Mortgage Lending Rules

The ESRI says that the Central Bank's mortgage lending rules should be modified to ensure more housing is built. As it happens, they should be modified (but not just yet). The recently retired Governor of the Central Bank probably knew that they would be so possibly opted to make them stiffer than they should be. Changing the rules won't increase supply (certainly not in the short term) but will increase demand. It makes more sense to keep supply and demand as close to equal as possible pending the election of a new government that can get to grips with the housing mess. The current rules are dampening demand at a time when supply is inadequate. That makes sense. (Hopefully, the new Government will opt not to use good land for housing but to go for greater population density, the development of brown sights, etc.)

The debate about mortgage rules should not just be a technical one. Indeed, the technical debate should follow a wider cultural debate about the role of property in society. The technical details are important but the real problem is cultural: how to wean people off thinking about property as a money-making machine. The property industry obviously should be profitable but it is neither necessary nor appropriate for the majority of the population to be players in the industry. Buying a house is the most important asset most people buy but most people buy a house to live in, raise their families in and leave to their descendants. They don't get into the property market for business reasons, except that during the Celtic Tiger many did. The results were predictable.

It is much harder to change cultural practices than laws. Irish society seems to believe that property is a ticket to easy riches. Riches aren't picked up easily anywhere by anyone (other than lottery winners although we should always remember that the famous French PM, Tiger Clemenceau, described lotteries as a tax on idiots). Irish society discovered in 2008 that the property market can be as difficult to negotiate as any other market. I get the impression, however, that the lessons of 2008 are being forgotten and that the love affair with property is on again.

Attempts by the Minister for Finance to put pressure on the Central Bank about mortgage lending rules before the general election were typical of how populist political parties behave. They love to run with the hares and hunt with the hounds, talk out of both sides of their mouths at the same time and generally behave like yahoos. That is what has to change. The President (as someone who can talk about cultural issues) and, more pointedly, the Taoiseach, the Minister for Finance and all other Ministers should address the cultural problem. They need to start the process of weaning this society off the notion that the property market is a mechanism for easy riches. It took perhaps a generation to get (most) people to understand that drinking and driving wasn't on. We still have problems with drinking and driving but far less than we once had. So, we can expect it to take at least a generation to educate people into treating the purchase of property in the right way, to tackle the problem of greed that is at the heart of the love affair with property and to leave the money-making aspect of the industry to the professionals.