The package of Government measures announced yesterday in an attempt to calm an overheated housing market is both comprehensive and well-judged. The principal criticism which might be levied against it is that it should have been effected six or even twelve months previously. On foot of a consultancy report by Peter Bacon and Associates, the Government has opted for a policy package which could dampen the speculative forces in the housing market, while making property more affordable for first-time buyers. The Government has also resisted the temptation to rush into a land-rezoning spree. Rather, it has placed an emphasis on the need for integrated planning and development.
The Minister for the Environment, Mr Dempsey, is correct when he says that there is no single measure or "magic bullet" which will dampen the inflationary pressure in the housing market. But there are good grounds for believing that the Government package will, at the very least, help to calm the single most important impulse driving house price inflation - the wave of speculative buying by investors. By some estimates, at least 30 per cent of new homes in the outer Dublin suburbs are being purchased by investors whose financial muscle can squeeze first-time buyers out of the market. The introduction of stamp duty on new homes purchased by investors, the abolition from yesterday of mortgage interest relief for future property investments and the move to curtail the availability of Section 23 relief for investors should help to dampen the speculative boom in the housing market. For all that, there will be concern that tenants may bear the brunt of the new taxation measures through higher rents at a time when there is a seemingly insatiable demand for rented accommodation.
There are other positive proposals in the Government package; the reduction in stamp duty should help younger buyers to purchase second-hand homes; the threat of a 60 per cent capital gains tax within four years should help to free up building land and there is, at last, a recognition that higher housing densities are required to make better use of the available infrastructure.
But for all its merits, the Government package offers no guarantee that the situation on the ground will actually improve. Indeed, with the banks poised to cut interest rates by at least two per cent in the run-up to EMU, it may be that things will get worse before they get better - at least in the short-term. It is also instructive to reflect that the last government initiative to calm the housing market - Mr Ruairi Quinn's decision, while Minister for Finance, to increase stamp duty - had precisely the opposite effect to that intended. It is also the case, as the Bacon report makes clear, that demand for private housing will continue to outstrip supply because of demographic, economic, and other changes. The Government has made a praiseworthy, if belated, attempt to impose some kind of order on the existing chaos. It is in the public interest that it succeeds. But the forces it seeks to counter are powerful and resilient. As Mrs Margaret Thatcher once memorably advised in another context - you cannot buck the market.