ECB won’t help you with housing crisis, Draghi tells Ireland
IRELAND’S property market woes are not unique in Europe and the European Central Bank will not help solve them, Mario Draghi said yesterday.
The ECB president told the assembled students and press at Trinity College Dublin that wherever he went he was asked about property bubbles, and he believes the solutions lie locally, and not through monetary policy.
Ireland is in the grip of a housing crisis, with more than 8,000 people homeless while rents and property prices soar.
The lack of social housing built during the recession has been identified as a key cause of the crisis, an assessment Mr Draghi agrees with.
The ECB president said that while he saw the same situation in some parts of the eurozone, such as Germany, France and the Netherlands, he did not consider the problem to be systemic, adding that credit levels had remained ‘pretty subdued.’
During a question-andanswer session with Trinity’s economics students, Mr Draghi was asked if the potential for property price bubbles was something the ECB planned to tackle.
He replied: ‘Let me tell you, I get the very same question in each press conference I do in Germany. It just shows that house prices are going up, not only in Ireland, but in some other parts of Europe.
‘So we asked ourselves, how systemic is this phenomenon? Because if it’s local then it’s another issue. The answer so far is, it’s not systemic.
‘It’s actually affecting certain large cities in certain countries. Then we asked ourselves, how far from historical averages are these valuations? I don’t know about Ireland, but with few exceptions we find that house prices in these large cities have recovered from troughs where they were for several years.
‘Then we asked ourselves, how much is due to low interest rates, to easy mortgages, to one-month reports?
‘The answer is that quite often, factors like supply shortages, building permits, lack of social housing are the main causes of these increases in house prices.’
Mr Draghi said the other question to be asked was if the soaring house prices were occurring in tandem with a substantial rise in debt, adding that he did not believe this was the case.
He said: ‘As a matter of fact, credit has recovered in the last four years now, but it’s still pretty subdued if you compare it – not with the period immediately before the crisis, because we were having peaks that were unjustified, but in relation to 15 years ago.
‘Historically, it is not excessive.
‘So if there are problems and where there are problems, they should be tackled with local measures, not through monetary policy.’
During his visit to Dublin, Mr Draghi also met with Leo Varadkar and Finance Minister Paschal Donohoe.
The Taoiseach expressed the view to Mr Draghi that he would not like to see interest rates rise yet because of the large number of Irish people with mortgage debt who would be affected.
Mr Varadkar also spoke of his support for a European Banking Union, which could pave the way for the public to borrow from foreign banks. He said it would not mean banks across Europe merging, but it would lead to ‘people’s deposits and savings being protected across Europe, which would be of benefit to us’.
‘Credit is still pretty subdued’