Last week I argued that the Central Bank's mortgage rules, which allow for lending multiples of four times income for first-time buyers and just three and a half times for movers, are long overdue a rethink. While construction costs rise beyond viability and middle-income earners remain hamstrung by overly conservative lending policies, the stakes remain high for the future of housing delivery.
Those strict lending limits were introduced to protect the banking system after the 2008 financial crisis. On the night of the guarantee, the State stood behind roughly €440 billion of bank liabilities, about 10 times the national debt. Recapitalising the banks took €64 billion of taxpayers' money, and even after share sales and dividends, the net bill still sits between €32 billion and €46 billion. At the stroke of a pen, staggering levels of private banking debt became sovereign debt overnight, burdening generations to come. Despite corporation tax windfalls, the pace of repayment makes that burden look permanent.
The guarantee saved the banks, but it did not save lending. For years a mortgage was next to impossible to obtain. Between the 2006 and 2011 censuses the share of households renting privately almost doubled, from under 10 per cent to 18.5 per cent. This is the origin of what has come to be known as Ireland's “renting class”: locked out of home ownership when property was cheap because nobody would lend to them and locked out again now because the rules will not let them borrow enough.
Here is the invisible driver. The risk of financing homes was never eliminated in 2008; it was simply transferred from bank balance sheets to the taxpayers. Once private finance was withdrawn, the State had to fill the gap. Budget 2027 hands the Department of Housing a record €11.9 billion, with €5.6 billion of capital going directly into delivery.
Government deserves credit for the output: 36,284 homes completed in 2025, the highest on record since the crash, and 2026 is running more than 10 per cent ahead. But in the rush to congratulate themselves, ministers are missing the warning signs of what comes next. I am taking calls from developers turning down sites on which 150 or 250 homes could be built. The reason? In many cases it is simply not profitable to build homes at prices that can be afforded given the level of finance available to buyers.
To understand why, we need understand that the currency itself has been repriced. The pandemic years and the cranking up of the printing presses added billions to the supply of euro. Inflation peaked above nine per cent in late 2022; house price growth topped 10 per cent in 2024. In real terms the house was worth much the same as before; it was the euro that had shrunk. Land, labour and materials repriced instantly. Wages did not. This is why 300,000 public servants stood on picket lines last month. A lending cap tied to those lagging wages did not move either: the borrower is chasing a house priced in a less valuable currency with a pay packet that remains priced in the old one.
That is the squeeze: costs have repriced, borrowing capacity has not, and the builder is left with no margin. House price inflation is easing, albeit Galway is holding strong for now. Nationally we have seen 5.1 per cent growth in August, the lowest since 2023. That is not necessarily good news for the market. If prices ease to where builders down tools, supply stalls, the rent trap continues to another generation, and the State is dragged deeper into a market it was never meant to carry.
Two choices present themselves. Government can concede the well-founded public-service pay claims, at a cost of billions. Or it can take a hard look at lending rules designed to protect banks alone, banks whose debts were handed to the taxpayer in any case.
Functioning private debt markets and properly lending retail banks are the answer to the housing crisis, not the Exchequer. Like an old general who has lost his edge, the State is still fighting yesterday's battle, the one it lost resoundingly 20 years ago with the taxpayer as the front-line causality. That was the first defeat. The second we pay for every October, in a housing budget that exists only because the middle-income earners cannot borrow sufficiently.
Middle Ireland rescued the banks and then funded the State housing intervention that followed. The least we deserve now is access to a mortgage befitting of current market conditions. The future of the housing market depends upon it.
Johnny Gannon is the founder of Fair Deal Property, Auctioneers & Estate Agents, Galway. For advice on buying, selling or developing, call 091 394593 or visit www.fairdealproperty.ie
