Just one new home for every 12 jobs created in past five years – Central Bank

Sharon Donnery warns of ‘re-emergence of a credit price spiral’

Central Bank deputy governor Sharon Donnery: ‘If supply is not responding to prices, then any move to increase the level of credit is likely to lead to higher housing costs and higher indebtedness.’ Photograph:   Nick Bradshaw

Central Bank deputy governor Sharon Donnery: ‘If supply is not responding to prices, then any move to increase the level of credit is likely to lead to higher housing costs and higher indebtedness.’ Photograph: Nick Bradshaw

 

For every 12 new jobs created in Dublin over the past five years, just one new home has been built, Central Bank deputy governor Sharon Donnery said on Wednesday.

However, she warned that easing the restrictions around credit as some have advocated was not the answer to the housing crisis and risked “the re-emergence of a credit price spiral”.

Ms Donnery was addressing a housing conference in Dublin jointly hosted by the Department of Housing and the Economic and Social Research Institute (ESRI).

Ongoing shortages

The ongoing shortages in supply combined with a moderation in house price growth has prompted calls for the Central Bank to relax its mortgage lending rules, which are currently under review.

But Ms Donnery warned such a move could trigger a rapid spike in prices, followed by an equally rapid decline.

“If supply is not responding to prices, then any move to increase the level of credit is likely to lead to higher housing costs and higher indebtedness,” she said.

Nonetheless Ms Donnery said the Central Bank’s review would consider the impact the rules were having on the market in Dublin and other urban areas.

“But before we jump to conclusions about the role of the mortgage measures, it is worth taking a step back, and looking at how the Irish housing market compares with other housing markets globally,” she said, noting how concerns over housing affordability have existed in major cities across Europe and the world for a long time.

“The bottom line is there is not as much housing per person as there was five years ago,” she said, noting the number of people in the State over the past five years has increased about seven times more than the number of dwellings.

So more households are competing for fewer available homes, she said.

Ms Donnery said the increase in demand for housing has translated into higher demand for mortgages.

Challenge

Mortgage drawdowns in the third quarter of 2019 totalled over €2.7 billion, 2.3 times their value five years ago while mortgages to first-time buyers have grown by over 20 per cent per year over that time, she said.

In her speech, Ms Donnery said there is evidence from some countries – including Ireland – that high house prices in some regions can limit the number of people who relocate to those areas for work.

Also addressing the conference was Minister for Housing Eoghan Murphy who said the housing challenge was probably greater “than simply the supply dynamic or the affordability dynamic”.

“It might one that is more rooted in the challenge of sustainability, which is more of a cultural challenge than we realise,” he said.

Mr Murphy said more densified planning, more downsizing, fewer spurious objections to new home schemes were all needed to address the problem.

He defended the Government’s move to restrict legal challenges to proposed developments, which environmental groups are opposing.