A plan “to stop the damaging roller coaster” of another boom-and-bust cycle for house prices should be a priority for the Government and other policymakers working to protect the Irish economy from the Covid-19 fallout, a research professor at the Economic and Social Research Institute (ESRI) has warned.
Kieran McQuinn said the ESRI was preparing to release its study on the effects of the Covid-19 economic hit 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 shock will not be as pronounced as that of the financial crisis of over a decade ago.
In an interview with the Irish Examiner, Prof McQuinn said Irish house prices were among the most expensive in Europe and few other countries’ property markets were therefore as vulnerable to economic shocks such as the financial crisis last time and now the Covid-19 crisis.
Prof McQuinn said the think tank was finalising its own price forecasts, but the fallout of the pandemic would dampen housing transactions and could be long lasting — not on the demand for housing, but on the supply of new homes because of the necessary closures of building sites over the last two months.
It was time to tackle “the roller coaster” and 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”, he said.
Prof McQuinn said figures published last week by KBC Bank Ireland projecting house prices would slide 12% this year and then stage some sort of recovery of 8% in 2021, were “realistic” and showed the damaging fallout and the need for a renewed focus on the “baffling” reasons that made Irish houses so expensive to build and price levels here among the most costly in Europe.
According to the KBC projections, the fall in Irish house prices this year would be greater than in Belgium, which has been hard-hit by the virus, and in some other European countries.
“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,” Prof McQuinn said.
He said the closure of building sites over the last two months was going to exacerbate the problems of supply “and, if anything, what’s going to happen is that the imbalances will continue”.
“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.
“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.”
The vacant land tax was brought in with the intention to tackle potential land hoarding but there was more to be done to implement the tax, he said.