TAOISEACH LEO VARADKAR has hit back at comments made by Mary Lou McDonald about the need for house prices in the capital to fall and said he doesn’t think she has “really thought about it”.

In an interview with the Irish Times earlier today, the Sinn Féin president said house prices have to fall substantially and that the average house prices in Dublin should fall to “the €300,000 mark”.

The average house price in Dublin is about €430,000 at present, according to figures from the Central Statistics Office.

Speaking to reporters at a roundtable interview in Dublin this afternoon, the Taoiseach said he was “a little taken aback” by McDonald’s comments. 

“I’d be interested to know from Mary Lou McDonald and Eoin Ó Broin how they would propose to bring average house prices down to €300,000 in Dublin. I’m not sure they really thought about it to be honest,” the Taoiseach said. 

“That would have significant consequences – it would put a lot of people into negative equity, particularly the vast majority of people who bought their first home in the last couple of years,” he said.

The Taoiseach also warned of the message it would send to banks and said a drop in house prices of that level could result in fewer mortgages being issued with higher interest rates. 

“If banks and lenders hear that the potential next Taoiseach wants house prices to fall by that much, they will think twice about issuing mortgages to people against assets that are going to be worth less.

“While I understand the intention behind Mary Lou’s comments, we all want houses to be more affordable, people are really listening to what she says now- bankers, lawyers, financiers, investors.

“And if the message she sends out to lenders is that if you issue a mortgage to somebody I’m going to try and make the collateral to that worth less, the message then is – issue fewer mortgages and put up interest rates,” The Taoiseach said.

“And I’m not sure she fully appreciates that she is now in a position where what she says really matters,” he added.

Varadkar said there is a “transition” you have to make when moving from opposition to government and said he thinks McDonald “needs to think more about the things she says” in relation to investments, tax and house prices.

“I wouldn’t like to see huge numbers of people fall into negative equity and I wouldn’t like to see banks being afraid to give first time buyers mortgages or putting up interest rates as a result of factoring in a potential fall in house prices,” the Taoiseach said.

In his view, he said what really matters in relation to the affordability of housing is the ratio between incomes and average house prices. 

He said there are many countries in the world where house prices are much lower than in Ireland, but incomes are also a lot lower too.

“What we really should try to achieve is a situation whereby incomes rise faster than house prices, and that’s the way you achieve affordability in my view,” he said.

“It’s not by having house prices collapse and we remember the last time that happened – huge numbers of people ended up in negative equity, mortgage arrears, and the banks stopped lending.

“We see incomes now rising faster than house prices and if we can sustain over the next couple of years, that’s how you achieve real affordability, it’s not boom-bust-crash-surge – that’s what’s got us into a lot of trouble in Ireland,” the Taoiseach said.