Few people can have been surprised by Charlie McCreevy's decision this week to drop the 9 per cent stamp duty on new build residential investments and the 2 per cent anti-speculative tax. These two gems from the last Bacon report were designed to clear the way for first-time buyers but only succeeded in putting a damper on the holiday homes market, mainly in the West of Ireland, not to mention the Dublin rental market, which is investor driven. Full marks to Charlie for taking a U-turn, but obviously he had no option given the dramatic fall-off in new housing starts over the past few months. Building operations on many housing sites have clearly slowed down: housing starts in the Dublin area are down 30 per cent this year and by 55 in the main provincial cities.

While dropping the 9 per cent is a step in the right direction, he will undoubtedly have to rethink the tax relief issue if he is to restore confidence, particularly in the rental market, which is in crisis in Dublin. What started as a legitimate concern for the problems of first-time buyers has now turned into a major headache for the Government, not helped by three Bacon reports. Not only are young people not able to buy houses, they are also finding it virtually impossible to rent decent accommodation in Dublin. Many of the good quality apartments are now being rented by large companies bringing in workers from all over the world. And even companies like Intel and Hewlett Packard have had to resort to putting new employees in hotels and guest-houses because of the unavailability of rental properties.

The collapse in confidence in the housing market has been accentuated by the increasing reluctance of the banks and other lending institutions to fund speculative apartment and housing schemes in the greater Dublin area. This development poses a serious problem for a Government which is heading into a general election, having failed to effectively deal with any aspect of the housing problem. If there is a funny side to this, it must be Mr Bacon's naivety in suggesting tax measures that were intended to persuade country builders to move to Dublin and stop building holiday homes for well-heeled Dubliners. It all goes to show the dangers of interfering with a housing market in full flight.