Demand for housing must be satisfied

During the last week, many articles in the press have pointed the finger for the continued house price inflation in Ireland. Some have suggested it is the Government's fault, others the estate agents'.

Following the publication of a survey on the supply of housing land, it would appear that landowners and developers are taking the flak - if the land is zoned and serviced then the landowners and developers must be land-banking.

By the end of next week, it is likely the latest Bacon report will be published, recommendations will be made and the Government will have responded. But before we hang the guilty parties, it might be opportune to reflect on the events of the last two years.

The first Bacon report on the property market was issued in April 1998. Since then, there has been an increase in the pace of construction activity, an increase in the stock of available zoned land and a slight moderation in the pace of house price inflation. This has taken place against a background of a rapidly growing economy, strong employment growth and positive net immigration.

Much has been achieved but the journey is not over yet. The continued strength of house price inflation, particularly in Dublin, shows the imbalance between the demand for, and supply of residential accommodation has not been resolved.

The strength of demand is underpinned by the continued strength of the economy, the buoyancy of the labour market and the young demographic profile of the population. Whether this demand is satisfied through owner occupation, renting or otherwise, it must be satisfied if we are to safeguard the stability of the economy.

Now let us address supply. The Irish residential property market suffers from an inelastic supply curve, which means it is not as responsive to rising demand as we would like. The reason for this to date has been threefold: an inadequate supply of serviced zoned land available for development; labour supply constraints; and the planning system.

The results of the survey on the supply of housing land, published this week, indicate that considerable progress has been made in resolving the first issue which means we must concentrate on the other two.

Before we can anticipate a dramatic increase in the level of construction activity in Ireland, we need a complete overhaul of the planning process. Considerable funds need to be invested in resourcing the planning system to make it more efficient. A planning application that takes a year to process indicates the system is not working.

We also need to address the labour supply issue - not an easy one to resolve, but a major campaign abroad aimed at attracting a large number of skilled people into the country is a potential first step.

We must address the inequitable distribution of population in Ireland. With population densities in Ireland averaging 134 people per square mile, compared to 3,000 people per square mile in Dublin, it is clear that the satisfaction of demand for 500,000 houses in the next decade will not be achieved by continuing our obsession with the Dublin market.

The achievement of a more equitable distribution of population will require considerable investment in infrastructure. The required scale of investment needs a single national body similar to the Criminal Assets Bureau with the executive power to deliver the badly needed infrastructure.

Finally, and perhaps most importantly, the publication of a spatial strategy for the development of the country as a whole is now urgently required if we are to speed up the process of satisfying demand in Ireland.

An uncompetitive property market increases the vulnerability of an economy to external shocks. It is in the interests of all parties to ensure the strength of house price inflation is brought under control. There is plenty of evidence to illustrate that short-term solutions do little to solve the problem.

If we are to influence the long-term stability of the property market, now is the time to address supply-side issues rather than tinkering around the edges with demand.

Marian Finnegan is an economist with estate agents Sherry FitzGerald