Influx of Brexit workers to put extra strain on housing market
The housing crisis faces increased pressure as a result of an influx of workers coming to Ireland due to Brexit, the Central Bank's chief economist has warned.
Gabriel Fagan reiterated that house building was not keeping pace with demand and said a potential increase in workers moving here as a result of Brexit would also have an impact on the market.
Mr Fagan said the current level of house building was below what is needed.
"That is the case," he said, at the launch of the Central Bank's latest quarterly bulletin.
"There are lots of factors that could come into play that could push it one way or the other.
"Maybe some of the housing strategy will prove to be effective in increasing supply which will help to diminish prices.
"We may have effects on the economy related to Brexit.
"If we were to have a substantial inflow of, say, foreigners into work in our financial sector, that would put an additional impact, obviously, on the housing market, especially in Dublin," he said.
House prices are rising faster than incomes, meaning people will have less spare cash to spend on outlays like holidays or dining out, the Central Bank economist warned.
Mr Fagan accepted that the implication of wage inflation not keeping pace with the rise in property prices is that people are spending an increasing amount of their income on housing.
"You'll have to spend less on other things. Less on foreign holidays, less eating out in restaurants.
"It's the implication. You're increasing your share of expenditure on housing, so other shares have to go down," Mr Fagan said.
The Central Bank said pay was projected to increase at an annual rate of around 2.3pc in each of the years 2016 to 2018.
By comparison, property prices rose by 8.6pc in November on an annual basis, and actually strengthened in the second half of last year.
From July to November, prices rose by 7.3pc.
"The forecast we have has house prices rising faster than income," Mr Fagan said.
He also warned of a lot of "turbulence" over the coming years as a hard Brexit looms.
He said that in the wake of Prime Minister Theresa May's speech, the United Kingdom was heading towards a hard Brexit and there was no way around that.
The bank, however, is forecasting 3pc growth for next year despite this.
It downgraded its growth for this year by 0.3pc to 3.3pc.
"There is a lot of uncertainty and likely to be a lot of turbulence over the next two years as negotiations proceed which will potentially pose downside risks," Mr Fagan said.
"Bottom line is that we're really heading very much towards the hard Brexit scenario."
Overall, the bank warned of the risk of Brexit, but said the impact from the UK vote in the second half of last year on services and manufacturing here had been "muted".
"It's a fairly benign forecast," Mr Fagan said.
"There's healthy growth in the economy, there's employment growth, unemployment coming down to nearly 6pc at the end of the forecast horizon and it's happening in the context where you see notable improvements in the economy still ongoing."
But he said the bank's forecast was subject to considerable risks, with Brexit the most prominent.
It came as British Brexit minister David Davis began the process yesterday of passing a law that enables the government to trigger Britain's exit from the European Union, saying he expected the legislation to pass quickly.
Mr Davis began seeking parliamentary approval by publishing legislation and introducing it to parliament.
UK opposition parties have said they would try to amend the legislation to make the government reveal more details of its Brexit plans.