New home-buyer incentives could cause panic buying, experts warn

New home-buyer incentives could cause panic buying, experts warn

Many consumers anticipate house prices will rise faster in the next three years than in recent years, a survey has shown. Picture: Dan Linehan

Enhancing the help-to-buy scheme or introducing other incentives for first-time buyers could result in the already-hot housing market boiling over into panic buying.

Austin Hughes, chief economist at KBC Ireland, said the bank’s latest survey showed many consumers were already anticipating steep house price increases over the coming years as they believe the shortage of new homes will not improve in the short term. 

Many consumers anticipate house prices will rise faster in the next three years than in recent years and further strengthening of demand “could risk pushing house price inflation onto a notably more threatening trajectory”, the survey showed.

The Government and regulators will now need to focus on preventing matters from worsening and ensuring prices do not spiral as happened during the last years of the disastrous property boom 15 years ago, said Mr Hughes.

“Supply is ice cold, demand is hot. You do not want to do anything that makes it [demand] red hot over the next while,” said Mr Hughes, referring to the help-to-buy scheme.

Calming demand

Mr Hughes said, for regulators, it was a question of calming demand for the moment. Around one in eight consumers in the survey forecast house prices would rise more than 10% in the next three years. 

“I am slightly relieved that there are not more people saying that house prices will grow by over 10% over the next few years, but that has to be watched. I am referring to policy interventions: all the focus is rightly on the supply side but if interventions cause demand to be more concentrated rather than calmer, it won’t help,” said Mr Hughes.

House prices here climbed almost 7% in the 12 months to June 2021, official figures show, and rents have also risen sharply in recent months. 

House prices defied fears at the onset of the pandemic for sharp price falls, but chronic house shortages were made worse by the closure of building sites and home-working has led to an increase in demand.

Meanwhile, delays to the return to working in the office will harm the full recovery of retail and hospitality, a leading economist has warned.

Kieran McQuinn, at the Economic and Social Research Institute (ESRI), said the economy appears to be roaring ahead but that some sectors most exposed to the pandemic crisis will be scarred.

He said that retail and hospitality will likely be affected most as companies delay bringing back staff to city and town centres amid concerns about the Delta variant of the coronavirus.

“If we don’t see the mass return back to work and even if the economy continues to perform very strongly, the chances are you are going to get a partial return of workplaces as people talk about a blended arrangement of working from home and the office," said Prof McQuinn.

PUP figures

His remarks came as new figures show only a small fall in the numbers availing of the pandemic unemployment payment (PUP) for a second week. The Department of Social Protection said the number of people requiring the PUP declined by 4,400 people to 153,310.

At almost 31,770, accommodation and food service accounted for the single largest number of people on the PUP, down by just over 2,000 people from last week.

The second largest group remains wholesale and retail, at 24,290, while the effects of the health restrictions still weigh on large numbers of people working in administrative support jobs, as well as construction.

Prof McQuinn said a range of indicators "were pretty much consistent" with earlier ESRI projections for an unemployment rate of just below 10% at the end of the year.

"All the economic indicators suggest a pretty strong recovery this year, a double-digit growth, and it appears that the labour market will benefit from that as well. Based on the latest data, we would still be confident about the unemployment rate of just below 10%," he said.

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