State needs to build ‘over 200,000 homes’ over three years to solve housing crisis

Supply is puzzlingly low given current house prices, Davy report says

The State may need to build as many as 200,000 new homes over the next three years to resolve the housing crisis, a new report by Davy stockbroker has claimed.

The report calculated that “latent” housing demand in the Irish market – the number of households whose demand for homes has not been met due to the lack of supply – now stands at 106,000.

This combined with an estimated annual demand of 30,000 units and an annual rate of obsolescence means that more than 200,000 housing units are needed between 2021 and 2024 to fix the problem.

The State built just under 21,000 units last year and is expected to build roughly the same amount this year, despite the hiatus in construction due to Covid at the start of the year.

In its analysis, Davy noted that Irish housing completions were consistent – on a per capita basis – with UK levels, but pent-up demand, years of undersupply, inward migration and changing demographics require “a step change in supply”.

It said housing supply here looked “puzzlingly weak given current levels of house prices.”

This was linked to unusually high build costs, which did not reflect labour or raw material prices. In 2020, the median build costs of new build homes was €336,000, well above the €230,000 for the existing stock, it said.

"This premium for newly built homes is a recent phenomenon and is broad based across Ireland, " it said. The median build costs for houses and apartments in Dublin were typically 40 per cent higher than the rest of Europe.

This cost disparity was linked to several factors including “onerous building standards” and “substantial up-front charges” for water, electricity and development contributions to local authorities.

“Ultimately, these charges are borne by homebuyers,” it said.

Housing supply

On a more positive note, the report – penned by Davy chief economist Conall Mac Coille – said there were now signs that housing supply was beginning to respond. It said that some 10,000 apartments were currently under construction in Dublin, which, it said, would represent a very substantial addition to the existing stock.

However, the report took aim at what it described as “blockages” in the Government’s fast-track planning process, noting that 92 per cent of judicial reviews into strategic housing developments (SHDs) since 2018 had resulted in plans being quashed.

The report also noted that a recent legal objection to one specific SHD planning application had been referred to the European Court of Justice and that this potentially exposed up to 64,000 housing units from proceeding.

Another bone of contention was the Central Bank's strict mortgage lending rules, which Davy described as "conservative compared with other countries." It said the Central Bank was tasked with approving the Government's new shared equity, "which will effectively allow higher leverage to homebuyers of newly built homes, circumventing the [mortgage] rules."

“Political pressures are clearly growing to circumvent or relax the mortgage lending rules,” it said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times