Both the Central Bank and the Government have taken actions designed to turbo-charge house construction and both should be applauded for rolling up their sleeves on the matter.
It would be easy for them to avoid decisions on a subject that triggers intense debate and instead hide behind myriad rules and regulations to obfuscate and kick the political can down the road for another administration to address. Instead, a set of hard actions are underway which will drive shovel-ready projects.
Of course, any engagement with housing risks interfering with market forces, and one of the great risks currently is that house prices move forward aggressively. We must assume that was a key factor in the Central Bank’s extensive research ahead of the review announced last week.
By keeping mortgages limited to a multiple of 3.5 times of incomes it must be hoped taht price inflation stays reasonable as a resumption of house building accelerates.
Outside of the obvious benefits of additional house numbers in the country, there are important national economic effects too. Just 10 years ago 75,000 houses were completed in Ireland and that played a large part in amplifying construction’s share of the overall economy.
It, therefore, played a big part in feeding the gros,s and ultimately obese, Celtic Tiger. When that animal was sent to the financial gym, courtesy of the global financial crisis and the Troika, the impact was huge. By 2011 house completions had collapsed to just 4,042 units.
When you savagely cut output in any sector by 94%, the consequences will be horrific. Builders, construction workers, van sales, and bar and restaurant revenues were just some of the items sucked in by the vortex of a disappearing housing market. We all know how brutal the damage was to the Irish economy. In the process, the pendulum swung too far.
By 2011, the building of just about 4,000 houses was fundamentally below what anyone’s definition of natural demand was. Even in a bombed-out economy, Ireland had a young population, foreign direct investment was picking up, and family formation rates remained among the highest in Europe.
The conditions of a more normalised level of housing output were in place. Finding ways to encourage developers to build, bankers to lend, and consumers to buy have been key challenges for all over the past five years.
It now feels as if the worm has turned, and God knows we need it. If Ireland can sequentially step up house construction over the next five years, it will act as a vital offset to the challenges being posed by Brexit.
House construction has its own dynamic effect on an economy, so adding thousands of houses and building jobs to areas around our key conurbations will be beneficial. The challenge will be to ensure we do not overshoot in terms of either price or volume as that process unfolds.
The room to manoeuvre is material. Imagine, for example, that we could get house output to about 35,000 units per annum over the next number of years.
That would be almost 900% more than was the case in 2011 yet it would still be 53% under the mad levels of 2006. Getting output towards 35,000 will help inflate the importance of construction to overall GDP at a time when other sectors, especially those exposed to the UK economy, could struggle.
This is one reason why so many policymakers and politicians are hoping a formula is applied that adds affordable home numbers to the marketplace. If we assume the 3.5 times income multiple is rigidly applied while this unfolds, it should keep buyers’ eagerness to pay up disciplined.
I have had recent discussions with some small companies that produce goods which are used in house building.
These are a wizened group of executives, most of whom went through the horrors in the 2008-13 period when many of their peers went bust. Most of them think lights at the end of a tunnel are often at the front of an out-of-control train.
However, it was interesting to hear them reveal that demand for their products is picking up. It is in all our interests that their order books fill up even more.
Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.
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