Tuesday 16 July 2019

Dan O'Brien: 'Housing crisis may be on the decline as our economy thrives, but too many are still shackled by its impact'

'One of the prices that is most watched these days is one that has been rising rapidly - rents.' Stock photo
'One of the prices that is most watched these days is one that has been rising rapidly - rents.' Stock photo
Dan O'Brien

Dan O'Brien

The halfway point of the year is a good time to take stock. How is the economy doing and what does it mean for people's lives?

The short answer to those questions is, respectively, remarkably well and mostly positive.

The continued strength of the Irish economy is remarkable because one might have expected fears around Brexit to have had a much bigger dampening effect on consumer and business activity than they have actually had. There has been some negative effect, but it has been small and, given the strong momentum in the economy, it has not been nearly enough to derail things.

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In the first half of the year the numbers on unemployment benefit, for instance, continued to fall, breaking through the 200,000 threshold last February for the first time in more than a decade. Dole queues shrank by another 10,000 by last month and, it is worth noting that the number of people under the age of 25 on jobless benefit is now at its lowest level since March 1980.

All of this is mostly down to job creation. The latest figures, though a bit dated at this point, showed a surge in employment in the first three months of this year. More recent figures on income tax and social insurance suggest jobs growth continued into the early summer.

The strong performance of the Irish economy is all the more remarkable because Brexit is now clearly causing the British economy to slow. This, combined with sluggish growth on the continent, could have been expected to depress exports. Yet again, Ireland is dodging bullets. The economy's export engine continues to purr.

In the first four months of the year, the value of stuff shipped out of the jurisdiction grew by more than 10pc. For a country to enjoy double-digit export growth at any time is not at all bad. To enjoy those kinds of increases when growth in important foreign markets is spluttering is impressive.

Continued export growth would not be happening if the economy were losing competitiveness. Although there have long been warnings of overheating, and that is something to watch, the economy remains in something of a sweet spot - it's neither too hot nor too cold.

Wages and salaries have been rising strongly for the past two years or so. That can be tough for employers who are just getting by, but the purpose of a strong economy is so that as many people as possible become more prosperous.

The best possible way for an economy to advance is for workers to voluntarily leave low-paying, low-productivity jobs for higher-paying, higher-productivity ones. When that happens, people can avoid the disruption that periods of unemployment bring and the economy becomes more efficient overall. Everyone's a winner, except the least efficient businesses.

So, if wage growth is nothing to worry about, for now at least, what about the other most watched indicator of overheating in any economy: inflation? If consumer prices start rising rapidly it is a sure sign that things are getting too hot.

As it happens, the State's statisticians published their latest inflation figures just yesterday. Despite serious-sounding warnings by serious people over at least two years, inflation remains in a near dodo-like state.

The basket of consumer goods and services that goes into generating the inflation figures was just 1.1pc higher in June than 12 months ago. Indeed, the overall price level has still not surpassed its all-time high point, set 11 years ago, in August 2008.

Also of relevance to the competitiveness piece is that inflation in Ireland has been lower than in most other competitor countries over the past decade. It remains so today. That means we are not pricing ourselves out of our main markets.

One of the prices that is most watched these days is one that has been rising rapidly - rents. Yesterday's figures for June showed the downward trend in rent increases continues. Compared to May, rents were up 0.3pc. They had been rising by multiples of that in the very recent past.

This current rate of rent increase is still uncomfortably high for many, but it is now close to earnings growth, meaning that affordability is not deteriorating anything like it was last year or the year before.

An increase in the supply of new homes is an important reason for the moderation in rent inflation.

It also explains why buying a home is becoming less unaffordable and marginally more affordable in some places where prices are highest.

Yesterday also saw the publication of monthly house price figures. Nationally, prices are rising at low single digits - less than 3pc on a year earlier. That is now in line with earnings growth and not far above consumer price inflation. That is pretty much where they should be - in a well functioning housing market, home prices should be moving in line with all other prices.

Much attention has been focused on the capital's property prices in recent times, mainly because they started falling last November bringing fears of another crash in some quarters. On an annual basis, they were up by less than 1pc in May. As that is well below average earnings growth, property is actually becoming more affordable in the capital.

While that situation is unlikely to last (in May the month-on-month falls in Dublin property prices went into reverse), there is a real hope that the market is stabilising, both in the capital and more widely as supply and demand move into line and credit growth is not driving the market.

Though that is not certain. Ireland's capacity to draw in workers to its booming economy regardless of accommodation shortages was highlighted yesterday by the EU's statisticians.

Last year, Ireland's population growth was around seven times more rapid than the EU average according to their figures. This is a sign of a strong economy, but it also points to continued housing pressures.

Although the worst of the housing shortage may be over, it will continue to cause problems for too many people for some time to come.

Irish Independent

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