Many people outside Ireland will never have heard of Portlaoise. But this down-at-heel old midlands town — best known these days for its maximum-security prison — is remarkable for two reasons.

Last summer it was added to a list, now 39-strong, of property hotspots across Ireland dubbed “rent pressure zones”. These are locations where rents are high and rising, and where affordable housing is in short supply. (In response, the government has imposed a ceiling on rent increases of 4 per cent per year.)

This is extraordinary: Portlaoise, like most of the other locations on the “overheated” list, is no metropolis. It isn’t a magnet for the tech sector. It hasn’t been swamped with hordes of inward investment or new jobs. It is just a town of 20,000 ordinary people where homes are very expensive.

And that, partly at least, explains a second noteworthy fact about Portlaoise. In last weekend’s general election, Sinn Féin topped the poll in the local constituency, part of a wave across the country which propelled this left-leaning party from nowhere to win the popular vote. It ran only 42 candidates for the 160-seat parliament; 37 were elected.

With no overall victor in the election, months of wrangling will now ensue to decide on a government. But one thing is clear: large swaths of the populace were drawn to Sinn Féin by its promise to fix the creaking housing crisis, which Leo Varadkar’s government struggled to contain. Other countries with similar problems should take heed.

Ireland’s property market has long been one of boom-and-bust. It was a surfeit of highly leveraged property construction during the country’s Celtic Tiger years that led to the collapse of the banking system — and Ireland’s humiliating bailout — a decade ago.

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In the years after the crisis, house prices tumbled. But as Ireland recovered, and jobs and investment flooded back to an economy with low business taxes, so the property cycle has returned to a boom phase. House prices have nearly doubled over the past seven years — great for existing homeowners or landlords, not great for homebuyers.

The rental market has had a knock-on effect too. With many young people priced out of buying, rental demand is suffering from a glut. At the same time, supply is increasingly in the hands of higher-value professional landlords, such as big insurance companies and listed funds. That might have improved the quality of rental properties, but it has inflated the cost significantly too. Annual rent inflation has averaged more than 8 per cent of late, according to academics at Trinity College, Dublin, or double wage growth.

Ireland’s runaway house price inflation — higher by some margin than anywhere else in the EU — has many causes.

Locals blame a lack of new homes. So many developers struggled and collapsed during the crisis that for several years construction was at minimal levels.

The squeeze is all the tighter because of an expanding population. Many young Irish people who sought work abroad in the crisis years have been returning. Ireland’s birth rate is rising, too. Eurostat, the EU’s statistics agency, reckons the population will grow by a quarter over the next 60 years, compared with 6 per cent shrinkage across the EU as a whole.

These points are all valid. But the biggest reason of all for Ireland’s housing disaster has to be Europe’s ongoing experiment with quantitative easing and ultra-low interest rates. This has a double-whammy effect on property prices. Investors are lured into the market by a search for returns in an otherwise low-yield environment. And housebuyers are encouraged to buy with cheap mortgages.

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Speaking at a Financial Times event last week, Philip Lane, the former governor of the Central Bank of Ireland, now the ECB’s chief economist, admitted: “A low interest rate environment has led to a repricing of property,” though he insisted the pressures had been alleviated by the central bank’s “macroprudential framework”. Translated, that means, for example, that first-time buyers are limited to borrowing 90 per cent of the house price, with a mortgage capped at 3.5 times their salary.

Mr Lane is right. Borrowing restrictions have cooled the overheating market a little. So have the government’s caps to price rises to “rent pressure zones”. But to suggest the problem is solved is to blind yourself to the reality of unaffordable housing across the country — as anyone who voted for Sinn Féin will tell you.

patrick.jenkins@ft.com



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