Sir, - The recent proposal by the ESRI that mortgages might need to be taxed to keep house prices down is an idea that needs to be shot out of the sky before it lands and does some real harm.
The only real problem caused by spiralling house prices is that new homeowners are being forced to constantly reduce their expectations as to what they can afford, and some potential homeowners are being priced out of the market altogether. Adding a mortgage tax on top of the other costs involved in buying a house is not going to make houses any more affordable. People will still end up paying as much as they can afford (as determined by themselves or the lending institutions), except that less of their money will go into their house and more will go to the government. Meanwhile the benefits to sellers will be reduced as their cut from the sale becomes smaller.
Some of the rise in house prices over the last year or two may be attributable to the tax lending practices of the banks and building societies, but it has not been my experience with lending institutions that they lend money recklessly. Borrowers are still severely restricted from going into debt to the point where a hiccup in the economy or a couple of points rise in interest rates would push many of them into default.
I suspect that most of the recent trend in house prices is simply a response to the normal forces of supply and demand, perhaps exaggerated by a certain herd instinct which has made property particularly fashionable as an investment lately. And the herd instinct will turn this year's power rangers into next year's ninja turtles.
Clearly the situation can't persist indefinitely where house prices go up 17 per cent per year while people's incomes only rise at a fraction of that. With the certainty of death and taxes, market forces alone will bring down house prices, at least relative to people's income. In the meantime, what the government could fruitfully do to alleviate their difficulties facing first time house hunters would be to extend the first time buyers grant to apply to all houses, and not just to new ones. This would greatly expand the options open to first time buyers. Otherwise, let prices find their own level. Interference along the lines proposed by the ESRI would surely be subject to the law unintended - and probably undesirable - consequences. - Yours, etc.,
Barna,
Co Galway.