Housing undersupply to have ‘severe’ long-term consequences

The housing crisis, if left unresolved, will have severe macroeconomic consequences in a number of fields over the longer term, the Parliamentary Budget Office (PBO) has warned.

The PBO was established last year in response to an OECD report suggesting budget scrutiny here was underdeveloped with the Cabinet exercising too much control.

In its latest assessment, it warned that beyond the human toll, persistently high housing costs would eventually erode the Republic’s competitiveness with workers demanding higher wages.

"This will make Ireland a less attractive destination for investment and make Ireland's exports relatively more expensive," it said. A constrained housing market would also harm the economy through limiting the mobility of workers.

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“Workers with secure housing will be slower to move to jobs that may be more lucrative over fears of not being able to secure suitable housing, or people seeking work will be disincentivised from moving into areas where jobs are more plentiful due to the restricted supply of housing,” it said.

The office also cautioned that the long-awaited pick-up in residential construction must not be allowed to trigger widespread overheating similar to what occurred prior to the economic crash.

Complacency

In its report, the PBO, which is headed by Annette Connolly, a former Department of Public Expenditure and Reform official, also warned against complacency given the current strength of the economy.

While the Irish economy continues to perform strongly risks from a “tit-for-tat” trade war, a “cliff edge” Brexit and an overheating domestic economy cloud the outlook, it said.

“Strong macroeconomic and fiscal indicators should not lead to complacency. The proposed increased expenditure in Budget 2019 needs to be underpinned by sustainable revenue increases,” Ms Connolly said.

She said corporation tax returns continued to overperform projections, but the volatility of this tax sector “suggests that these revenues cannot be relied on to fund ongoing spending commitments”.

Ms Connolly noted budgetary overruns in health and justice indicated that supplementary estimates will probably be needed later in 2018. “This has become an almost annual occurrence for these votes and raises issues around expenditure management and the reliance on post-budget increases in expenditure over and above those approved by Dáil Éireann,” she said.

The report comes after a bleak assessment of the housing crisis in the Government’s latest National Risk Assessment report, which suggests the current problems may persist for the foreseeable future.