Professor Philip Lane:

In general, overheating is an economy-wide issue. An imbalance in a particular sector is a separate issue. In terms of the overall economy, we are not seeing overheating yet. In terms of unemployment, there is still a way to go before we get into the red zone in terms of the labour market. We should not be too early in declaring any overheating of the economy. As long as unemployment remains above where it should be, we should not do that. When it comes to an individual sector and assessment of what is going on therein, there are few issues arising. What one sees in terms of the number of cranes around town is the completion of a lot of buildings. Construction on these buildings was initiated several years ago when sites were bought at a bargain price and the companies now want to complete and sell them. It is not my understanding that there is a new wave of construction under way. In other words, a bubble is created when construction is amplified even when the market grows closer to completion. I do not think that is in the pipeline. We gather information from the commercial brokers in this regard.

Pricing was very strong for a while but in recent times it has become much flatter. It is not the case that there is onward acceleration in commercial real estate prices. What is true - the IMF has highlighted this - is that there has been an international synchronisation. In other words, there are a number of funds in the world which are active in a number of cities, including Dublin. If funding conditions change or they experience a shock somewhere, it may lead to a synchronised reversal everywhere. Much of the financial risk is in those investment firms, not in the Irish banks. There are spillovers because the Irish banks rely on that pricing to price the collateral of what they hold.

The Deputy raises a valid concern. We will release more work in this area. We have been working away on this issue, prompted a little by the Deputy's communication to me in regard to one of these firms. We have been working on understanding the role of investment firms and how they are funded. We have some interesting work that we will publish. The international message is that commercial real estate has been de-linked from local circumstances. It is part of an international financial play which may go into reverse at some point. It is an interesting sector but I would not call what is happening in it a bubble. There is no local element to the bubble. There may be a global element to it but it is not the case that there is some mania going on in the Irish market.