The European Commission is closely monitoring house prices in Ireland and will examine the issues as part of the commission’s post-bailout surveillance mission which takes place this week from Tuesday until Friday. Property prices are now rising at the fastest rate since the boom, with figures from Davy Stockbrokers show that growth in the first quarter of the year was the fastest since 2007.
In a letter to Brian Hayes MEP, Pierre Moscovici, European commissioner for economic and financial affairs, confirmed that the commission was closely monitoring "the evolution of prices, supply and demand for housing in Ireland", noting the severe consequences "of allowing imbalances to emerge in the residential property market".
“Ultimately, the only durable solution to affordability and the scarcity of housing is to build an adequate supply,” Mr Moscovici said, recommending that Ireland prioritises public investment in infrastructure, in particular transport, water services and housing.
‘Unintended consequences’
On Tuesday the commission, which has previously warned of "unintended consequences" of the new Help-to-Buy scheme, as well as rent-control measures, embarked on its seventh post-bailout surveillance mission to Ireland. In his letter, Mr Moscovici said part of this mission would involve examining the latest housing market developments and policy initiatives.
The commission is the latest to join the fray; last week the International Monetary Fund called for close monitoring of house prices and also on the impact of caps on rent increases given their “potentially negative implications for incentives to develop a rental market”.
“The rapid increase in house prices calls for close monitoring with a view to maintaining prudent lending and mitigating financial stability risks,” the IMF said.
Affordability in the Irish market is being hampered by continuous price growth. While prices are still way off peak levels – national house prices are still 31.5 per cent lower than their highest level in 2007, while Dublin residential property prices are 31.5 per cent behind their February 2007 peak – they continue to rise, leading to concerns that another bubble is brewing.
Property was undervalued
However, while the commission is now concerned about a lack of supply, last November, in an analysis of macroeconomic imbalances in European Union member states, the commission found that Irish house prices were undervalued by almost 15 per cent at the end of 2015, as it suggested that there is scope for prices to increase further.
Since 2015 however, prices have risen substantially, up by 7.9 per cent in 2016, and according to latest figures from the Central Statistics Office, grew at an annual rate of 9.6 per cent in the year to March. This would mean that the imbalance suggested by the commission at the time, has likely, or is close to, being rectified.
