[Colm McCarthy]

Further to the publication of the government’s Construction 2020 plan for the building industry and the possibility of state support for first time buyers economist Colm McCarthy appeared on Prime Time last night with David McCullough.

He wasn’t happy.

David McCullough: “Colm McCarthy, there’s a lot in this document, but just to deal with one item in it first, this idea of a mortgage guarantee – a lot of media attention on it, it seems to be thing that’s been picked out – helping young people get on the property ladder, surely that’s a good thing?”

Colm McCarthy: “Ah well, we tried it, and it wasn’t. One of the biggest mistakes we made, and we made lots of them last time around, was to create an expectation that you could buy a house with no money down. And the suggestion that the Minister for Finance made the other day – it’s not actually in the document, but he made it in his speech – he complained that it was unreasonable that people should have to have 20% as a deposit and suggested there would be 95% available, so they would only need a 5% deposit. If we hadn’t made that same mistake so recently, you could forgive it, but it is really dangerous to be pumping up what is a very regional property bubble . The idea that Ireland is back into a property bubble – if you spend any time anywhere outside the M50, and I do – you do not believe that. There are parts of the country, towns and villages, parts of the Midlands, 50 or 60 miles from Dublin that are disfigured with abandoned and vandalised ghost estates.”

McCullough: “Sure, but if the idea is that a couple can maybe come with 10% of the purchase price, the bank is willing to lend them 80% as a mortgage, you know, bridging that little gap may make a big difference for them?”

McCarthy: “That’s the problem, and the confusion of supply with demand is a pretty fundamental confusion. There is currently a problem in Dublin, a little bit in the provincial cities, but not that much – it’s mostly in Dublin. There is a demand for three and four bedroom houses – it’ll be there for a while, the demographic suggests that it won’t actually last forever, but that’s another day’s work – the average house size is still declining in the longer term. The solution to that problem is to build more three and four bedroom houses.
A lot of people find this difficult to believe, but until about 1975, the price of a house in Dublin and the price of house in the rest of the country was about the same. And people have got so used to this idea that housing must be much dearer in Dublin than elsewhere – it’s a relatively recent thing. It started with the 90’s Free Planning Act and nimbyism and,  ‘We don’t want any more houses around here’. The result is that Dublin is one of the lowest density cities in Western Europe – there is undeveloped land all over the place. The problem is a supply problem – and if the Government wants to put a stop to this incipient house price bubble in Dublin and the way to do it is to build more houses in Dublin.”

Watch here