Soaring house prices and rising rents could damage economy
Soaring house prices and rising rents could damage Ireland's competitiveness as workers seek higher wages in a desperate rush to get on the property ladder, a leading government think-tank has warned.
The National Competitiveness Council (NCC) has also strongly urged the Government to take measures to prevent the return of another damaging property bubble.
In its annual report published today, the NCC said the rapid growth in house prices and residential rents, particularly in Dublin, "represents a potentially destabilising development".
It said the increases could lead to "adverse knock-on consequences in terms of prices and wage expectations across the entire economy".
The stark warning comes amid spiralling home price increases in the capital due to a lack of available housing supply.
The Central Statistics Office said last week that house prices in the capital had risen by 24pc in the past year, while across the country they were 16.3pc higher.
A national survey from property website Daft.ie showed that rents in Dublin jumped 17pc over the past year, while in Cork they rose 8pc, and in Galway by 7pc.
"Such rapid growth in property costs, allied to issues around security of tenure, can be expected to have significant adverse knock-on effects on wages and inflation," said the NCC, whose chairman is Dr Don Thornhill.
Jack O'Connor, the leader of trade union Siptu, said recently that he expected far more pay increase demands to be served on employers next year than were made this year.
He warned it could lead to an "explosion" of claims.
"While economic recovery remains fragile and Ireland is a long way from a return to the undesirable construction boom of the mid-2000s, we must take action now to ensure that the conditions which facilitated the property bubble are not allowed to re-emerge," cautioned the NCC.
Central Bank governor Patrick Honohan has proposed a mortgage cap that could also squeeze many first-time buyers completely out of the housing market.
But the NCC said the Government should not try to intervene in the property market with a "quick-fix" solution to boost the housing supply.
It said that experience showed it took about 18 months or more to respond to increased demand.
"Strong demand for housing already exists in Dublin and some other urban areas and demand is likely to grow over time," it added.
In the past number of months, planning applications have been lodged by developers for major housing developments in the capital, some of them for hundreds of homes.
But Dr Thornhill said Ireland could look to the broader economic future with a "greater sense of optimism".
However, the NCC report also said that increases in personal taxation since the start of the recession had "eroded competitiveness and incentives to work".
"The council is concerned that hard-won competitiveness gains made since 2008 are in danger of being eroded as the economy returns to growth," added Dr Thornhill.