Trump and Brexit ‘a risk to house values’
Central Bank boss says property not a ‘one-way bet’
BUYING a house is not ‘a one-way bet’ as international and domestic factors could yet bring down property prices, the Governor of the Central Bank has warned.
In a speech to the Institute for International and European Affairs in Dublin yesterday, Philip Lane said ‘current and near-term economic prospects are favourable’ but warned of downside risks.
Similarly, while the recent increases in house prices look like they ‘have moved broadly in line with fundamentals’, there are both national and international risks.
These, he said, include President Trump’s tax reforms, which are designed to bring US corporations back to US soil, and Brexit trade disagreements, which could bring ‘long-term’ negative effects on living standards.
National risks include increased supply of housing in Ireland. Commenting on the economy in general, he said that President Trump’s recent tax reforms have some ‘clear implications’ for the treasury operations of US multinationals but said it was ‘not yet clear’ if multinationals will leave Ireland for the US as a result.
In December, Congress agreed to Trump’s plan to cut US corporation tax from 35% to 21% to encourage US multinationals to return home.
Mr Lane noted the ‘complex, multi-dimensional nature of the new tax law’ in America and said it would take some time to judge its effects. ‘More broadly, it will be important to assess the implications of other possible changes in international tax systems, including in relation to the taxation of digital activities,’ he said.
This is believed to be a reference to the European Commissteel sion’s ruling that Apple owes €13billion to Ireland for unpaid taxes and the demand from several EU countries that they benefit more from Apple’s profit generation in Ireland.
Mr Lane also warned of risk that will come with international ‘protectionist measures’ but fell short of directly referencing President Trump’s announcement this week to put tariffs on and other foreign products in an attempt to create more jobs in America.
Trade frictions between the UK and the EU as a result of Brexit ‘will generate a reduction in longterm living standards unless they are resolved’, he warned.
Mr Lane also strongly criticised the banks for the tracker mortgage scandal. He said it was clear from the Central Bank’s own Tracker Mortgage Examination, which began in 2015, that customer interests were not ‘sufficiently protected or prioritised by our lending institutions’ and he strongly criticised the culture within the banks.
He said the Central Bank’s examination ‘raises serious questions about the culture in our lending institutions and the extent to which their boards and senior management are really living up to their promises of putting the customer at the heart of their business.’
Even after the financial crisis, there was been ‘significant misconduct’ in lending institutions at home and internationally, he said.
Customer interests were not protected