Housing costs will deter skilled foreign workers, Moodys warns
Rising rents and house prices in Ireland need close monitoring, Moodys has warned, but there is no sign yet that the economy is overheating.
The rating agency has raised its growth forecast for Ireland this year to 5pc, from 3.7pc, mainly driven by the continuing recovery of private consumption and residential investment.
The report however noted that Ireland has an unusually high degree of economic volatility, principally due to its open economy, saying buffer need to be in place to protect the public finances.
Housing, remains a potential concern.
"Reduced affordability — as is also evident in the rental market — might eventually have an impact on the ability to attract skilled foreign workers or sustain growth in foreign investment," Moodys said.
"The government has recognised the problem and is spearheading a number of initiatives aimed at addressing the shortage and encouraging new construction, including increasing the provision of social housing and revisions to building standards and planning procedures — with the overarching objectives of reaching an annual level of residential construction of 25,000 homes and delivering 47,000 social housing units by 2021."
However, the rating agency said the measures will need time to take effect, and warned that the capacity of local councils to deliver social housing is a key constraint.
It thinks new housing supply will likely remain below demand for some time, and will therefore drive house prices higher "with most forecasters expecting another increase in average prices of 6pc to 10pc annually this year and next."
Analysts at Moodys said house prices are now around the levels seen in the mid-2000s, prior to the 'bubble' period and approximately 21pc lower than the peak.
House building itself is 65pc lower than the (unsustainable) level of 2007, the agency said.
"Hence, in our view the strong recovery in the housing market is not (yet) a cause for concern".