Jim Power: Housing is in crisis, but we still must spend wisely

Buying up social housing in an environment where there is a supply constraint, would just remove housing out of the other parts, and make matters worse. Increasing supply must be the priority. Picture: Joe Giddens/PA

The Department of Finance's draft stability programme update, which is prepared for the EU, makes for pleasant reading. 

Despite the justifiable concerns over the dramatic increases in interest rates, the Ukraine war, and the broadening of price pressures, the outlook for the Irish economy and Government finances is positive.

It is always prudent to ignore the forecasts for GDP given it is a tarnished measure for economic activity in Ireland, and focus instead on more accurate measures of activity such as modified domestic demand, or MDD. 

According to the new forecasts, MDD will increase by over 2% this year and by 2.5% in 2024, while personal consumption is forecast to expand by 3.9% and by 3.8%, over the respective years. 

Such an outcome would be impressive against a background of intense pressures on households from rising consumer prices and interest rates. 

This outlook is predicated on the strength of employment and on the elevated level of personal savings. 

Employment is forecast to grow to 2.7m by 2026, and unemployment is seen averaging at 4.5% through 2026, a rate that is close to full employment in Ireland.

All this implies that businesses will continue to struggle to recruit and hold on to staff — which is the definition of "a first world problem", but a problem nonetheless for doing business in Ireland.

But we must treat the forecasts with caution: Business owners and policy makers should be conscious of the risks and act accordingly.  

The outlook for the public finances has attracted much attention. 

On the back of impressive tax revenues, particularly from income and corporation taxes, there is an expectation that a general Government surplus of €10bn this year could swell to €16.2bn in  in 2024, and then reach €20.8bn in 2026. 

However, the department fears that corporation tax receipts mask a number of vulnerabilities, and it estimates that the underlying fiscal position is a lot less positive. Nonetheless, the department still projects that corporation tax receipts will expand from the €22.6bn collected last year to €27.2bn in 2026.

Planning for the future

It is prudent to plan for the possible risks to future corporation tax receipts.

The difficulties include issues facing global technology, looming global corporation tax changes, and the concentration risk for Ireland in relying on 10 multinationals for a massive portion of corporation tax receipts. 

Putting €6bn aside into a reserve fund is therefore a sensible idea under such circumstances. 

A debate has now begun about what to do with the surpluses.

Speculation has been sparked about a giveaway budget later this year. 

But there is only one issue that really matters from a social, economic, and political perspective, namely housing. Cutting taxes and increasing spending would not be an appropriate response, given the strength of the economy.

We have already seen calls to spend the money on buying social housing. 

However, there are three elements of the housing market that need to be considered and taken together. 

Buying up social housing in an environment where there is a supply constraint, would just remove housing out of the other parts, and make matters worse. Increasing supply must be the priority. 

Money should be spent in bringing on the necessary capacity to build the new homes, but also on easing other impediments such as planning delays, 'Nimbyism', and boosting the capacity to provide essential services, including water and other utilities. 

All such issues must be addressed as a matter of priority. Contrary to what Taoiseach Leo Varadkar has said about the turning of a corner, I still don't understand why housing is not given even greater priority. 

Just like the pandemic, it is a national emergency, but is not being treated as a major crisis. 

But remember that emergency or no housing emergency, there will always be the temptation to waste money. That is always a risk when the coffers are overflowing.