Central Bank predicts lag in housing developments, urges govt to rein in core spending

File photo of a ghost estate

UNCERTAINTY LOOMS OVER how many more homes can be built in the near future due to unavoidable delays, rising costs and supply constraints.

That is according to the Central Bank’s latest report, which warns that many factors have contributed to a lag between planning permissions being granted, the commencement of building and home completions.

“While there have been increases in the numbers of housing units completed in recent years, looking ahead there is uncertainty around the timing and scale of future increases,” the report says.

“This has arisen given the implications of pandemic-related delays, rising input costs and supply constraints challenging viability, and in part, the operation of policy initiatives, such as the changing deadlines for the waiver of development levies and water connection fees.”

Earlier this year, the Economic and Social Research Institute (ESRI) criticised the government’s National Development Plan, saying it “underestimated what is needed” to deal with challenges including housing.

A key target in the Housing For All policy is the completion of 33,000 homes per year until 2030.

However, the ESRI warned the figure was “too low and will likely be revised upwards” given the “increase in inward migration, particularly associated with the war in the Ukraine”.

It also noted constraints such as a labour shortage in the construction sector and the increase in input costs due to inflationary pressures.

The government fell 2,680 homes shy of their social and affordable housing targets for last year.

Despite challenges, the Central Bank says that the Irish economy has effectively bounced back after the pandemic and Russia’s invasion of Ukraine.

Domestic spending decisions, it says, have worked well so far, but going forward the government will need to rein in its core spending if the country is to avoid “overheating”.

“Such a scenario would lead to higher inflation, damaging Ireland’s competitiveness and long-term prospects for growth in living standards.”

On public finances, structural vulnerabilities were found in Ireland’s current approach.

The report noted the concentrated risk surrounding corporation tax receipts, as 10 large multinational firms account for 52% of these receipts in 2023, and 10% of total government revenues last year.

“This leaves the public finances vulnerable to firm- or sector-specific shocks, while also presenting significant uncertainty as to the eventual effect of reforms to the global framework for corporation tax.”