Soaring home prices may pose threat to FDI

Soaring house prices could again damage Ireland’s ability to attract foreign direct investment, the ESRI has warned.

It said that in the past Dublin in particular had a reputation for high living costs.

However, it has told the Coalition to think before introducing tax measures in the budget to boost the construction of new homes.

Solving the supply issue will be complex at a time when “current and expected levels of housing completions in the short term remain well below projected household formation levels.”

The ESRI said there was no easy solution.

“It is also worth observing that even though there has been some increase in the rate of planning permissions for new dwellings in the first half of the year, this figure is at its lowest since the series started to be compiled in the late 1970s,” said the report.

Kieran McQuinn of the ESRI said observers have cited access to finance for developers and the need for more social housing. But the report also warned about the economic costs if house prices were to surge again.

“An ongoing issue of concern within the economy is the slow rate of supply response within the housing sector. This has seen the cost of housing increase significantly with both house prices and rents increasing markedly.

“This ultimately could pose serious challenges at a macroeconomic level with heightened cost of living pressures threatening the availability of future labour supply via increased inward migration.”

And it warns: “Nothwithstanding this, in the assessment we caution against the use of the taxation system to address supply-side issues, arguing that such measures should only be contemplated under a very particular set of circumstances.”