The cost of housing in Ireland is hitting competitiveness and could affect the country’s ability to continue to attract foreign investment, according to a leading advisory body.
A study by the National Competitiveness Council shows that Dublin is one of the most expensive cities in Europe for homeowners with a mortgage as well as for those who are renting.
Only Amsterdam and London had higher mortgage affordability rates than Dublin.
The NCC report shows that owning or renting a home is more expensive in Dublin than in Berlin, Copenhagen, Brussels, or Helsinki. The council also warns that there is no quick fix for the housing crisis and advises the Government to take a long-term approach to the problem rather than attempting short-term solutions.
“A well-functioning housing and construction sector is critical to the overall health of society and the economy,” said NCC chairman Peter Clinch in a foreword to the report.
“Affordability matters for the individual household, for society as a whole, and for national competitiveness.
“For the individual or household, buying a house is their single biggest lifetime purchase, while the cost of owning or renting a home takes a large share of household income.
“From a societal perspective, a stable and functioning housing market that meets the needs of all of the people living in Ireland is an essential contributor to social cohesion.”
The report shows that in cities such as Cork and Galway, those in rented accommodation are now paying more every month to their landlord than they would for a mortgage.
“Affordability is increasingly challenging for renters who aspire to purchase and must save a significant deposit whilst simultaneously paying relatively high rents,” states the report.
“Many Irish cities fare less well in terms of rent affordability than in terms of mortgage affordability. Given that many in the rental sector now have to save substantial deposits if they are to buy a house, affordability concerns for this cohort are particularly significant.”
The report concludes that the mortgage finance market acts as a major determinant of the overall affordability of house purchase. Ensuring a competitive mortgage finance market is important in terms of improving the affordability of Irish housing, it says.
A number of international cities have higher price-to-income ratios than Irish cities, suggesting that current Irish affordability levels could persist in the medium to long run.
It says that Central Bank constraints on mortgage lending are affecting housing construction.
“To incentivise increased supply, prices need to exceed costs. However, as a result of the Central Bank mortgage rules, prices are, in effect, capped relative to incomes. Therefore, there is a need to better understand the elements constraining supply and to then reduce development and construction costs relative to income and prices,” states the report.
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