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Housing crisis: Building ban and savings to send house prices soaring

New home builds are down 25pc – and when you add to that the glut in savings, Irish house prices are set to rise, say ESRI 


ESRI’s Kieran McQuinn. Photo: Frank McGrath

ESRI’s Kieran McQuinn. Photo: Frank McGrath

Stock image

Stock image


ESRI’s Kieran McQuinn. Photo: Frank McGrath

Covid restrictions on building will lead to a 25pc collapse in new housing construction this year.

And with construction at an already low level, combined with a savings glut, this risks f orcing prices even further out of reach, the ESRI has warned.

With would-be buyers chasing fewer homes, tougher Central Bank rules may be needed to curb runaway prices, warned Kieran McQuinn, an associate research professor at the ESRI.  

After a bad middle six months in 2020, housing numbers picked up sharply over the last three months of 2020 to end barely down from 2019.

But that was mostly a result of a rush to finish construction that was already well under way, Prof McQuinn said. 

Fewer new planning applications, and a big drop i n new site commencements, mean a worsening housing crisis will be one of the lasting effects of the pandemic, he said. 

In its latest Quarterly Economic Commentary for spring 2021, the Economic and Social Research Institute (ESRI) sets out what analysts now think will be the effect on the economy of the Covid pandemic. 

An original estimate for 26,000 housing completions this year has been cut to just 15,000 – around a quarter less than were completed during last year’s lockdowns.

"Even that might be on the optimistic side,” Prof McQuinn said.

The lead-in time for large scale housing schemes means next year is not expected to see any improvement, even though building sites are expected to be fully  open.  

The forecasts include a 25pc drop in housing completions this year to just 15,000 and a similar number next year.

It is dramatically less than the 28,000 homes that had been forecast for the year, pre-Covid – and less than half the number of homes most experts believe are needed each year. 

Fewer new homes available, combined with the fact that Irish households saved more than any EU peers during lockdown, is a recipe for house price increases, Prof McQuinn said.

Asked if the Central Bank should step in and tighten loan to deposit and loan to income rules to dampen demand, he said it was “too early to call it”.

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“But that is one way to  curb house price inflation,” he said.

Tightening banks’ own ability to lend, by squeezing the so called countercyclical c   apital buffer –  a regulatory tool that can make lending less attractive and profitable –  is also an option, said his ESRI  colleague  Conor O’Toole. 

“The capital buffer can be used if there is an understanding some restriction is required in terms of supply of credit,” he said.

While an economic recovery is expected –  fuelled in part by exports that have already largely shrugged off the crisis and the expected spend of at least some of the around €14bn of Covid household savings –  the lengthening lockdowns and ongoing uncertainty mean employment is not expected to return to pre-pandemic levels until at least 2023. 

Just under 25pc of the workforce was effectively unemployed in February 2021 – including  those in receipt of traditional jobseeker’s  benefit and people claiming the Pandemic Unemployment Payment and other emergency benefits. That ratio  is expected to drop once vaccinations allow the economy to reopen, but will still average 7.3pc next  year.

Although not directly attributed to the pandemic, the other major event in the economy this year set to have a longer- term impact is the loss of Ulster Bank, the report says.

“The recent announcement from Ulster Bank that it is to exit from the provision of banking services in Ireland is a blow to the competitive set up of the industry. "Ireland’s banking sector is concentrated, and with the loss of Ulster Bank, further competitive dynamics may be eroded."

It says Government should explore policies to facilitate competition in the sector.

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