Central Bank should not ignore ESRI - Housing crisis

IT is hardly a surprise that mortgage brokers and those working to combat homelessness would have taken issue with the strict and over-reaching mortgage lending rules introduced by the Central Bank last year.

Indeed, many did, pointing out that the requirement to save up to a 20% deposit on a home would be an impossible task for most first-time buyers.

In the past year, the situation for would-be home owners has worsened. New figures from the banks show the value of the average deposit has risen from €38,000 to an average of €51,000 for buyers in Dublin and from €24,000 to €32,000 in Cork. It has also risen proportionally elsewhere.

That puts buying a home way out of reach for the ordinary worker and young people, in particular, have little or no hope of ever buying a home in current circumstances.

The Central Bank continues to assert that the rules are there to ensure that we do not return to a boom-bust cyle of house building and to avoid over indebtedness. That is all very well but it ignores the fact that what the Central Bank has created is a boom-bust-boom cycle in residential renting.

That is quickly becoming an even worse monster than the house building boom of the Celtic Tiger years. The stock of homes for sale has reached its lowest level since 2009 when records began. As a consequence, rents have soared in Dublin and other cities. How can anyone — or a couple — on a modest income pay thousands per month in rent and, at the same time, save tens of thousands as a deposit for a home?

The Central Bank has all but ignored the entreaties of brokers and others but, hopefully, they will find it harder to dismiss the concerns voiced this week by the Economic and Social Research Institute.

The ESRI has said the Central Bank’s mortgage lending rules should be modified to ensure more housing is built. While it supports the new rules in general, it offers a more sophisticated response to the housing crisis by suggesting the rules should be eased under certain conditions — such as now — and tightened if the market begins to overheat.

Most importantly, it argues that the housing supply situation should be an explicit factor in setting lending loan-to-value and loan-to-income rules.

Central Bank Governor Professor Philip Lane has said the rules will reviewed in the summer but why wait until then? It is clear that they are only working in one respect and that they are causing misery for thousands of people seeking to buy a home.

Builders and developers also need to be targeted. Some have said that developers of residential property will not begin building again until they can ensure a profit margin of 15%.

Who came up with that magical figure? It seems extraordinarily high. Most major businesses — among them the big retailers — thrive on margins of 5% or less. Many developers are also sitting on land-banks waiting for the day when they can return to their profiteering ways. It should be made clear to them that they either ‘use it or lose it’.