The Government needs to introduce policies to "take money" out of the property market if it is to avoid the risks attached to the sector, according to the latest analysis from the Economic and Social Research Institute (ESRI).
While the ESRI believes the economy will grow solidly until the end of the decade, it says the dominance of the property market could threaten this. In its Medium Term Review: 2005-2012, published today, the institute warns of "dangerous imbalances" building up in the economy.
It also points to euphoria in the household sector that could be clouding the judgment of individual households. "We do feel it is urgent that something be done to take money out of the building sector," said Prof John FitzGerald of the ESRI yesterday.
Housing construction currently accounts for 14 per cent of economic growth, as measured by gross national product. This compares to about 7 per cent in the US.
"A lot of the economy is built on this," said Prof FitzGerald, pointing specifically to wage growth and house prices. He said this high dependence on property leaves the economy open to shocks.
He declined to prescribe specific measures to deal with the issue but suggested that the Government could look at levying a property tax and immediately removing property "concessions". Mortgage interest relief should be eliminated, Prof FitzGerald said.
The ESRI says the economy should be able to grow by just shy of 5 per cent between now and 2010 but warns that conditions both at home and abroad will make this unsustainable after this stage.
A major adjustment in the US economy could even force a reduction in Irish growth as early as 2007, according to the analysis.
