Government and other policymakers will have to redouble their efforts “to stop the damaging roller coaster” of boom-and-bust for Irish house prices that few other countries experience as the property market here heads for another tumble, the research professor at the Economic and Social Research Institute has warned.
Professor Kieran McQuinn said the ESRI was preparing to release its study on the effects of the Covid-19 economic fallout on house prices and rents but it was already clear that the Irish property market was heading for a second major slide -- even if the price shock won’t be as pronounced as that in the financial crisis of over a decade ago.
In an interview with the Irish Examiner, professor McQuinn said the think tank was fianalising its own price projections but the fallout of the Covid-19 crisis would dampen housing transactions and more significantly could be long lasting not on the demand for housing but on the supply of new homes because of the disruption caused by the necessary closures of building sites over the last two months.
He said it was in time to tackle “the roller coaster” and that policymakers should aim to take the fluctuations out of the housing market “because we see too many of these booms and busts in the Irish property market over the last 30 years”.
“It has a whole range of negative impacts whether it is on people’s livelihoods, even in economic terms on the wealth effects and how that affects consumer behaviour, and it also has implications for financial stability,” he said, even if the slide in prices were not on the scale of a decade ago.
He said that figures published last week by KBC Bank Ireland projecting that house prices would slide 12% this year and then stage some sort of recovery of 8% in 2021 were “realistic” and showed that the damaging fallout and the need for a renewed focus that made Irish house price levels among the most expensive in Europe.
“Ironically the bigger impact in the longer term will be on the supply side -- if you look at the underlying issues in the housing markets and the imbalances between supply and demand -- obviously the closures are going to exacerbate the supply side and if anything what’s going to happen is that the imbalances will continue,” professor McQuinn said.
“Demand will pick up as the economy recovers -- the problem is that there will be a bigger effect on the supply side than if we didn’t have the Covid downturn,” he said.
Now, I do not think we have the same risk of what happened 10 years ago but at the same time it complicates things.
“And there are still legacy issues from the financial crisis and this only exacerbates it, so we need policies that have to aim to take the fluctuations and swings out of the Irish property market which means you have to tackle real aggressive issues like land costs, the potential hoarding of land,” professor McQuinn said.
He said that the vacant land tax was brought in with the intention to tackle potential land hoarding but he said there has to be done to implement the tax.
“It must aim to make the supply of property in Ireland much cheaper and ultimately leave the market less sensitive to economic shocks,” he said. “Other countries’ house prices are not as high as ours and therefore are not as vulnerable”.