Property prices in Ireland’ could take a few decades to recover’
The Central Bank deputy governor Stefan Gerlach at the National University of Ireland, Galway last night warned that economic recovery will be slow and house prices will lag behind any recovery.
The Central Bank’s new deputy governor delivers stark warning over the effects of crash
HOUSE prices could take decades to recover from the property crash even if the economy starts growing, the new deputy governor of the Central Bank of Ireland warned last night.
Experience of booms and property crashes in other countries suggests the economic recovery here will be slow and house prices will recover even more slowly, he said.
Central Bank deputy head Stefan Gerlach made the comments at a conference on housing markets and financial stability at NUI Galway.
It was Mr Gerlach’s first major speech since the appointment of the Swedish economist last December sparked controversy, when it was revealed that he is being paid €50,000 over the Government’s “€200,000 salary cap” for public-sector jobs.
Classic: Last night in Galway, Mr Gerlach said Ireland had experienced a classic housing boom. House prices here rose faster and higher than in most booms but the bubble and burst is in line with the pattern seen around the world, he said.
It means experience elsewhere could help forecast the likely trend here over the coming years.
That evidence points to a sustained housing slump, because credit-fuelled booms are typically worse than other booms and the combination of a housing crash with a financial crisis is especially damaging.
“Recessions that coincide with a housing bust are, on average, longer and more pronounced that others,” he noted.
A study comparing crashes in the likes of Scandinavia with in Korea and Japan revealed the wider economy recovered much faster than house prices, where they recovered at all.
“While gross domestic product (GDP) in this sample of countries typically recovered to peak levels within six years, the recovery in house prices was much delayed,” Mr Gerlach said.
“In the Nordic countries, the recovery took between 10 and 22 years, house prices have not yet recovered to pre-crisis levels in Korea and continue to decline in Japan.
“Overall these graphs suggest that economic activity in Ireland will recover only gradually, and that it may take a long time before house prices return to their level in 2007,” he said.
That evidence may in part explain why the Central Bank has signed off on plans for so-called “negative equity mortgages”.
The new mortgages will let people bring home loans with them when they move house- even if they sell for less than they paid.
It could see people end up with mortgages of as much as 175pc of the value of their new home — as they end up carrying much of the old mortgage to their new home on top of any new borrowings.
That flies in the face of efforts to rein in property lending by insisting on tighter discipline, but if the Central Bank is convinced house prices are set to stay low there is little point in waiting for a property recovery to lift people out of negative equity.
That makes more extreme ideas such as the new-style mortgage more palatable.
The health minister Dr. Reilly wants no smoking ban extended to public areas
Smoking will be banned in Ireland’s public parks, on beaches and boardwalks and in sports-grounds, if the Minister for Health has his way.
At a conference hosted by the Irish Heart Foundation yesterday, James Reilly said he wanted to “go a step further” than banning smoking in cars with children.
“It is essential that we denormalise smoking,” Dr Reilly said.
“We are getting more support for my plans to ban smoking in cars, but I would like to go further. I would like to do what they’ve done in New York, where smoking is banned in parks and on beaches, where children are likely to be and observe behaviour, because that is where they are and they learn what ‘big’ people do. So, I certainly intend to pursue that at Cabinet.”
If society was determined to tackle issues such as smoking and obesity, “we need to take the critics head on and take the action that is required”.
Those determined to improve the nation’s health must reject the accusations of those, many with vested interests, that the State was behaving as a “nanny state,” Dr Reilly said. “The State has a duty of care to its citizens.”
Mayor of New York Michael Bloomberg last year signed into law a Bill prohibiting smoking within the city’s parks, beaches and on pedestrian plazas. When it came into force, smoking was banned in these places, as well as on boardwalks, public golf courses and sportsgrounds.
Smoking had already been banned in playgrounds and at public swimming pools.
According to the New York City parks department, enforcement of the ban is “mostly by New Yorkers themselves”.
In its policy statement, it says: “We expect that New Yorkers will ask people to follow the law and stop smoking . . . However, people who violate the new law could receive a $50 ticket [fine].”
Studies cited by the New York parks department suggest sitting three feet away from a smoker outdoors could expose a person to the same level of second-hand smoke as if they were sitting indoors with someone smoking.
Dr Reilly, extending his talk to refer to measures to tackle obesity, said the State had a duty to make citizens aware of preventable risks.
“We’re not going to take choices away from people. We want them to make informed choices, so that when they do go into a restaurant they know the calorie content of each individual dish . . . and they are influenced by that, there is no question.”
A World Health Organisation report from 2009 said that 29 per cent of Irish people still smoked. It is estimated to cost the Irish economy at least €1 million a day in lost productivity, while smoking-related illnesses cost the State about €2 billion a year.
