NEW HOUSE completions in Ireland could fall to below 10,000 next year as the property slump reaches its lowest point, according to projections accepted by Government.
A Department of Finance presentation to Government backbenchers last week suggested the construction sector would continue to suffer the brunt of the economic decline over the next two years.
The presentation by economist Dr Alan Ahearne, adviser to Minister for Finance Brian Lenihan, projected that new house completions would fall by two-thirds next year – from below 30,000 in 2009 to below 10,000 in 2010.
It is the first confirmation from within Government that the indicators available to the Departments of Finance and the Environment support the most pessimistic forecasts of a further sharp decline in construction.
The picture would improve only slightly in 2011, according to Dr Ahearne, with new house completions rising to about 15,000, still only a fraction of the annual completions during the middle of the decade.
The presentation was made to the weekly meeting of the Fianna Fáil parliamentary party.
The unprecedented nature of the slump in the new housing market has already resulted in the number of new house completions tumble from a high of over 90,000 units in 2006 to under 30,000 this year.
If the outturn for 2010 is as projected, it will mean that new house completions will have fallen by 90 per cent in four years.
However, following the slight rise in completions in 2011, the mid- term assessment is more positive with between 30,000 to 40,000 new completions required annually by the economy, said Dr Ahearne.
Property’s share of Gross Domestic Product climbed to some 13 per cent in 2006 but the proportion has decreased dramatically since then. At least half of the over 8 per cent contraction in the economy has been accounted for by this sector alone, he said.
However, Dr Ahearne’s presentation was said by Fianna Fáil backbenchers to be more optimistic in its general outlook than they had anticipated. The purpose of the exercise was to show that the Government’s plan was working in all of its three major objectives: to restore competitiveness and jobs; to ensure sustainable public finances; and to shore up the banking sector.
Dr Ahearne said that there had been a 25 per cent loss of competitiveness over a decade but there were signs of a significant reversal of that trend. He said exports were proving to be very resilient.
He also said the Irish workforce had shown itself to be agile and flexible compared with elsewhere in Europe.
He gave the example of a 4 per cent fall in unit labour costs, partly attributed to pay cuts, voluntary and imposed. Ireland is the only State in the European Union 15 (the pre-2004 union) which has been able to show a decline. There have been increases of between 2 per cent and 6 per cent in other member states. It has resulted in a net benefit in competitiveness of up to 7 per cent.
Exports in 2009 were down 25 per cent across Europe, including a sharp decline of 35 per cent in Sweden. In Ireland they had decreased by only 5 per cent, a modest decline when judged against our comparators.
This was attributed to strong chemical and medical device sectors, as well as the business sector.
Dr Ahearne also argued that the Government’s decision to establish the National Asset Management Agency (Nama) was correct because it would address, and value, distressed property loans.