Services and house prices most urgent challenges for Ireland

Hard to believe it, but we are facing into another year, which will inevitably involve fresh challenges and fresh opportunities.

While we were able to face into 2015 with a sense of guarded optimism, we can be reasonably confident that a higher level of optimism is warranted going into 2016.

After all, 2015 ended with the economy showing a decent level of buoyancy, and all recent consumer and business surveys are showing heightened levels of confidence for the coming year.

In a column earlier this week, I outlined what, in my view, will represent likely major global challenges and risks for the very small and open Irish economy in 2016.

While external developments will be pivotal, we should not overlook the domestic risks and challenges.

From an economic perspective, it strikes me that housing, public services, and credit for the SME sector are the biggest issues facing policymakers at the moment.

The housing problem is broadly based. For first-time buyers, the price increases of the past couple of years have made housing a very expensive commodity again, particularly in the greater Dublin area.

The Central Bank lending conditions imposed last February are not helping matters, but the reality is that such restrictions are ones that are totally appropriate for a body whose sole focus should really be on the strength and resilience of the banking sector.

The regulatory authority failed utterly to do that in the run-up to the 2007 crash, but it is good that it is happening now.

As well as first-time buyers, there are significant issues on the rental side. For first-time buyers who cannot afford to buy, they are being forced into a rental sector that is experiencing dramatic market failure. The rental sector is not properly regulated, it is utterly unprofessional, and the rights and responsibilities of landlords and tenants are not obvious.

Policymakers in the housing arena need to stop bitching about the Central Bank lending guidelines, and instead focus on removing all of the obstacles that are currently preventing adequate housing supply from coming on stream in the areas where the real demand exists — from renters and aspiring owner-occupiers.

It is also time that they stood up to the vested interest groups on both sides of the rental sector and ensure that rights and responsibilities are evenly balanced. In short, Ireland needs a professional rental sector.

The quality of public services is also a massive challenge at the moment. Regardless of what official crime statistics are saying, it is clear to anybody with half a brain that Ireland is in the middle of a crime spree.

There appears to be one simple reason for this — the closure of rural stations and the reduction in the number of gardaí on the beat. We need to reopen rural stations and significantly increase the size of the force.

The health service is also a massive issue and is utterly failing to fulfil its mandate, while education needs to be treated with kid gloves.

Credit is also a big issue. While the economy is in strong recovery mode, the reality is that, for many diverse businesses that can be classified as SME, business conditions are still challenging.

The lack of demand has been the big issue in recent years, but credit is now the biggest issue as many businesses seek to respond to rising demand. Real alternatives to bank finance need to be developed, and quickly.

From my perspective, housing, public services, and SME credit will be the big issues for 2016 and beyond. All three form an integral part of the overall competitiveness and attractiveness of the country and its economy.

On the non-economic side, politics represents the biggest risk in 2016. Of course, politics cannot be separated from economics, particularly facing into an election over the coming weeks.

At one level, it is difficult to figure out how a stable government that will last for five years can be formed. We really need to avoid the sort of political instability that prevailed in the early 1980s. There is also an issue with the policies and promises being made.

We really need to remember that while the economy is in recovery mode and that the prospects for 2016 look promising, it is still in a precarious place and might not be too resilient in the face of an unexpected shock. Here’s hoping that you all have a prosperous 2016.