Kieran O'Donnell (Limerick East, Fine Gael)
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Question 5: To ask the Tánaiste and Minister for Finance the lessons that can be learned from the recent developments in the property market. [15895/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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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.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Minister did not answer the question as to what lessons were learned. The sustainable level of new housing completions is 50,000 units per annum, not the 60,000 units he claims. The budget figures are flawed as they were based on this completion figure. The ESRI flagged to the Minister that sustainable housing levels were approximately 45,000 to 55,000 units.

The Minister referred to young people now being able to afford houses. What about the 100,000 people who bought houses in 2005 which are now in negative equity? They went from 58,000 in 2002 to 69,000 in 2003 to 77,000 in 2004 and 81,000 in 2005. Still alarm bells did not go off with the Minister. He was cheerleading the growth in house-building. Interest rates were artificially low and these levels could not be sustained.

The Minister was advised by the IMF in late 2005 that house prices in Ireland did not reflect economic reality. In 2006 the Minister told everyone to build away because the economic fundamentals would sustain it. The Minister should instead have taken corrective action. Does he take responsibility for what has happened in the housing market? Does he agree he should have moved earlier on stamp duty reform?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not understand the Deputy's argument. He argues I should have moved earlier on stamp duty reform but it was his party's main policy plank going into the general election. This canard has been going about for 12 months. The Deputy has just decried the fact that housing output was increasing exponentially, which is a function of the market. The housing market and the capacity of the building industry grew because of demand. We have been decrying the fact that output was not meeting demand requirements which was a reason why house prices were high. Suddenly I am responsible for all this. I am responsible, thankfully, for managing the economy and letting people get on with their business.

The Deputy is claiming I should have intervened in the housing market by reducing stamp duty further and, as a result, increase house price inflation. The Deputy's argument does not make sense. An OECD report in the past month claimed my stamp duty changes were timely because the time to make an intervention is when the market is coming down. The time is not, which was the argument I had with Fine Gael and others last year, when the market is not coming down.

Kieran O'Donnell (Limerick East, Fine Gael)
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Mistakes were made much earlier. The Minister is evading the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am pointing out the paradox in the Deputy's argument.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Minister allowed housing output to reach a dangerous peak. He should have introduced stamp duty reform earlier. What he has created is negative equity. Will he accept he built his budget figures around unsustainable housing output?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not accept that point.

Kieran O'Donnell (Limerick East, Fine Gael)
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Why not?

Brian Cowen (Laois-Offaly, Fianna Fail)
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For the very simple reason that when revenue projections were exceeded, more than 75% of the increased revenues went back to reduce debt. We did not base the budget on the boom. Deputy Bruton claimed earlier that all these increased revenues went on unsustainable spending programmes and we are now hitting the wall. That is not the case.

Kieran O'Donnell (Limerick East, Fine Gael)
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We are borrowing way ahead of the rate of growth.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Fine Gael is decrying we do not have those revenues available to us this year.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Government did not build its budgets on solid foundations.

Brian Cowen (Laois-Offaly, Fianna Fail)
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We did build them on solid foundations.

Kieran O'Donnell (Limerick East, Fine Gael)
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Why are the foundations crumbling?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Is the Deputy saying the foundations of the economy are crumbling?

Kieran O'Donnell (Limerick East, Fine Gael)
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No, the foundations of the housing market.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The foundations of the housing market are not crumbling. The market is adjusting. There is a correction taking place because we had an oversupply in the market. That happens in markets. The commercial property market is not as weak but actually stronger.

Kieran O'Donnell (Limerick East, Fine Gael)
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I am not referring to that sector.

Brendan Howlin (Wexford, Labour)
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Allow the Tánaiste without interruption.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I know that but the suggestion that the whole building industry is crumbling does not stand up.

Kieran O'Donnell (Limerick East, Fine Gael)
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I am referring to the housing market.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Housing output this year — a relatively poor year compared to others — is still higher than ten years ago. Concerning this idea of the market crumbling, we must keep a sense of perspective.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Minister is missing the point.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The point the Deputy is missing is that markets adjust to supply and demand.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Minister was warned a year ago.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I did not interrupt the Deputy while he was asking his question. The criticism beforehand concerned when the Government would try to increase supply to meet demand. Now that the market has adjusted and built up capacity to meet demand, the Deputy's problem is that we allowed the market to grow too quickly. The market grew in response to demand.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Government fuelled the market.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The demographics of the country are such that, at a per capita level, housing output in the medium term——

Kieran O'Donnell (Limerick East, Fine Gael)
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The Government cheered it on.

Brian Cowen (Laois-Offaly, Fianna Fail)
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——suggests 60,000 units per year is the best way forward, according to the ESRI and others.