A faster-than-expected recovery in construction is expected to see up to 27,000 new homes built next year and 31,000 built in 2023, the Central Bank has said.
This is close to the Government’s target level of building 33,000 houses per annum, as set out in its recent Housing for All strategy, and a level of home-building not seen since the Celtic Tiger era.
However, in it latest assessment of the Irish economy the Central Bank warns that a significant public spend on housing over the next few years could run up against capacity constraints, primarily related to a labour shortage, and may fuel further inflationary pressure in the sector.
“Housing investment recovered well from site closures during the health crisis, and is forecast to return to 2019 levels or greater this year,” the regulator said.
Nonetheless, housing supply was forecast to remain below estimates of long-run demand of about 35,000-40,000 new homes per annum to the end of 2023, with housing completions increasing to about 21,700 units this year and 27,000 and 31,000 in 2022 and 2023 respectively, it said.
The bank also noted that “persistent imbalances” between housing supply and demand mean that house prices continue to rise.
House price inflation jumped to 8.6 per cent in July, the fastest level of growth seen in the market in almost three years, up from 6.9 per cent the previous month.
Prices have been trending upward on the back of pandemic-related factors such as increased savings.
The Government’s housing strategy aims to deliver an additional 300,000 housing units by 2030, which works out at about 33,000 a year.
In its report the Central Bank cautioned that with substantial increases in both public and private spending on housing expected in the years ahead, capacity constraints and other factors could limit the extent to which that increased expenditure translates into more housing units.
“Alongside supporting the demand for new housing units, it is reasonable to expect a portion of the savings that households have accumulated since the start of the pandemic to be used for property investment purposes,” it said.
“This would include higher demand for renovations and retro-fitting of existing properties, which will be necessary to achieve climate action targets,” it said, noting that home improvements are forecast to grow by 19 per cent over the forecast horizon.
“A rise in labour resources and an easing of supply chain pressures and input costs will have to emerge to ensure that real growth is achieved,” the regulator concluded.
While predicting a major economic uptick in growth – 15 per cent this year, 7 per cent next year – on the back of a consumption boom and a further acceleration in exports, the Central Bank’s latest quarterly report highlights the build up of inflationary pressure in the Irish economy in recent months.
Businesses and households are facing higher costs and prices due to a combination of supply bottlenecks and surging demand, resulting in higher transportation, energy and other input costs, it said, while suggesting many of the current drivers of inflation are expected to ease through 2022 and 2023.
It warned that a stronger rebound in household spending, more persistent supply disruptions, or a slower labour supply response could result in higher inflation than currently anticipated.
“Promoting sustainable growth in Irish living standards requires careful management of domestic economic policy as it moves away from a focus on pandemic-related measures,” it said.