The Government has moved to assuage public concern about the boom in the property market with its decision to commission a report from consultants on house prices. Yesterday, Peter Bacon Associates was appointed to undertake the study which will examine the factors fuelling the inflation in the housing market, especially in the Dublin area. The hope is that the consultants' report will be ready, as promised within four months. Certainly, time is of the essence; in some areas of Dublin, house prices are increasing dramatically on a month-by-month basis.
A more interventionist approach by Government is clearly required to dampen this inflationary spiral in the housing market. The current level of house price inflation is unsustainable in the longer term; the Central Bank is rightly concerned that ever-increasing house prices will trigger fresh inflationary pressures in the economy. There is an onus on Government to ensure that a British-style `boom-and-bust' cycle in the property market is averted. There are other priorities in housing policy. The Government will want the price of new houses to remain within the ambit of young couples. But it will want to ensure that the `affordability index' - the ratio of borrowing to income for house purchases - is pegged at realistic levels by the financial institutions.
It will not be easy to achieve these objectives. The belief in the public mind that Irish interest rates will decline still further as we approach monetary union could fuel a further wave of house price inflation. And it is difficult to see how the Government could actively control the borrowing policies of the main financial institutions.
The terms of reference for the consultants' report signals that some of the more fundamental issues in the property market will be addressed - notably the shortage of zoned and serviced lands in the Dublin area. The recent decision of the Minister for the Environment, Mr Dempsey, to provide a new £15 million package to assist local authorities in the task of increasing the supply of building land is a welcome response to this problem. The special fund will be used to expand water and sewerage facilities.
There is also the question of how to make the best use of the land that is available. Compared to most EU countries, the Republic enjoys low-level density. High rise housing of a kind common in all other European states is still, it appears, too readily associated in the public mind with deprivation. This will have to change; the best use of the vast swathes of land available in the Dublin docklands and elsewhere in the city environs is surely to provide good quality, multi-storey homes.
Clearly, some radical initiatives are required. The ESRI estimates that some 31,000 new dwellings per year will be needed until the year 2001. The challenge facing Government is to meet this demand - in a way that will also help to ease the worrying level of house price inflation.