Kieran McQuinn: Rents will continue to rise until 2018 at the earliest
Substantial land or property tax is needed to stop the hoarding of development sites across major cities, writes ESRI professor Kieran McQuinn
Published 20/03/2016 | 02:30
While many key headline economic indicators are returning to levels experienced during the Celtic Tiger, one area of Irish social and economic life which struggles to emerge from the post 2008 financial downturn is the housing market. Although house prices have grown by 34pc since 2013, this occurred after a five-year period of substantial declines where prices fell by over 50pc - one of the most significant declines observed across OECD countries in recent times. On the supply side, an average of 10,000 units has been built per annum since 2011. It is meaningless to compare activity levels in the market now with what was constructed during the Celtic Tiger when construction reached the absurd level of 90,000 units per annum in 2006.
A more relevant comparison is to be made with the level of structural demand at present in the market as estimated by colleagues in the ESRI. Based on population levels and household formation trends, they contend that 25,000 units per annum are required to meet demand in the Irish market.
Clearly housing construction rates would have to double in order for that demand to be met. Another relevant indicator when assessing the housing market is the volume of credit which is extended for residential mortgage purposes. The huge extension in credit during the Celtic Tiger era was one of the main reasons why our commercial banks experienced serious difficulties. Over the past five years, however, growth rates in mortgage credit have been negative, reflecting the low levels of loans which have been extended.