The latest quarterly report from the Economic and Social Research Institute (ESRI) raises serious concerns about the outlook for the economy. It warns in no uncertain terms of the danger of overheating in the housing market. Such is the concern of its authors on this point that they advise that the Government should not actively seek to attract people from overseas to fill jobs in the Republic, as this would add further to the demand for houses.
The ESRI also advises that the tax reductions planned under the new national programme will only accelerate growth and housing demand yet further and should thus be postponed until the economy begins to slow.
The ESRI has been warning for some time - before the negotiation of the new programme - that further major tax reductions should be avoided. Despite this, the Government announced sizeable cuts in the 2000 Budget - which will come into effect in April. It is unfortunate that these reductions concentrate so much on higher income earners, as this will add significantly to demand at the upper end of the housing market.
In planning the next Budget, the Government would be well advised to consider a more moderate package and one which is aimed more at the lower end of the income spectrum. As the ESRI recommends, more substantial reductions could then be introduced in subsequent Budgets, when the economy slows.
What of the recommendation that the Government should not seek to attract skilled labour back to the State? This involves a judgment by the ESRI that the problem of overheating in the housing market - and the associated infrastructure problems in areas such as roads - are of greater concern than the labour shortages now affecting business. The institute's argument has some validity. The Government has already taken some action to tackle the housing crisis, but more may need to be done and a further report has been commissioned from economic consultant, Dr Peter Bacon. If the Government is to seek to attract 200,000 immigrants in the years ahead then it must consider the impact on the housing market and plan accordingly.
Part of the answer to the conundrum may lie in regional policy. The main housing and congestion problems are in Dublin. Providing houses for those taking up new employment - from wherever they might come - would be much less of a problem in many other parts of the State, some of which could well do with the resulting economic boost.