Ireland has been the OECD’s fastest growing economy for several years, driven by strong consumer demand, fixed investment and a buoyant global demand in areas like IT, pharmaceuticals and financial services.
But now that boom seems to be over, and one of the main symptoms of this is a decline in the housing market. Irish property, particularly in Dublin, is among the world’s most expensive.Click here for larger graph.
One US prime retail investor ranked Dublin’s Grafton Street sixth in the world in 2006. According to the OECD’s Economic Survey of Ireland
, house prices turned in 2006 and fell in 2007, particularly for secondhand houses, though with a sharp fall in house building too. The report warns that a more severe slowdown would put growth, employment and the financial system at risk.As a euro zone country, Ireland cannot use monetary policy to control lending, but ironing out tax distortions could help to dampen housing cycles and maintain competitiveness, the report says. Ireland’s house tax system is among the most favourable in the OECD and tax breaks fuel house prices.It is the only OECD country that allows households tax deductions for mortgage interest payments while not taxing property values or capital gains. Ireland’s real GDP will slip below 3% in 2008 from 5.2% in 2007, before rising above 4% in 2009; growth averaged 9.3% in 1995-2001, the report notes.
OECD Economic Survey of Ireland 2008
is available at www.oecdbookshop.org
,ISBN 9789264043114.©OECD Observer No 267 May-June 2008