Phil Hogan (Carlow-Kilkenny, Fine Gael)
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Question 58: To ask the Minister for Finance his assessment of the housing market; and the levels of personal debt and their capacity to destabilise economic progress. [12530/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Residential construction has grown rapidly in recent times. Supply of housing has increased in response to strong levels of demand, which, in turn, have arisen from a number of fundamental demographic and economic factors. Total completions in 2005 reached an historic high of about 81 thousand units. Construction employment growth was also particularly strong in 2005 and now accounts for one in eight jobs.

As acknowledged in the stability programme update published with the 2006 budget, the fact that construction currently accounts for an historically high proportion of economic output and employment implies that the economy is vulnerable to any shock affecting this sector.

As regards debt, in evaluating the financial position of the private sector, it is too narrow an approach to consider the level of indebtedness in isolation from the asset side of the private sector's balance sheet. A high proportion of household indebtedness in Ireland, which accounts for approximately 45% of private sector indebtedness overall, relates to borrowing for house purchase which, in turn, creates an asset for the households. In the same way, borrowing by the business sector underpins high investment levels and the creation of business assets yielding future income. It therefore reflects the strong performance of the economy and confidence in Ireland's economic prospects.

As far as looking after the interests of the individual borrower and the individual investor is concerned, the function of Government is to provide an appropriate legislative framework for regulation of the financial services sector — one that is both comprehensive and robust. I am satisfied that on foot of the progress made over recent years, especially in establishing the Financial Regulator with a particular focus on the interests of the consumer, we have such a framework in place.

Whilst the level of indebtedness of Irish households has been increasing, the Central Bank's most recently published financial stability report concludes that a range of fundamental factors such as growing employment and incomes, falling inflation and low interest rates have supported the pattern of mortgage growth and associated debt levels in the economy. The report does, however, emphasise the importance of responsible behaviour by both borrowers and lenders to factor into their financial decision-making the prospective impact of potential changes in the future economic environment. I share the Central Bank's assessment of the importance of maintaining financial and economic stability. In that regard, for my part, I intend maintaining a responsible approach to maintaining stability in our public finances, which will ensure that the strategic direction of our economy will focus on sustainable real improvements in public services, social provision and infrastructure.

Finally, as far as overall economic and financial stability is concerned, the relevant measure of credit encompasses both public and private sector credit and debt levels. The Minister for Finance has a key role in this regard in ensuring prudent management of the budget and overall sustainability in the public finances. In this context, Ireland's fiscal performance is among the best in the developed world with Government indebtedness the second lowest in the euro area. Responsible budgetary policy has made a significant contribution to economic performance overall, to the maintenance of low unemployment and to the achievement of record employment levels.