"Investors, unlike owner-occupiers, pose a risk to the stability of the market insofar as they may attempt to exit the market at short notice." As it ponders what budgetary measures to implement next month, the Government should pay close attention to this warning. It comes from the Central Bank's latest Financial Stability Report and is one of its more important messages.
Other messages - that we are more indebted than last year, more exposed to interest rates, or that house prices have reached unreal levels - hardly need repeating. But in its explanation of how we got to where we are, the Central Bank has laid the foundations of a debate that needs to happen at the highest political level about how credit growth is driving our economy, the risks this poses and how the Government can best steer the economy out of what appears to be a precarious situation.
In its full manifestation - as the Central Bank and Financial Services Authority (CBFSA) - the bank has responsibilities too. These were underlined some weeks ago by European Central Bank President Jean-Claude Trichet when he reminded authorities in this State of their role in stabilising the housing market.
The Central Bank report notes that "financial stability risks may be seen to have increased" since 2005 and that the standards applying to residential mortgages have "consistently eased since 2003". By allowing longer mortgage repayment periods and lending ever higher multiples of disposable income, lending institutions have fed both house price acceleration and borrowing growth.
The large and growing stock of personal debt in the economy is dominated by mortgage debt. Correspondingly, a far larger proportion of the banking sector's assets are made up of property than is usual in other countries. It is the role of the Central Bank to ensure that a repeat of the recent "easing" in credit standards does not occur.
The Central Bank recognises also how a growing numbers of younger borrowers are vulnerable to rising interest rates. It points to those with unsecured personal debt on top of mortgage debt who could be a pressure point for the banking system if the property market undergoes a severe correction. It notes that, given present house prices and rental yields, investors now may wait more than 20 years before getting any return on their investment. As the aforementioned quote from the report makes clear, investors hang over the present market like a sword of Damocles.
Contrary to what Brian Cowen says are his inclinations, the Government has intervened massively in the property market. This has taken the form of a huge tax take from stamp duty, as well as very sizeable tax breaks to stimulate a range of property development.
The Government's challenge now is to begin the process of returning our system of property market taxation to some semblance of international normality, but to do so carefully and slowly.