There has been an ongoing narrative that the last housing boom (and many others) was only possible due to excessive credit. We have argued for a long time that this is a mistaken interpretation. While credit can make a bad situation worse, just like adding fuel to a flame, it is not the genesis of the problem.
We were pleased to see this view articulated by the Central Bank Governor Philip Lane recently. He stated that “cash buyers of property are limiting the ability of the Central Bank to control house prices through mortgage lending rules” he “singled out cash buyers as one of the key drivers of inflation in the Irish property market. Cash buyers used to account for about 25 per cent of house purchases in Ireland, but since the crash and ensuing credit crunch this figure has risen to 60 per cent“.
This is a point we have been making for years, firstly was that first time buyers are not, and have not been the problem. That was part of why we were specifically against the mortgage rules that affected them, arguing that it would lock people out of lifetime wealth opportunity.
The second point we have often made was that mortgages are not what is driving the market, scarcity and a glut of money is the issue. The money can come from all over the world, it may be indigenous cash, but it could also be funds from across the globe, pension funds, international investors and even Real Estate Investment Trusts. To think that limiting the local buyer doesn’t mean that money will come from somewhere else is false.
If you can get your head around the idea of buying something on Amazon that comes from China then why do people not understand that a Chinese buyer can purchase something here (even if it is a property)?