Ireland’s economy is “overheating”. The Organisation for Economic Co-operation and Development (OECD) has issued fervent warnings as property prices and lending in the country witnessed a sharp increase. Ireland may be on the verge of sinking in yet another property bubble.
Prices are rising at an alarming rate
The speed at which property prices are increasing is raising concern, because, on a parallel note, property-related loans are equally shooting up amidst a worrying shortage of housing on the market. During their latest verification of the Irish economy, the OECD made it clear that despite the strong economic growth, the Central Bank may have to intervene with appropriate measures restricting lending. The shortage of housing is already palpable in spite of an active construction sector and very soon, supply is expected not to meet demand anymore.
Prudent regulations should be adopted
The OECD calls for action and “prudential regulations” in view of trying to escape from another property bubble that may annihilate the Irish economy. Property prices are surging fast in the west, reflecting an increase of 17.8pc. In Dublin, the overall price increased by 8.2pc from the beginning of 2017 to April 2017.
The Central Bank is choosing to look away
Philip Lane, Central Bank’s Governor, chose to shun away the warnings, arguing that the current mortgage rules will only drag on prices. The OECD, on its side, warns that an excessive rise in property prices will be good for the recovery of the construction industry but will be detrimental to the economy as a whole, triggering a bubble. Other domestic experts, such as the Fiscal Advisory Council, share the same opinion as that of the OECD.
The OECD equally highlighted that the banking system is still suffering, notwithstanding the economic recovery: small and medium-sized enterprises find it difficult to comply with the borrowing conditions while the total amount of new lending has exceeded repayment of debts. The large majority of bad loans are directly related to poverty and despite recent improvements, an atmosphere of uncertainty is still hovering, especially with the outcome of Brexit final negotiations.
The economy should be more resilient against shocks
Experts are more than ever certain that the Government should implement measures and adopt strategies in view of making the Irish economy more resilient against shocks. Since the level of indebtedness is very high, Ireland is at risk of seeing interest rates spike. On the other hand, high property prices are advantageous to the construction industry but may trigger another property bubble.
The Taoiseach weighs reports as valuable with certain hesitations
The reports of the OECD and of the Fiscal Advisory Council are considered as “valuable” and will be taken into consideration for the right balance of finances, as stated by a spokesperson for the incoming Taoiseach. Yet, he pinpointed that the Department of Finance sees the rise of property prices related to a high demand and limited supply, and not to the availability of credit. The spokesperson added that the Department of Finance expects property prices increases to become “moderate” once the supply of housing ramps up. He equally underlined that the Help-to-Buy scheme is under review.
The first property bubble left Ireland on its knees
The Irish property bubble is the collapse of the real estate after a long-term price increase in properties starting in the late 1990s and extending to 2007. This booming period also referred to as the Celtic Tiger, saw a hard and rapid collapse as prices peaked in 2006 with the pace of housing credit accelerating, and started plummeting the year after. This downfall continued till 2010, taking its toll on the economy and the population crumpling under mortgages and arrears. Property prices plunged, leaving the country on its knees. A general climate of mistrust in the financial sector hovered over the country but Ireland started recovering slowly in 2013.
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