Irish Liberty Forum

The Unnatural Highs of Government “Stimulus”

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The Construction Industry Federation is looking for the government to “re-stimulate” the property sector. Less kindly, it seems like they want the corpse of Irish house prices to be propped back up.

The Government should help first-time buyers to purchase the estimated 40,000 houses lying unsold in the country, it was claimed today…

CIF urged the Government to take an equity share in first-time buyers’ homes to boost affordability.

The low level of deal activity at the moment is explained by the currently high spread between what developers are asking for and what potential buyers are willing to bid. Considering the extent to which house prices have already fallen (CIF estimates roughly 25-30%) and the rapidly deteriorating state of credit markets, it seems clear that bids aren’t going to be increased any time soon.

This means that without government aid, builders are going to be forced to offer lower and lower asking prices in order to move their stock. But if you agree that house prices were artificially inflated during the credit boom, this seems like an utterly appropriate development. Lower prices mean a return to normalcy and the chance for a more balanced and sustainable economy. Far from being a disaster, it is the real “correction” which puts the economy back on the right track.

Not that it won’t be painful for some – many people are going to have to adjust their lifestyles. What it does mean for homebuyers, though, it that houses are going to become affordable again. Without the money funnelled by the stimulants of artificially low interest rates and irresponsible banking practices into the housing markets, homebuyers won’t need to take on mountains of debt just to get a foot on the property ladder.

Just as the unusually large amounts of credit provided to homebuyers during the boom forced them to bid up house prices and stimulate too much construction, government “aid” to homebuyers now will simply permit builders to keep house prices at artificially elevated levels and delay the rebalancing of our economy. Far from helping homebuyers, it will slow down the onset of genuine affordability and at the expense of the ordinary taxpayer.

Price-fixing is the very last thing the government should be doing at a time like this. The sooner we recover from the boom, the better. This means that house prices should be allowed to fall by as much as is necessary.

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Written by Graham

September 30, 2008 at 6:53 am

Posted in economics, Ireland

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