The real problem is that we do not have enough houses to accommodate our population. As such, we are trapped in a zero-sum game; on one hand we need more rental properties, but we also need more homes for owner-occupiers. These objectives simply cannot be reconciled without building additional units. Ultimately, when it comes to solving our housing problems, all roads lead back to supply.
Hang on, can we not follow that road a little further? In a functioning market, demand ought to stimulate new supply. Why hasn't that happened? The optimistic view is that there is a time lag between the one and the other, so all we need do is wait. The more cynical view is that it is government policy to keep prices high, and part of this is a choking off of supply. This is being done by a) drip feeding of NAMA properties into the market to take advantage of the rising prices, b) withholding credit from builders who might otherwise be in a position to supply the market, c) actively stymying repossessions which are the natural and necessary consequence of mortgage default.
That a) is happening, there can be no doubt. It is NAMA policy in order to meet its mandate. We (collectively, through our government) bought into that when the then Finance Minister had the brainwave that we "only" needed a 10% increase in prices over 10 years from 2009 to break even. Of course, prices fell precipitously from then, until the current spike.
Part b) is more complicated. The government does not directly control the supply of credit to builders, but its recapitalisation of the banks has not had the desired effect since the banks were far more damaged than was known at the time. Basically, the effort to prop up the banks and get credit moving in the economy has been a failure so far.
c) is an emotive issue that I'm not going to touch. However, it is presumably uncontroversial to say that an ability to repossess in a timely fashion will be factored into bank costs and willingness to supply credit.
I consider the whole thing a complete mess. Government policy is basically operating
against our interests of lowering costs in the economy, increasing competitiveness, and promoting growth. The current government has done little more than continue the policies of the previous one, who completely misread the magnitude and implications of the crash, and set us on a path that will make recovery far more lengthy and difficult.
The only ray of light in this whole thing -- although it is cynical to say so -- is that when the current unsustainable "bubble" (or whatever one wants to call it, since there is much disagreement on it) bursts, as it inevitably must, a significant fraction of the people who get wiped out will be cash investors. I don't say this with any malice, I'm just noting that wealthier investor types spend proportionally less of their income into the economy, so rather them than the less well off. One hopes that repossessions will be more prompt than has been the case with our amateur BTL landlords so far.
(P.S. I hope this post doesn't violate the rules on discussing house prices, since I'm talking in generalities and not speculating about movements in any particular time frame).
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