Professor Philip Lane:

That is a fair point. I will come back to overheating first. Unemployment is currently around 5.9%. I said in the opening statement that one question is how low unemployment can go. We think, and many members of the committee have probably thought about this, that Ireland still has a high rate of people who are not in the labour market. If there were policies of many types that could bring people who do not currently find it possible to make themselves available to work or do not have the support to enter the labour force, that could help. We as a Central Bank, and equally the political system, need to think about this in advance. We are not overheating now. We are seeing wages starting to go up, which is welcome. It differs across sectors and regions but having some recovery in living standards is important. We want unemployment to continue to fall. We see revisions around the world about how low unemployment can go. In the US, unemployment has gone below 4%. This was not expected but is maybe evidence that the world has changed a little, that the level that it operated the labour market may be able to push unemployment lower. This is silent on the quality of jobs. We also have to ask if these are well paid jobs, the jobs that people want, and so on. Our message is to think about if that day comes.

This is all dependent on the current good conditions continuing. If Brexit goes badly, if the current trade disputes broaden, or international tax issues disadvantage small open economies, or, on the last point the Deputy made, there is a revision in international financial sentiment, there will be issues. These are well-known risk factors which could derail this good outlook. With overheating, the big question, which will be interesting for the Deputy for the rest of this year, is what the appropriate budget balance is when facing the risk of overheating. I will work more on this in the coming months before I give my pre-budget advice. I would generally flag that the debate here is maybe a little too narrow. Trying to target a budget balance of zero will maybe not be enough. The conversation about significant budget surpluses is not something I hear too much here. I do not think it is an issue for now but in the next year or two, we may have a situation where, for the stability of the economy, running a significant surplus may be important. That does not cut across anyone's desires for more public spending. It is a question of balancing public spending with raising revenue to match it.

Turning to financing of both the residential market and the commercial real estate market, what is the alternative? For the rental market, having large, professional investors can be a positive force. Having a professional landlord institutional class, where they may not own very large portfolios, may have a better outcome for many people seeking to rent than having to deal with small-time buy-to-let landlords. We all want a stable rental system where one can expect professional standards from the landlord. Large-scale professional investors who buy up apartment buildings and complexes to rent them out can be part of what we want. On leverage of these firms, banks are highly leveraged institutions. The leverage of a private equity investor or investment fund would be less than a bank. Banks, while they take on debt, are, through deposits, bank bonds and so on, usually more indebted. The other issue is the consequence. We care a lot about banks because we put our money in banks. We have to keep depositors safe. If some global professional investor decides to lend money to a big private equity fund and that fund gets into trouble, the losses are not for the general population. They will be concentrated on those who took that risk. It is a different type of risk. It is a real risk, where there is some disruption in the international financial system and some of these companies may get into trouble. The question is, if they get into trouble, what the systemic consequences are. It is bad news for their shareholders and their bond investors but it is easier to mop up that type of problem than to mop up a problem where it is bank-funded. Having diversified funding in the system is important. I recognise that it increases competition for the individual in the short term, in the Dublin market, for example. On the other hand, for the wider system, we should be cautiously optimistic about having professional investors who will play an important part in providing apartments and homes to rent. That can be a positive development.