Sean Barrett (Independent)

I welcome the Minister of State, Deputy Brian Hayes. He, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Minister for Finance, Deputy Michael Noonan, were described by Senator Susan O'Keeffe as the "Celtic troika" in their attempts to right the country's finances. I welcome the Bill introduced by Senator Marc MacSharry. It is one element of the effort to rearrange the financial architecture of the State, as the Minister of State and his colleagues are seeking to do. An article in The Economist on 15 September last year entitled Houses Built on Sand showed that Ireland had the highest rate of house price inflation, by a factor of two, among all the OECD countries. CSO data show that the cost of a second-hand house in Dublin increased from €104,000 in 1997 to €512,000 in 2006.

We must move away from the policies that did so much damage to the economy. The construction industry brought down the banks, and the banks, in turn, brought down the country, which led to our rescue by the IMF and the ECB. One of the basic principles to which we must return is the notion that a house is for living in rather a means of securing capital gains or tax breaks. There must be resistance to the inordinate lobbying power enjoyed in the past by the sectors which caused the problems in our economy. In the week of the Galway races, we all recall what used to happen in the famous tent. It was far too easy for members of bank management to go in the back stairs of the Department of Finance on 28 September 2008 and emerge with almost unlimited moneys.

The banks built up the problems that came to light in 2008 through lending practices over several years. The largest sectoral increases in bank lending, in the years after joining the euro, were in real estate, which increased from €4.8 billion to €97.5 billion, followed by lending for financial intermediation, much of which went into higher property prices, which grew from €18.3 billion to €97.5 billion. By contrast, agriculture and industry accounted for only 1.2% of the total increase in lending. This type of irresponsible banking must be curtailed in future. It is important that we retain a focus on this issue, because the Civil Service, as we have learned, did not have sufficient expertise to do so. The Wright report indicated that only 7% of staff in the Department of Finance have an economics qualifications. It is vital that Senators and Deputies bring forward legislation to make up those gaps in oversight and expertise. I welcome the decision to put the appointment of chairmen of State bodies before the Oireachtas for approval. All appointments to the boards of the Central Bank board and the Financial Regulator should be subject to scrutiny. Those people have done immense damage to the country.

We must encourage a culture whereby a house is primarily a principal residence, not a source of tax-free capital gain. The provision of housing should not be a benefit gig for builders in a tent at a race meeting. There must be no support for any fiscal privilege, as it is called, attached to trading up. In the past, a person who could not afford to live in a smaller house might move to a larger one to avail of a larger tax write-off. All such capital gains were tax free. In future, housing policy must be based on keeping people in their houses, as Senator MacSharry's Bill seeks to do, with a fairly modest cut-off in terms of salary multiples. I am not particularly interested in the problems of people who might have to leave large estates in County Meath or trophy houses on Ailesbury Road. Going back to the rule of two and a half times a single income or three and a half times a joint income, one might conclude that the average house should cost approximately €100,000, based on average earnings.

As the country with the worst house price inflation and the most irresponsible lending by banks, which bankrupted themselves in so doing, there is much to do to address the housing problems in this State. The Regling-Watson report posed the most fundamental question in pondering what on earth the banks thought they were doing. As we approach the third anniversary of the bank rescue, we still do not know the answer to that question. The banks have been remarkably successful in avoiding being accountable to either House in terms of providing any rationale or justification for their lending policies. Senator Jim D'Arcy observed that the numbers affected by the issues dealt with in this Bill are small, but the potential danger is great. An immense burden has been placed on a generation by irresponsible banking and lackadaisical central banking.

Restoring affordability and sustainability to the provision of housing should be a main objective of Government. When the Minister of State with responsibility for housing, Deputy Willie Penrose, was in the House recently, we argued that NAMA should sell its housing stocks so that somebody can live there. The State should not feel an obligation to keep house prices artificially high for fear of the impact on certain assets in some balance sheet or other.

I welcome the Bill introduced by the Fianna Fáil Members. It shows that Senators are seeking solutions to a serious problem and finding ways to assist individuals, such as those in north Dublin to whom Senator Darragh O'Brien referred, who bought their homes at the peak of the boom on the basis of advice from professionals to get on to the housing ladder as quickly as possible. As part of the ongoing rearrangement of financial architecture in the State, the Government should reconsider the restoration of building societies. Contrary to subsequent developments, they started out as mutual benefit societies which sought to help people who wanted to become home owners. Unfortunately, they were incorporated into other corrupt institutions.

Part of trying to get the country's finances in order is to have a safety net for home owners, as proposed by Senators Byrne and MacSharry. While I was sorry there was not unanimity on the previous motion, this is a matter in which the House should send a unanimous message that it will assist the many home owners in mortgage difficulties. House prices got way out of line with everywhere else as The Economist pointed out, as well as way out of line with economic growth and incomes.