Macro-prudential policy for residential mortgage lending: Thoughts on CBI Consultation Paper CP87

This brief note outlines some thinking in relation to the proposed restrictions on residential mortgage lending, outlined in the Central Bank of Ireland Consultation paper CP87 (Central Bank of Ireland 2014). I first outline the context for credit restrictions, before outlining some theoretical and practical issues with the current proposals. The perspective adopted is rooted principally in the economics of housing markets, combining both macroeconomics and urban economics perspectives. The overall argument of this note is that restrictions on lending are necessary, but that, as currently proposed, they raise a number of theoretical and practical considerations, which should be addressed. In terms of the particular questions posed in CB87, the emphasis here is on Q1, Q2 and Q6, about the suitability of the measures proposed, as well as Q10, about unintended consequences.