The Unassuming Economist

From the IMF’s latest report on Ireland:

“The pandemic has exacerbated housing market’s imbalances, contributing to accelerating prices despite the recent acceleration in housing construction. Double-digit price growth has further pressured affordability as price-to-income and price-to-rent ratios increased sharply in recent quarters. House completions recovered in 2021 but were still below 2019 levels.

Housing commencements have accelerated to the highest number since the GFC, but the construction sector is facing combined headwinds of input cost inflation and labor shortages.

CRE activities performed better than expected during the pandemic. Investment in the sector was exceptionally strong in 2021 and this momentum is expected to continue in 2022. The polarization between different sectors that characterized the Irish property investment market stems from the higher return to investment in CRE than residential, partly due to the strong growth of MNEs, Brexit-related relocations to Ireland, and businesses’ general resilience despite the pandemic.

Supply-side policies should be further strengthened. The government has introduced a comprehensive fiscal and regulatory package (Housing for All18), costing close to 1 percent of GDP annually, to address the affordable housing shortage. The package includes measures to improve zoning, planning, land availability, and social housing. Timely implementation of these measures is needed and should be accompanied by additional policies aimed at raising productivity in the construction sector. The “First Home” affordable purchase shared-equity scheme (starting in 2022:Q3) aims to support first home buyers. However, it does not address the supply bottlenecks. While the scheme is partly targeted and limited in size, if expanded it can put further upward pressure on prices.

Improving construction productivity is needed to bolster housing supply. The construction sector is fragmented, lagging on digitalization, and faces high input costs and labor shortages. Complex and lengthy processes for obtaining occupational licenses, with excessively long apprenticeship requirements, raise barriers to entry and contribute to substantial bottlenecks and high costs of construction. In recent years, the government has taken some steps toward digitalization of the construction sector, upskilling and reskilling workers, including by increasing the number of apprenticeship centers. There is also a need to streamline the lengthy, cumbersome, and uncertain zoning and permit processes.

The government is implementing a set of comprehensive measures under “Housing for All – A New Housing Plan for Ireland” aimed at alleviating the housing shortage. Establishment of the Construction Sector Innovation and Digital Adoption Subgroup by the government and the industry is welcome to deliver on the seven priority actions detailed in the Building Innovation Report. The Construction Sector Group ensures regular and open dialogue between government and industry on how best to achieve and maintain a sustainable and innovative construction sector in order to successfully deliver on the commitments in Project Ireland 2040.”