countries such as Ireland and Croatia, which both saw huge collapses in the value of their property assets when their credit bubbles burst from 2008.

Citing research from Red C, he said that over a third of people renting out Irish homes are so-called accidental landlords, who were forced by economic necessity to rent rather than sell up when the financial crisis struck.

Moreover, a large majority in Ireland are unwilling tenants and would much prefer to own rather than rent, Mr Gerlach said.

Croatia, like Ireland, suffered from a property collapse. Some of the country’s large banks were, as was the case in Ireland, foreign-owned and required to be bailed out by their parents’ groups.

Encouraging renting will require policies aimed at tenants and landlords, Mr Gerlach said.

Strengthening security of tenure by offering long-term tenancy agreements may be a start, while landlords may require new incentives too.

Attracting institutional investors into the market who take a long-term view of tenancies such as real estate investment trusts may help the market provide more rental properties.

“The empirical evidence shows that the economies in which the rental market was relatively large and deep suffered less during the financial crisis. Deep rental markets appear to promote the resilience of the economy to adverse shocks and are therefore desirable from an economic stability perspective,” Mr Gerlach said.

“To promote their development, it is important that renting is an attractive long-term proposition for households and landlords alike.

“While many households may continue to buy rather than rent, we need to make sure that this choice reflects their preferences and does not merely reflect a poorly functioning rental market.”

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