Covid-19 restrictions will have a considerable impact on housing supply, with up to 23,000 fewer homes being built between 2020 and 2022, the Central Bank has warned.
This, combined with the build-up in savings, which is fuelling additional demand, could aggravate the State’s housing crisis, the regulator warned in its latest quarterly bulletin.
In its report, the Central Bank noted that an additional €13 billion had been saved or placed on deposit by Irish households last year.
Much of the additional cash belonged to high-income workers "some of whom you'd have to expect would be seeking to enter the housing market", the Central Bank's director of economics and statistics Mark Cassidy said.
At the same time, he said the pandemic has had a significant impact on housing output with lockdown measures halting construction on most building sites. “As a result, our estimates and forecasts for housing output are considerably weaker than they would have been,” he said.
The Central Bank said it expected new home completions to be in the region of 18,500 in 2020, rising to 21,500-23,500 in 2021 and 2022 respectively. This is 23,000 less than it had predicted prior to the pandemic.
Mr Cassidy said both factors were likely to place upward pressure on house prices. “We already have a shortage of housing, so this is exacerbating a pre-existing problem,” he said.
However, he said there were offsetting factors, which could work in the opposite direction, such as unemployment and the uncertainty around future income, which would make it more difficult for buyers to secure a mortgage. Typically demand for housing falls when unemployment rises.
In its latest bulletin, the Central Bank said the recent resurgence in coronavirus cases and the reimposition of strict containment measures had weakened the near-term outlook, making it more uncertain.
However, it upgraded its growth forecasts for the Irish economy to 3.8 per cent for this year and 4.6 per cent for 2022 on the back of better-than-expected exports.
It said activity would remain weak in the first half of 2021 and that recovery in the second half was predicated on the successful deployment of a vaccine.
Recovery in the labour market would “lag” until a broader economic recovery becomes well established, it said, with unemployment averaging 9.3 per cent this year. Prior to coronavirus, it was 5 per cent.
The Central Bank noted that as of January 18th there were almost 460,000 people claiming the Pandemic Unemployment Payment (PUP).
Worringly, a greater proportion of these claimants are now not expecting to return to work.
In the first lockdown, only 8 per cent of PUP recipients did not expect to return to work in the next three months, it said, but this increased to 23 per cent in the third quarter and may have increased further in the current quarter.
The Central Bank said the adoption of the EU-UK trade deal would avoid an increase in goods prices through tariffs, but non-tariff barriers, such as higher transport and administrative costs as well as quantity limits, would add costs to trade, which may pass through to consumer prices.
Nonetheless it said the outlook, both for exports and for overall economic activity, had improved compared to the prospects under a no-deal Brexit.