Brian Cowen (Laois-Offaly, Fianna Fail)

Demand for housing has risen strongly in recent years. This demand has been underpinned by demographic factors, the innate strength of the economy and the impact of an accommodating monetary stance, including historically low interest rates. Housing supply has responded to demand with completions for 2005 reaching a historic high of about 81,000 units which, on a per capita basis, was among the highest in the world. House prices have also risen rapidly in recent years. As in the case of housing output, fundamental factors also largely account for the increase in prices. It is reasonable to assume that over time the large increase in new housing supply will restore equilibrium to the market. This should allow output to move gradually closer to sustainable demand and result in more moderate price increases.

There is currently a broad consensus among commentators such as the OECD and the IMF that the most likely outcome for the housing market is for what is termed a soft landing. However, we cannot be complacent by assuming this is inevitable. As I said on a number of occasions and acknowledged in the stability programme update published with the 2006 budget, the fact that the construction sector now accounts for a historically high share of economic activity and employment implies that the economy is vulnerable to any shock affecting this sector.

For its part, the Government continues to run a prudent, stability-oriented budgetary policy which gives it room for manoeuvre in the event of an economic downturn, whatever the cause. Its planned infrastructural investment programme is largely being funded out of current revenues rather than borrowing, while the careful choice of appropriate projects enhances the overall productive capacity of the economy and thus should underpin future growth.

In addition, I announced in budget 2006 that a range of specific property-related tax incentive schemes were to be discontinued on foot of a comprehensive review of the schemes undertaken by independent consultants in the course of 2005. In line with the recommendations of the consultants, the 2006 Finance Bill provides that the tax schemes in question, several of which include a significant housing component, will be discontinued subject to transitional arrangements. These arrangements provide for full tax relief on qualifying expenditure in 2006 and with decreasing levels of relief available in 2007 and in the period from January to end-July 2008, after which the relief will cease. The gradual phasing out of the tax relief schemes is designed to avoid any sudden shock to the construction sector generally, having regard to the current important contribution of this sector to the Irish economy.

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