Housing demand won’t be met for three years the Economic and Social Research Institute has estimated

The targeted level of annual new house builds needed to meet consumer demand is unlikely to be met for another three years at the earliest, a leading economic think-tank has suggested.

In its latest quarterly economic commentary, the Economic and Social Research Institute (ESRI) has estimated that 25,000 new houses will need to be built on an annual basis in order to meet demand and get Ireland’s housing sector back to a sustainable level.

While the ESRI said that the economic contribution from the building and construction sector will increase next year — and overall strong economic growth will continue — it warned that housing supply will continue to “undershoot demand” and that supply “remains the crucial issue”.

To that end, the ESRI does not expect the annual target of 25,000 new house builds to be met until 2018 at the earliest.

For this year, the organisation is anticipating total new housing units built to total around 12,000, suggesting there is still quite a way to go for demand to be met.

The ESRI expects GDP to grow by around 6.7% this year and 4.8% next year.

However, ESRI economist David Duffy said that while the pace of economic growth has increased, the body identifies “issues in the housing market and a potential significant downturn in global trade, in 2016, as downside risks to our forecasts”.

In an additional review of housing supply policies, published alongside the latest outlook document, the ESRI said that while geographical constraints can contribute to lags in new residential construction levels, government policy also plays “a strong role” in housing supply responsiveness.

“From our analysis, policies such as strict planning regulations, substantial infrastructural costs and inappropriate taxation appear to play an important role in acting as a contraint on housing supply,” said report co-author Ciara Morley.

“There is, however, some scope — from an Irish perspective — for Government policy reform to encourage new housing developments, bearing in mind that likely future demographic trends call for 25,000 residential units per annum over the coming years.”

Ms Morley cited Nama’s residential funding programme as an example of policy that can alleviate financing pressures on smaller construction firms and help prevent extended delays in the commencement of developments.

Ms Morley also suggested that the introduction of a land tax that would increase in line with house/land prices — as currently exists in Denmark and other countries — could be looked at in greater detail in an Irish context, as it has proved to be an incentive to sell/use underdeveloped or vacant land in periods of increased demand.