The Unassuming Economist

From the IMF’s latest report on Ireland:

“Well-targeted macroprudential measures contained the build-up of vulnerabilities in the housing market and helped stabilize prices, but supply shortages and affordability concerns are on the rise. The initial dampening impact of COVID on the housing market was followed by a robust recovery in H2:2020, with the overall fall in residential construction only at 2 percent in 2020, which was largely due to the stringent first lockdown. To ease the dampening impact of the third lockdown on housing construction, the Health Regulations allowed for the designation of certain social housing projects as essential projects13, however, the housing supply-demand gap will likely widen further in the pandemic aftermath. After a small decline in H1:2020, house prices started to grow as demand exceeded supply. If an increasing part of household pandemic savings is directed to the housing market it could put further upward pressure on house prices.

Reducing shortages in affordable housing requires a multi-pronged approach. The government’s effort in this regard is welcome but more needs to be done by (i) releasing more land for development, (ii) streamlining approval processes for permits and re-zoning, (iii) assessing incentives to build rental properties, and (iv) increasing supply, including of social housing. The establishing of the Land Development Agency is a step in the right direction. On the other hand, policies should resist stimulating demand further given the existing supply-demand imbalances, and avoid resorting to short-term solutions such as relaxing prudential regulations to enable households to borrow more and the program to subsidize home purchase needs to be carefully designed and remain limited in size in order to minimize risks to the financial sector.

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The authorities reiterated their commitment to address the housing and climate change challenges. They noted the progress towards improving housing supply and affordability through a comprehensive policy package, including the Help-to-buy Program, National Cost Rental Policy, and Land Development Agency (LDA) Bill, that provides a permanent basis to increase the supply of social and affordable homes and promote optimal use of State land. The recently legislated Affordable Housing Bill includes a 10 percent affordable housing requirement on new developments in addition to the existing requirement for 10 percent social housing. The authorities highlighted the recently legislated carbon tax increase, with a trajectory to 2030, and the ring-fenced use of the projected revenues of €9.5 billion for investment in energy efficiency, just transition, and low-emission agriculture. Additionally, the National Home Retrofit Scheme provides incentives for homeowners to improve their energy rating with 35 to 50 percent grant elements.”