The Central Bank says that, while State spending on housing has increased, and current levels of housing completions are now broadly in line with previous estimates of underlying demand, pre-2021 levels fell short, meaning that there is now pent-up demand in the market.
Affordability
Robert Kelly (Central Bank director of economic and statistics) said that the Irish housing market had experienced a decade of under-supply, during which house price and rental growth had outstripped income growth and stretched affordability.
“While these challenges are part of a pattern we are seeing globally, housing output as a share of national income in Ireland has been significantly below the euro-area average for quite some time.
“Housing supply is unable to meet our country’s needs, which is limiting the sustainable growth of living standards,” he stated.
Viable projects
The Central Bank says that the underlying challenge is the housing market’s capability to produce enough viable housing projects at the scale required.
It describes the task of bridging the gap between affordability of housing and viability for the construction sector to deliver sufficient housing as “a priority for public policy, with increasing economic implications both now and into the future if this is not achieved”.
The Central Bank’s analysis points to the need to consider how the State uses its financial resources, and wider policy tools, to enable higher housing supply.
The article describes the planning environment as “complex and protracted”, which adds to the costs of delivering housing and enabling infrastructure in areas where demand is highest.
‘Scars’ on construction
It argues that the financial crisis has left “long-lasting scars” on the construction sector, with low productivity, over-reliance on small enterprises, and “a decade of relative under-investment” in machinery, equipment, and modern technologies.
The article also voices doubts about whether the construction sector can access the additional development financing of up to €7.5 billion that the Central Bank estimates may be needed to meet housing targets.
The bank calls for a focus on measures that will:
- Provide policy certainty in the planning and building-regulation processes,
- Focus public capital investment on infrastructure and funding the direct provision of more serviced land in areas of high demand,
- Incentivise greater scale and productivity in the construction sector through initiatives that lead to enhanced adoption of modern construction methods, standardisation of designs, and other innovations within the procurement process, and
- Use the State balance sheet to incentivise private investment, in particular equity investment, into the construction sector.
Economic risks
Overall, the Central Bank’s bulletin says that the Irish economy continues to grow at a strong pace, with unemployment expected to remain low and inflation easing.
It adds, however, that the economy faces a “complex array of risks”, and warns against as “excessively expansionary fiscal stance”.
It forecasts that GDP will fall by 0.9% this year, but that modified domestic demand – considered a more accurate measure of the underlying performance – will rise by 2.4%, before increasing by 3.1% next year.