The pandemic will have a significant impact on housing supply with 25,000 fewer homes being built over the 2020-2023 period relative to pre-pandemic projections, the Central Bank has warned.
This, combined with a build-up in savings, which is fuelling additional demand in the housing sector, is likely to aggravate existing supply pressures in the housing market and fuel further price rises, the regulator warned in its latest quarterly commentary.
“Housing investment was hampered by the closure of many building sites until April, but activity is forecast to rebound over the remainder of the year,” the Central Bank said, noting completions fell by 20 per cent year on year in the first quarter.
It said housing completions were forecast to remain below estimates of long-run demand, increasing by about 20,000 units in 2021, 23,000 in 2022 and 26,500 in 2023.
This means some 25,000 fewer completions are expected over the 2020-2023 period compared with pre-pandemic projections.
Rents and house prices
“Persistent imbalances between housing supply and demand mean that affordability pressures across rents and house prices continue to rise,” the Central Bank said.
Price rises may also result given increased input costs of housing delivery, which have been particularly acute for raw materials recently, it said.
The warning comes in the wake of two reports – from property websites myhome.ie and daft.ie – suggesting that house prices were now rising at an annual rate of 13 per cent.
The official rate of annual inflation, as calculated by the Central Statistics Office (CSO) based on actual transactions, was 4.5 per cent in April.
In its latest quarterly commentary, the regulator upgraded its growth forecast for the economy for this year to 8.2 per cent, nearly double the Government’s projection, and to 5.4 per cent for 2022.
It noted the vaccine rollout “was proceeding at pace and therefore a faster recovery is now expected” and that the Government’s decision to delay the reopening of indoor hospitality by several weeks would not have a “material” impact on the forecasts.
Despite the upbeat outlook for growth, the Central Bank warned that unemployment would remain elevated for several years. It forecast that it would average 7 per cent this year and next before falling to 6 per cent in 2023 and would not recover to pre-pandemic levels until 2024 at the earliest.
The Central Bank also warned that the Government’s budget deficit would swell to €21.5 billion this year, up from €19 billion last year, as a result of spending on wage supports and other pandemic measures. It said the deficit and debt ratios would peak this year.
“The necessary fiscal expansion has led to a deterioration in the public finances, with risks to the revenue base and higher core expenditure becoming more prominent,” it said.
It also warned that difficult “spending trade-offs” awaited the Government up the line as pressures related to an ageing population; the need to invest in critical infrastructure such as housing; and the fall-off in corporate tax revenue were brought to bear.
The Government may need to consider additional revenue-raising measures or cuts in spending in the medium term to address these issues, it said.