Great article by Professor Gregory Connor on proposed mortgage limits

For non-economists, the title is a bit offputting but I hope people read it, and the first few replies.
Composition Effects and Loan-to-Value Limits

The budgeting scenario has been described as follows:
“Consider a couple who wish to purchase a €300,000 property. With a LTV limit of 80% this will require that they save €60,000 for the down payment whereas if they were allowed to borrow 85% they would only need savings of €45,000.”


This oft-repeated budgeting scenario misrepresents the nature of market-wide LTV limits imposed by the Central Bank.

This budgeting scenario gives the impression that the policy decision is about imposing/not imposing the LTV constraint on only one particular buyer rather than market-wide. It misses the large compositional effects since leveraged property buyers compete with one another for properties. The degree of leverage allowed in the banking system feeds into property prices, and this affects the opportunity set of purchasers.

A dual statement of the constrained household budgeting problem gives a better framework for thinking about the issue:
“Consider a couple who have saved a down payment of €45,000. If they face an LTV limit of 80% they can only pay €225,000 for a property, whereas if they are allowed to borrow 85% they can pay €300,000.”

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Article is also supplemented by an excellent response from Johntheoptimist.
What many people don't tend to appreciate is that there is not one housing market. there are a number of markets which differ by both location and quality/size of property.
The focus of all this discussion appears to be on the Dublin market and more specifically South Dublin.
Given the current lack of suitable properties a change in CB lending rules is unlikely to have any significant effect on prices. While the CB has expressed concern on the rising market it has given no opinion on what it considers as an optimum price level for specific houses. So if the current values for properties in and around Dublin are overly high, why aren't developers building new properties? High prices and high demand should result in increased profitability for developers.
The only reasonable commentary I have seen recently on the actual price of building a house is BB's post on AAM. By all means let us widen and broaden this debate, but restricting commentary to price movement alone without a thorough examination of the underlying issues for same and an acceptance of what an optimum level of price is based on location/size/scope of property gives no real clarification on the extent of the problem or even if this is a problem!
Can those who keep repeating the mantra that house prices are too high/low actually rationalise their contentions!

44brendan said:

Can those who keep repeating the mantra that house prices are too high/low actually rationalise their contentions!

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Good idea, but not on askaboutmoney!

Fair point! But I am looking more towards Economists and the CB rather than the already well versed AAM posters.