Friday 30 September 2016

Housing crisis will drive up wages and risk investment here

Published 11/06/2016 | 02:30

'A new report on risks facing Ireland this year notes “significant challenges” in the areas of housing and homelessness'. Stock photo: PA
'A new report on risks facing Ireland this year notes “significant challenges” in the areas of housing and homelessness'. Stock photo: PA

The housing shortage will drive up wage demands and damage Ireland's competitiveness, discouraging foreign investment, the Government has acknowledged.

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A new report on risks facing Ireland this year notes "significant challenges" in the areas of housing and homelessness.

The report identifies all the main risks which could impact on Ireland this year, including the risk of Britain leaving the EU; a global economic slowdown; fallout from terrorist threats; and the slowdown of investment in major infrastructure, among other issues.

But placing emphasis on the housing crisis, it warns that international companies and workers could be put off coming to Ireland.

It states that "reluctant landlords" have sold their rental properties, further tightening supply, especially in the Dublin area, and leading to a 9pc average increase in rents over the past year. It warns that social cohesion and a rise in homelessness are the main risks, but it also notes another potential side-effect.

It admits that factors including the economic recovery and the continued shortage of housing may drive up wage demands which could erode competitiveness.

"High prices and rental costs could affect Ireland's competitiveness, its attractiveness for inward investment and for skilled immigrants," the report states.

"There are some tentative indications of growing pressure on wages, particularly in some public services, in the form of calls for increasing pay for new recruits and seeking a swifter than anticipated restoration of pre-crisis wage levels for existing staff.

"Such wage pressures risk both direct and indirect implications for competitiveness."

The report notes that the Central Bank's rules on deposits for mortgage approval have dampened down housing price increases. But it also notes the serious lack of houses to buy and rent.

The report notes Ireland is "potentially vulnerable" to multinational corporations moving to other countries and a downturn in business activity on which Ireland is reliant.

The report also expresses concern about the lack of investment in major infrastructure, which was at a peak of 5.2pc of GDP back in 2008.

The authors do not rule out the potential of a big terrorist attack in Ireland - but deem it as 'not likely'. They do, however, warn that Ireland could become a base for launching such attacks, that Irish people could be killed or hurt in such attacks elsewhere, and that Ireland could be hit by the general economic fallout from such attacks.

The potential fallout of uncertainty from a vote by British citizens to leave the EU on June 23 is also cited. Overall, the report notes the high level of uncertainty which would ensue from a Brexit and admits it is hard to assess the detailed effects at this stage.

Taoiseach Enda Kenny said the report showed there was no room for complacency. "Ireland is a small island nation exposed to global trends and forces."

Irish Independent

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