Central Bank may review housing forecasts in wake of CSO data

Bank’s latest macro-financial review highlights risks from overheating and Brexit

Central Bank deputy governor Sharon Donnery said the risks arising from Brexit, especially a ‘hard’ or disruptive Brexit, were “far-reaching” for Ireland. Photograph: Nick Bradshaw

Central Bank deputy governor Sharon Donnery said the risks arising from Brexit, especially a ‘hard’ or disruptive Brexit, were “far-reaching” for Ireland. Photograph: Nick Bradshaw

 

The Central Bank has hinted that it may revise its housing supply forecasts for this year and next, on foot of new figures from the Central Statistics Office (CSO), which suggest the Government has overstated the supply of new homes to the Irish market by up to 60 per cent since 2011.

In its spring economic bulletin, the Central Bank predicted that 23,500 housing units would be delivered this year and 28,000 in 2019, signalling a major upswing in residential construction at a time of pent-up demand.

However, the forecasts appear at odds with new numbers from the CSO, which suggest that just 3,500 new dwellings were completed in the first quarter of this year.

The CSO’s new figures come amid concern about the reliability of the Government’s figures, which use ESB metering data as a proxy to count new builds.

While the agency’s “new dwellings” index uses ESB connections data, it also incorporates stamp duty and Building Energy Ratings data as well as census information to get a more accurate count of the number of houses built.

At the launch of the Central Bank’s latest macro-financial review on Thursday, deputy governor Sharon Donnery described the CSO’s work as “very important and welcome”.

She said while the CSO’s numbers only covered the first quarter of 2018, and therefore did not clash with its own full-year forecast, the bank would have a look at the new data and methodology with a view to a possible revision.

External shocks

In its macro-financial review, the Central Bank said that while Ireland’s economy and financial system continues to strengthen, it remains vulnerable to adverse external shocks.

The bank noted that while the domestic economy was growing strongly, “this in itself gives rise to potential risks”, namely overheating.

“There is a risk that stronger-than-expected domestic demand could absorb spare capacity in the economy more quickly than expected,” the bank said in its review .

It also highlighted that as the economy here approached full employment – which equates to a jobless rate of 5 per cent – wage pressures have begun to emerge in certain sectors with skill shortages , most notably in the IT and financial services sectors.

Labour costs

The Central Bank said higher labour costs could have negative consequences for Ireland’s competitive position. The bank’s overheating comments echo a recent warning by the OECD in relation to the Republic.

However, its review pinpoints Brexit as the key risk facing the domestic economy. The Central Bank said it was difficult at this time to predict the UK’s post-March 2019 trading arrangements with the European Union. However, it warned that even a soft Brexit scenario could result in “significant non-tariff barriers to trade between the two countries”.

“The risks arising from Brexit, especially a ‘hard’ or disruptive Brexit, are far-reaching for Ireland. The window of opportunity for resolving a range of issues for firms is closing fast and contingency plans need to be fully prepared,” Ms Donnery said.