Brian Cowen (Laois-Offaly, Fianna Fail)

There is a general view that the sustainable level of new housing completions is approximately 60,000 units per annum. This estimate is based on factors such as the demographic structure of the population.

In the past several years, the level of output has been in excess of that level. The Government has always been aware that activity would have to revert to more sustainable levels at some stage. Last year, the level of completions recorded an annual decline for the first time since the early 1990s and a further decline in new house completions is expected for this year. As such the market remains in a transition phase this year, although there is a possibility that completions could undershoot sustainable levels, given that confidence in the wider economy has been affected by international economic developments. Given the level of activity of recent years, it is now accepted that the initial problem of inadequate supply has been rectified.

Over the medium term, however, we expect output to evolve in line with sustainable levels. In this regard it must be remembered that on a per capita basis this level of output is still high by international standards.

Regarding price developments, the latest data for February show that prices are approximately 9% below their peak levels. When inflation is taken into account, prices in real terms are now approximately 15% lower than at their peak. In other words, a significant part of any price adjustment that may have been necessary has already been completed.

This easing back of prices, combined with the measures I took at budget time on stamp duty and mortgage interest relief, makes house purchases more affordable, particularly for first-time buyers. In terms of affordability, the April EBS-DKM affordability index shows that the proportion of net income devoted to mortgage payments for a first-time buyer working couple has decreased from 26.4% in December 2006 to 22.4% in January 2008.

The underlying demand for housing remains strong as evidenced by the strong growth in rents and supported by continuing high employment and migratory inflows. In overall terms, while it is still not certain, there are signs, therefore, that confidence may be gradually returning to the housing market and that better value is being obtained for those wishing to buy their own home.

The main lesson from recent events is that like any market where the price of an asset increases rapidly, potential purchasers should exercise caution, which I think we are seeing happen. We must not lose sight of the fact that one of the reasons why housing demand grew so rapidly relates to the underlying strength of the economy, seen most clearly by the strong growth in employment and incomes over the past several years.

Additional information not given on the floor of the House.

Despite all the doom and gloom that now seems to be fashionable among some commentators, we still have an economy that last year added in net terms just over 70,000 new jobs. As regards what we must do in learning to adjust to the new property market environment, Government has been clear. I have already mentioned the actions that I took in relation to assisting individuals wishing to enter the market. In terms of the wider economic aspects Government is playing its part. Our high level of public investment in capital under the NDP, is helping to offset the impact of the decline in housing output in the economy. This has been acknowledged by the OECD as contributing to stabilising the economy in the coming years.

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