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Back to the Future? Macroprudential Policy and the Rebirth of Local Authority Mortgages in Ireland

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  • Conor O'Toole

    (Economic and Social Research Institute and Trinity College Dublin)

  • Rachel Slaymaker

    (Economic and Social Research Institute and Trinity College Dublin)

Abstract

The global financial crisis heralded a new era of macroprudential mortgage regulations such as loan-to-value and loan-to-income restrictions. Such measures safeguard the financial system, but can lead to credit access difficulties, in particular for first time buyers. In this paper, we examine the introduction of a direct public mortgage, the Rebuilding Ireland Home Loan (RIHL), which aims to address these difficulties in Ireland. We use new unique granular microdata for applications to the scheme to explore the relationship between households applying to the scheme and the broader commercial market. We show that RIHL applicants, particularly those in urban areas, are under-served by the commercial market as they cannot borrow sufficient amounts due to the regulatory framework. RIHL enables these lower to middle income applicants to access mortgages and thus directly targets the externality from the regulations. We argue these public loans bridge credit gaps while ensuring the commercial banks are subject to strong macroprudential rules.

Suggested Citation

  • Conor O'Toole & Rachel Slaymaker, 2022. "Back to the Future? Macroprudential Policy and the Rebirth of Local Authority Mortgages in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 53(4), pages 223-260.
    • Handle: RePEc:eso:journl:v:53:y:2022:i:4:p:223-260
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    References listed on IDEAS

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    1. McQuinn, Kieran & O’Toole, Conor & Allen-Coghlan, Matthew & Coffey, Cathal, 2019. "Quarterly Economic Commentary, Winter 2019," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC.
    2. Allen-Coghlan, Matthew & McQuinn, Kieran & O'Toole, Conor, 2020. "Assessing the impacts of COVID-19 on the Irish property market: An overview of the issues," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    3. Corrigan, Eoin & O'Toole, Conor & Slaymaker, 2020. "Credit demand in the Irish mortgage market: What is the gap and could public lending help?," Papers WP671, Economic and Social Research Institute (ESRI).
    4. David Duffy & Niall McInerney & Kieran McQuinn, 2016. "Macroprudential policy in a recovering property market: too much too soon?," European Journal of Housing Policy, Taylor and Francis Journals, vol. 16(4), pages 491-523, October.
    5. John V. Duca & Lilit Popoyan & Susan M. Wachter, 2019. "Real Estate And The Great Crisis: Lessons For Macroprudential Policy," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 121-137, January.
    6. Duca, John V. & Rosenthal, Stuart S., 1994. "Borrowing constraints and access to owner-occupied housing," Regional Science and Urban Economics, Elsevier, vol. 24(3), pages 301-322, June.
    7. Eoin Corrigan & Daniel Foley & Kieran McQuinn & Conor O’Toole & Rachel Slaymaker, 2019. "Exploring Affordability in the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 50(1), pages 119-157.
    8. McQuinn, Kieran & O'Toole, Conor & Allen-Coghlan, Matthew & Coffey, Cathal, 2020. "Quarterly Economic Commentary, Autumn 2020," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC2020AUT.
    9. Gaffney, Edward, 2019. "Mortgage borrowers at the loan-to-income limit," Financial Stability Notes 11/FS/19, Central Bank of Ireland.
    10. McQuinn, Kieran & O’Toole, Conor & Allen-Coghlan, Matthew & Coffey, Cathal, 2019. "Quarterly Economic Commentary, Winter 2019," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC.
    11. David Duffy & Niall McInerney & Kieran McQuinn, 2016. "Macroprudential policy in a recovering property market: too much too soon?," International Journal of Housing Policy, Taylor & Francis Journals, vol. 16(4), pages 491-523, October.
    12. Allen-Coghlan, Matthew & Judge, Conor & O'Toole, Conor & Slaymaker, Rachel, 2019. "A county level perspective on housing affordability in Ireland," Research Notes RN20190402, Economic and Social Research Institute (ESRI).
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    Cited by:

    1. Humes, Harry & Barrett, Michelle & Walsh, Brendan, 2024. "Effects of new residential developments on local healthcare demand and workforce: evidence from primary and acute public hospital care in Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS181.

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