The State must build 52,000 homes a year for the next 25 years or 68,000 over the next 10 years to resolve the current housing shortfall, the Central Bank has warned.
In a special report accompanying its latest quarterly bulletin, the regulator said the housing market has been subject to a decade of undersupply “during which house price and rental growth have outstripped income growth and stretched affordability”.
It noted there were four new workers for every one house built over the last 10 years.
“When combined with expected future population growth, which now exceeds previous estimates, plausible scenarios would point to an additional long-term housing need of circa 20,000 units over and above the levels actually delivered in 2023 (just under 33,000),” it said.
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If the housing shortfall was to be addressed on “an accelerated basis”, over the next 10 years, this would require 68,000 additional units coming on stream each year, it said.
The Central Bank’s estimate of housing demand corresponds with the Government’s draft National Planning Framework, which targets 50,000 new homes being built a year out to 2040.
If housing demand continues to go unmet, there will be “quite a substantial increase in house prices and rents that feeds directly into inflation, wages don’t keep pace, and in essence we have a lowering of living standards”, the Central Bank’s director of economics and statistics, Robert Kelly, said.
However, he also cautioned that lifting housing output from its current level to more than 50,000 units per annum would increase demand for construction workers by approximately 15 per cent, equivalent to 30,000 additional workers.
“In order to increase housing supply sustainably, policy needs to focus on the challenges that arise from the complexity of the planning process, the relative lack of zoned and serviced land in areas of highest housing demand, and the relatively constrained productivity levels in the construction sector itself,” the bank said.
It said the productive capacity of the construction sector had still not recovered from the “long-lasting scars” of the financial crisis and there was still “an over-reliance on small enterprises, unable to benefit from economies of scale”.
Housing output is forecast to decline to 32,000 this year before increasing to 36,500 in 2025 and 39,000 in 2026.
Funding the delivery of 52,000 units a year would also require €6.5-€7 billion in additional development finance over and above existing levels.
Overall, the bank said the Irish economy “continues to grow at a strong pace supported by the buoyancy of domestic economic activity”. It projected the domestic economy would grow by 2.4 per cent this year and by 3.1 per cent next year in terms of modified domestic demand.
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It noted that the softening of headline inflation in recent months has resulted in positive momentum for household purchasing power that in turn would underpin consumer spending and investment.
Still, it warned that while globally determined inflation in Ireland was declining “domestically driven inflation, as reflected in services price inflation, remains significant at above 4 per cent”.
It warned that further fiscal stimulus in the upcoming budget would result in the economy growing faster than projected in the short term.
“With the labour market already at full employment, this would come at the cost of higher and more persistent inflation with a negative effect on Ireland’s relative competitiveness,” it said.
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