In the aftermath of the financial crisis, in the early 2010s, homebuilding in Ireland fell off a cliff. The State was building fewer than 10,000 homes a year. Social housing output was almost non-existent.
Experts estimated the level of housing demand in the economy at 30,000-35,000 units a year. People wondered if we had the requisite manpower and resources to build to that rate. It seemed a long way off.
Last year, new dwelling completions hit 33,000 units but now the goalposts have changed with most agencies and commentators calling for a bigger output target of 50,000 new homes a year. Davy Stockbrokers is talking about 85,000 a year to accommodate the unexpected surge in population.
The Central Bank has become the latest agency to join the 50,000-a-year brigade. In its latest quarterly commentary on the economy, the regulator assesses the “macroeconomic implications and economic policy issues arising from a decade of undersupply in the housing market”.
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Pent-up demand, projected population growth and household formation rates suggest that about 52,000 new homes could be needed per year out to the middle of the century, a 20,000 unit increase on the current level of supply (33,000).
On a fast-track basis, the issue could be addressed by building 68,000 units over 10 years, a tempting target in the wake of Apple’s recent €14 billion gift to the State.
However, the Central Bank’s analysis also sets out the dangers of trying to do too much, too quickly.
“Given the economy is currently operating close to its potential, policy actions to address the undersupply of housing also come with macroeconomic risks that need to be carefully managed,” the bank said.
The Central Bank’s director of economic and statistics Robert Kelly pointed out that an additional 30,000 construction workers were needed on top of the current 170,000.
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In the interim, the bank recommends boosting the productive capacity of the existing construction industry by streamlining an overly complex planning system while boosting the supply of zoned and serviced land.
“Improvements in these areas would also assist in sustainably enabling the construction sector to access sufficient development finance to fund the additional housing delivery,” it says.
Another drag on productivity in the construction sector is the size of the firms involved, which are predominantly small and therefore unable to build at scale. Another factor has been the low level of investment in machinery and technology since the financial crisis, which again undermines productivity.
“Being able to harness some of these technologies might help produce more output with the same level of labour,” Mr Kelly said.
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