Average rents have hit all-time highs, especially in cities. Has the economy gone from hot to hotter? And what are we going to do about it?
In the past couple of months the average new rent nationwide exceeded €2,053 per month, up 7.3 per cent year on year, one of the fastest annual rent increases in two decades. Dublin’s average rent is now about €2,540, and Cork and Limerick, although coming from a lower base, are suffering double-digit increases. This means we have too many people and not enough homes.
The economy is overheating.
If the country were a company it would be described as over-trading, where the top-line revenue growth is surging but behind the scenes the management is barely holding things together. Systems are overloaded, the corporation is bursting at the seams, only one or two mistakes away from meltdown. We have seen this dynamic in many start-ups, and an important skill of management in very fast-moving companies is knowing how to transition from disruptive newcomer to mature, well-managed incumbent. Growing countries experience the same economic evolution, moving from breakneck, take-off speed to cruising altitude. Ireland’s problem is that we have been operating at full throttle for the past few years, with no sign of let up.
The role of good macroeconomic management is to run the economy so that we achieve the highest quality of life possible from the resources available. This means being adult enough to slow down rather than obsess about more and more growth. In terms of macro-management, Ireland had four main levers: control over interest rates and exchange rates; control over taxes and spending; control over foreign direct investment; and control over immigration and work visas.
By joining the euro, we gave away control over interest rates and exchange rates. If Ireland still had the punt, our strong growth rates would have pushed both interest rates and the exchange rate upwards, cooling down demand and foreign investment. But once a country gives away its currency, that crucial aspect of control is gone. This means that the State should either raise taxes or cut spending when the economy is roaring, reduce the amount of foreign direct investment or reduce immigration to levels consistent with the capacity of the country to provide homes, education and health services.
[ Average monthly rent exceeds €2,000 for the first timeOpens in new window ]
Providing homes, education and health services require the Government and politicians to think long-term – more like a seasoned investor and less like a novice Lotto winner. We need to think like a rich country, not a poor country. Unfortunately, we are stuck in a poor mindset, thinking that at some stage someone is going to take our money away, so we have to spend it today, just in case. As a result, we drive the economy far too hot. Instead, we should think like a rich country, saving, investing in the long term, assured in the knowledge that we are accumulating wealth and not just spending windfall income.
The evidence of overheating is everywhere.
We are working like never before. Unemployment has hovered around 4 to 4.5 per cent for almost three years, which indicates that practically everyone who wants a job can get one. Employment has reached a record high with 75.3 per cent of working-age (15–64) people now actually at work and making a wage – the highest rate since records began in 1998. Women are working at rates never seen before. Women’s participation in the workforce hit a record 61.8 per cent. Last year alone, the labour force grew by 3.5 per cent, meaning an extra 98,000 workers – many of them new immigrants – were earning a crust. Despite this surge in workers, there are still more than 25,000 unfilled vacancies right now in the country.
All this demand is pushing up wages. Average hourly earnings rose about 6 per cent year on year in late 2024. Over the five years to the end of 2024, average weekly earnings surged 24.6 per cent cumulatively, a dramatic increase, reflecting both cost-of-living adjustments and a bidding war for talent. Unions and employees have capitalised by negotiating substantial raises. A new public service pay agreement (2024–2026) awards 10.25 per cent in pay increases over 2½ years, while in January the minimum wage was increased to €13.50 per hour, boosting pay at the lower end.
‘We’re at a critically low level of housing stock’ for buyers and renters
But even as wages have risen, people are feeling that everything is getting more and more expensive, a sentiment dramatically driven by rents, not to mention house prices themselves, which rose 9 per cent last year. The median house price nationwide reached €355,000 in 2024 (up from €327,500 in 2023). There is a sense of exhaustion, of a nation running faster and faster to stand still.
Speaking of standing still, traffic is another day-to-day indicator of overheating. The volume of cars on the roads was 6 per cent higher last year than in 2023. On the M50 alone, average daily traffic reached 156,000 vehicles in 2023 – and this is rising – with toll revenues hitting record highs. The Luas carried 54 million passengers in 2024, and overall public transport journeys saw double-digit annual growth. Rush hour congestion, full buses and Darts, added to overwhelmed park-and-ride facilities, have become daily realities once again, reminiscent of the Celtic Tiger.
Since the Tiger years we have had one significant change affecting our behaviour: the smartphone is amplifying the inflationary impression that everything is moving too fast and we want everything now and are frustrated by waiting. Think of the rapid expansion of what is called the “convenience economy” including Deliveroo, Amazon Prime and rapid grocery delivery apps. All facilitated by the portable smartphone. App-based shopping now includes TikTok shop which combines the attention span of a TikToker with the credit card of a shopaholic – not a pretty or prudent combination. Just click, pay and wait for next-day delivery.
It’s not just the kids who are prioritising speed over price. Have you noticed the explosion of “express” groceries? Tesco invested €80 million in 2023 to open eight new Express outlets and upgrade others. Dunnes is doing the same thing. These smaller, higher-margin stops cater to grab-and-go, maxed-out shoppers who want stuff now, and are prepared to pay for the pleasure.
Everywhere we look the economy is straining at the leash. This might seem great on paper, but is it sustainable? Might it not be wiser to slow things down a bit and maybe welcome a global slowdown in investment that Trump’s tariffs will bring, not because we don’t want American corporate attention but simply because we don’t have the capacity? For years, and with good reason, Ireland worked on expanding the economy as quickly as possible, when we had high levels of unemployment and emigration. Today, we have full employment and high levels of immigration, and this combination is putting intense pressure on the system.
Maybe it’s time to chill a little?
