Batt O'Keeffe (Cork North West, Fianna Fail)

These are the next generation of Irish workers who may further boost demand for housing in the longer-term. There are also a number of positive factors in the more immediate context. The prospects for income growth remain positive. Increased mortgage relief, first-time buyer stamp duty exemption, greater accessibility to the market as result of easing prices and the prospect that we may now be at or near the top of the ECB interest rate cycle, will all have a beneficial impact. In fact, I understand that at present ten-year fixed interest mortgages of 5.5% are available. Returns from investment in residential property have also improved. Some commentators point out that strong demand in the private rental market, and what a major firm of estate agents referred to recently as "continued resilience of investor demand", also confirm the strength of underlying housing demand.

Those who predict a house price crash usually point to the scale of price increases in the past ten years. However, this has been matched by unprecedented economic growth, with a doubling of employment and very strong increase in net after-tax income. As a result, housing affordability as measured by the Department's affordability index remained favourable despite price increases up to 2005 but disimproved sharply due to price and interest rate escalation in 2005 and particularly in 2006. The position has, however, improved again this year due to price moderation, income increases and doubling of mortgage relief. Nationally, the figure is comfortably within acceptable affordability norms relative to net income.

The possible wider economic implications of reduced house construction activity have received much attention. As the Minister for Finance has said, the recent forecast of economic growth of 3.25% in 2008 is impressive by international standards and at a level of which many of our EU partners would be glad. Housing activity contributes about €10 billion to the economy or just over 7% of all economic activity. However, this must be put in perspective. Manufacturing and services activities combined — both of which are traded internationally and are growing well — make up more than 80% of economic activity overall. I was interested to hear a statement by the Small Firms Association in recent days welcoming what it sees as a rebalancing of economic activity, with less dependence on house construction. Growth in other areas, both non-residential construction, boosted by national development plan expenditure, and other sectors, will help to compensate to a significant degree for reduction in house building activity.

In so far as my Department's functions are concerned, infrastructural and planning requirements are in place to enable housing output to continue at a strong level. There is a large stock of residential planning permissions in existence and permissions granted in the second quarter of 2007 rose by 26% nationally on the same quarter in 2006, with much higher increases in Dublin and the greater Dublin area.

The housing sector will be strongly supported by investment of €21 billion under the national development plan, including €18 billion to support the expanded social and affordable housing programmes — and will meet the housing needs of some 140,000 households over the life of the plan. Record levels of activity are being achieved on the local authority housing programme in 2007 and overall output of social and affordable housing, at some 4,350 for the first half of 2007, is up 24% on the same time last year, while Part V delivery has increased by 51%. Government policy in relation to the entire housing sector is being developed and implemented within the framework of the housing policy statement Delivering Homes, Sustaining Communities, published earlier this year.

I am disappointed to hear pleas from some construction and auctioneering sources for a Government bail out in the form of further stamp duty cuts. Budgetary policy, including stamp duty is, of course, a matter for the Minister for Finance and I have no intention of engaging in any speculation in that regard, as it would be neither appropriate nor responsible to do so. However, I want to take issue with some of the assertions that have been made about the impact of stamp duty on the housing market.

Stamp duty on property transactions has existed for many years. In addition to providing a valuable source of Exchequer funding, it enables the Government to maintain a wide and low direct tax base and it also helps keep other taxation at a relatively low level in comparison with other jurisdictions. The rates of duty for second-hand purchases have been unchanged since 2001 and did not restrain the market surge in 2005 and 2006. Recent cooling in the housing market did not originate from comments about stamp duty changes last autumn, as some claim, but rather from the decline in affordability due to house price escalation and the doubling of interest rates. The first indication of a turn in the market came with a significant drop in mortgage approvals during the period July 2006 to September 2006, in which the number of approvals dropped to 25,000 from 35,000 in the previous quarter.

More important, a further reduction in stamp duty would not be likely to promote a significant increase in housing market activity. This is because a net increase in market demand can come from two sources only, namely, investors and first-time buyers. At the end of every chain of house purchase transactions, there must be a new buyer from one or other of these sources. Stamp duty has been already abolished for first-time buyers and not even the stamp duty militants in the media are proposing that investor duty be reduced. Returns to my Department show that there has been a slight increase this year in the proportion of investors acquiring properties, particularly second-hand dwellings. Any reduction in stamp duty would, of course, have to be made up from other sources, both existing and new.

The Government, by exempting all first-time buyers from stamp duty, has reduced the cost of purchasing a home for first-time buyers without any housing equity of their own while also restoring stability and certainty to the housing market. The case for any further reform or updating of the system as a means of boosting housing market activity is not convincing. Such a move would be tantamount to a subsidy for house prices and indirectly for professional fees.

Future developments can never be predicted with confidence — and the track record of economic pundits is probably worse than racing tipsters. However, the broadly positive prospects for the housing market are supported by some reputable independent sources, both domestic and international. For example, the IMF, while pointing out in its recent report on the Irish economy that a sharper correction in house prices could slow economic growth significantly, commented that the slowdown of the housing sector had been gradual so far and would help to rebalance growth and contain inflationary pressures. Moreover, a message highlighted at the outset of the IMF report was that Ireland's economic performance "remains very strong, supported by sound policies".

In this economic climate, we should urge people to understand that affordability is better, that we are at the top of the interest rate cycle, that stamp duty has been removed for first-time house purchasers and that one bargains instead of paying the price being asked. Until recently, buyers thronged through the doors of those selling houses but the latter must now learn again how to sell in a tough market. It is now time for auctioneers and builders to put the shoulder to the wheel. The past ten years have been outstanding for them and there is now a need to make an effort to persuade those who can afford to be in the housing market to take the opportunity to buy houses at a more affordable level than was the case heretofore.