House price inflation in Ireland, what's the cause?

On RTE1 last night the political affairs program Q&A addressed house price inflation and the possible resulting negative equity that a significant number of Irish householders now face.

The Labour Opposition Leader firmly placed the blame at the governments feet for failing to reign in the 'excessive profit taking' in the Building Industry. What a load of nonsense!

The government are to blame but not because it allowed the building industry to take excessive profits, it is to blame because it stood back and watched the Irish Banking system flood the residential market with cheap mortgage money.

House prices are just like any other market, it is a law of supply and demand. What is different is that buyers don't use cash (by and large) and need to borrow the money from Banks. So if Mr Average is prepared to pay 10 times his/her salary for the average house then it's because a Bank has been prepared to finance this purchase.

Even if Mr Average has reservations about the cost, he is in a catch 22 situation. He/she needs a house and if he doesn't buy then the banks will lend the money to somebody else who will.

The fact is, if the funds had not been available to fuel the house buying frenzy then house price inflation would not have gone crazy...

So why should the Government care what the banks do? Because it directly influences our economy. The US Stock Market crash was driven to a large extent by the availablity of easy credit and look how that ended, a 10 year depression.

Bank lending should not be driven purely by the Banking Corporation's desire to make money. There are very real social and economic consequences to deal with if this happens. Our Government knows this and should have done something about it. Yes, there are lending criteria guidelines etc. but these have been flouted for over 10 years. If the Government had at least ensured that strict lending critera were being adhered to then this would have helped to control the flow of money into property and the resulting flow of profits out the other end would have controlled themselves.