EU ‘not sure why building boom is absent’

New housing as a result of a recovery in the construction industry was expected to be fuelling Ireland’s economy by now, but this is not happening, the EU has admitted in its winter economic forecast.

There is a demand for housing, said the six-monthly report, which put the dearth of building down to “supply constraints that are proving difficult to address”.

A construction rebound should be visible in economies that have experienced a pre-crisis housing boom but were hard hit by the financial crisis, such as Ireland and Spain.

“Construction investment is expected to rise in all countries,” in 2017 after the adjustment period ends this year, the report says.

However, while house prices are rising in the eurozone generally, and the number of loans for house purchases recently rose faster than seen for some years, this is not being reflected in the Irish economy.

The commission appears to be mystified by this, especially as all the growth figures and the big increase in the tax take suggest the country is booming again.

“The Irish economy surged in the first half of 2015 setting the ground for record growth,” said the report. “The strong recovery is now firmly based on domestic demand across economic sectors.”

However, it warned that the demand for housing and infrastructure will become more urgent and demanding as it predicts that Ireland will once again attract workers from outside.

Cormac Staunton, senior policy analyst at economics thinktank Tasc, said that, aside from increased rents, the need for a 20% deposit to get a mortgage, and banks’ reticence to lend, Government cuts in services and infrastructure is also having an effect.

Land can be zoned for housing, but this is not much use if services like water, electricity and public transport are not available and government investment has been so constrained it has a knock-on effect”, he said.

The commission says public investment is still well below the EU average, but according to the Government’s multi-annual plan, will increase moderately.

Economic growth is predicted to be 6% this year but people are not feeling it in their take home pay, Mr Staunton said. According to the figures for real-unit labour cost, this will continue for the next two years because, after inflation is taken into account, the cost of labour is forecast to reduce 2.7% this year, 2.5% next year, and 1.2% in 2017.

The forecast says private investment is playing a central role in Ireland’s recovery, catching up to its long-term average.

It added that the big increase in corporation tax was unexpected but warned against expecting it to be the norm and described it as “volatile”.

Ireland’s economic health they believe is more dependent on outside forces and say they have not factored any effect that Britain leaving the EU might have. Commissioner Pierre Moscovici delivering the forecast would not speculate on this.

The effect of an influx of migrants — expected to total 3m over three years to 2017 — would have little impact, although if migrants are properly integrated and given jobs, they could contribute 0.2% to 0.4% of GDP per annum, with Germany predicted to gain up to 0.6% because of the big numbers it is assimilating, said the EU report.