Carthy questions Mario Draghi on Irish housing bubble risks
Sinn Féin MEP Matt Carthy has raised the risks posed by the overheated Irish property market in an exchange of views with ECB President and European Systemic Risk Board (ESRB) Chair Mario Draghi today in the European Parliament in Brussels.
Addressing Mr Draghi, the Sinn Féin MEP said:
“International finance has fuelled a new Irish housing bubble that is causing price and rent increases that are pricing thousands of people out of both markets.
“When I raised the issue of a new Irish property bubble with you last year, you remarked that the solution to such non-systemic inflated markets was to be found in local policy and, in Ireland’s case, raising the supply of social housing – comments I fully agree with.
“New warnings that have come from the Commission, the IMF, and the OECD in recent months focus on two themes – the first is the risk that tens of thousands of existing restructured mortgages will be unsustainable in the event that interest rates rise.
“The second is the risk to economic stability posed by the overheated property market, fuelled by private equity funds searching for yield in commercial and residential real estate. A surge in credit in recent months is adding fuel to this fire.”
Carthy asked the ESRB chair for his views on deflating the property bubble in an orderly way.
In response, Mr Draghi said that the residential real estate market was overstretched in Ireland and some other countries in the EU, and the commercial real estate market even more so.
Speaking following the exchange of views, Carthy said:
“Mr Draghi identified the main source of vulnerability in the Irish property market as being the search for yield by international investors, saying that the resulting rise in property prices makes the market vulnerable to repricing and sudden changes in risk premia.
“He pointed out that the source of the inflating bubble in the Irish state is largely cross-border financing and non-banks, and said it is important to investigate whether new macro-prudential instruments should be introduced for non-banks, especially in relation to their commercial real estate exposures.
“In other words, the ESRB chair is arguing that in the interests of financial stability we should be examining whether we should introduce new regulations at the macro level for the enormous shadow banking sector in Ireland, which involves huge sums of money but remains largely unregulated.”