Professor John McHale:

I agree that there is an important role for social housing and therefore for the Government in the housing market. As we are going to have a private housing sector, we need to make sure it is functioning well. The Deputy laid out a scenario in which people's expectation of price increases leads to behaviour that just makes the problem worse. In this case, the problem on the supply side is the failure to put houses on the market in the expectation of getting higher prices at a later stage and the problem on the demand side is that people who want to get in now because they expect prices to increase are pushing prices up. We saw during the boom phase how that sort of behaviour can lead to a dysfunctional market. It is very important that we avoid the boom-bust cycle in the housing market, just as we do in the economy as a whole. The kinds of measures recently taken by the Central Bank when it set limits on loan to value ratios are very important in that context. As prices go up, people need higher deposits. This reduces their ability to bid higher prices for houses and stops that price cycle from developing. If a possible boom in house prices is stopped from developing, the expectations that lead to the dysfunctional behaviour that has been described cannot get ingrained. If people behave more normally, there will be a more normally functioning housing market. Policies that make the private sector part of the housing market work and facilitate the necessary investments on the social side need to be pursued. The Government and the private sector both have important roles.