Dr. Ronan Lyons:

I apologise for being late.

I also apologise if I duplicate some of the points already made. I will keep it brief.
I hope most of us agree on what high level housing policy should be, which is that families should have access to affordable and abundant good-quality homes, and, if I can cheekily say, everything else is just detail. Obviously getting the details right matters. The State should be neutral between private profit-making, private co-operatives and social. It should also be neutral between owning and renting. These are not for the State to decide. We need to think of three groups, namely, private owners, private renters and social renters. I will return to this point because it is where the mortgage insurance scheme is targeted.
Affordability is about linking incomes to prices or rents and the cost of building. This can be thought of as a competitiveness argument The State tries to attract companies such as Google. The bulk of the cost base of such a company is wages, and the bulk of wage demands is to do with housing. In Trinity, students come from abroad and state they cannot find somewhere to live or it is too expensive. This affects competitiveness. The simplest maths is that we have a growing population but not a growing housing stock. It is a human right to have shelter. We can already see in the rental market that we have greater sprawl because we have reached the limit of where rents can go, and now a greater number of buses come from Cavan, Laois and Wexford on a daily basis bringing students to Dublin. The reasons for this sprawl may be for another committee, but it is not a sustainable long-term policy.
I will now discuss the housing market specifically in terms of the mortgage market. There are two sets of factors. The first of these comprises incomes, supply and demographics, and these affect prices and rents. Another set of factors affects the relationship between the two, which comes down to expectations and credit. There is much more detail in the housing market, but it comes down to these issues.
Mr. Maguire mentioned credit rationing. The effect of this is to try to keep the link between house prices and incomes, which should have a stable relationship. Credit rationing also aims to keep prices in line with rents. The side effect of credit rationing is to prevent the cost of building a home from getting out of control. In a sense we are too late on this, because it is what happened in the decade to 2007 and 2008, when the cost of building a home got way out of line with peoples' incomes and, because the price was going up, nobody really cared that much about the cost. There was free profit because credit was so easy.
The supply of credit should be rationed and the supply of housing is key. The effect of new supply is to keep prices and rents down; sometimes it is tough think in these terms given what we know and what happened over the past 15 years. One can say there was much new supply between 2001 and 2007, but neither income nor supply had an impact on prices in these years. The only thing that drove up prices was credit. We are now seeing the impact on prices and rents of all of the excess building in terms of keeping prices and rents low.
There was very little building in the greater Dublin area on a per capitabasis, even during the bubble. My concern is the new regulations have caked in the high cost base, which means that new housing is anti-poor in that those on low average incomes cannot afford to buy a minimum spec home in the greater Dublin area because of local authority regulations. Ironically, the new regulations mean greater profits per unit in euro terms for those who do get to build. The problem is most do not get to build because the numbers do not stack up.
How does all this relate to mortgage insurance? The direct effect of mortgage insurance will be to increase prices relative to rents and incomes. This is not in debate. If one gives more people more credit the first and most important thing to happen will be that prices will increase relative to rent and income. Generally speaking this is a bad thing unless it is in some way sustainable. An insurance scheme may remove some of the risk to the banks, but it breaks the link between peoples' incomes and the cost of people's homes. This is my concern. We can go into it in more detail during the discussion.
Generally speaking, I hope committee members have taken from what I have said that as a general rule credit rationing is good and what the Central Bank is trying to do is good. Clearly there are transitional issues and cost issues with regard to building a home. The introduction of mortgage insurance would undo this work and would leave us open to the prospect of another bubble. The one asterisk to this is if we have next to no social housing strategy then mortgage insurance might fulfil a role. If one thinks about the distribution of people and, for simplicity, renting as an age factor, there will be a dividing line between people at family stage in the private and social sectors and the minimum deposit will determine the boundary. No social housing would mean the lowest minimum deposit possible because the private sector would have to provide for everyone and therefore everyone would require access to credit. The existence of a social housing strategy would mean such a low minimum deposit would not be necessary and the deposit could be much higher and safer. The concern is the mortgage insurance scheme is effectively a substitute for a full social housing scheme.