Why is it that Irish people in such large numbers seek to own their own homes? They are prepared to take on huge mortgages, the repayments on which may reduce greatly their discretionary income. Sacrifices of all kinds are contemplated in the pursuit of home ownership even if the mortgage means that it might be 20 or 30 years before the property is truly owned. Elsewhere, on the European continent in particular, there is no obsession with home ownership. It is common to rent, not just the first dwelling, but successive ones as well. Continentals, as a consequence, often enjoy a better lifestyle. They can also afford to purchase their cars, televisions, VCRs etc while their Irish counterparts, restricted by large mortgage payments, opt for hire-purchase arrangements.
This desire for home ownership has helped to drive up house prices to an alarming degree. Ironically, the spiralling of prices may bring about a situation where many fewer people will be able to afford to purchase their homes and Irish residential property patterns might start to mirror the Continental example. House prices, especially in parts of Dublin, rose by 20 per cent last year and a further 15 per cent increase is forecast for this year. Few people enjoyed a 20 per cent pay rise last year. Not long ago house prices ran at 3.5 times average earnings, this year they will reach 4.5 times. The British home market experienced multiples of five and more and a lot of people had their fingers burnt when recession struck.
The Minister for Finance, Mr Quinn, was not thinking of diminishing home ownership when he expressed concern about increasing house prices. His worry is that the surge in house prices will fuel inflation. As it happens, the official inflation figures cannot be influenced because house prices are not one of the items considered when calculating inflation an anomaly which the Central Statistics Office (CSO) should address soon. There is no doubt however that the real rate of inflation might well be pushed up because of higher property prices. What is also not in doubt is that the Central Bank can do very little about it; mortgage providers operate in a highly competitive and largely unregulated market.
One Government decision this year did have a serious effect on property prices and that was the increase in stamp duty a decision made by the same Mr Quinn. His increase pushed up the cost of buying houses valued at over £150,000. In addition, by making them more expensive, he discouraged people from moving into a bigger house. But the lack of houses coming on the market further fuels prices. The stamp duty increase was a rushed measure and it shows.
It is long past time for the Government to get to grips with the property market with comprehensive and co-ordinated policies. Perhaps, the first time buyer's grant of £3,000 might be extended to people who are not buying new dwellings. There could be tax incentives to encourage further the conversion of unwanted commercial buildings into residential accommodation. The scarcity of available zoned and serviced land must be addressed. When hopeful house buyers are camped at a development site for days in search of a home, clearly the system is not working.