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Ireland: High Building Costs Latest Threat To Housing Supply

The Republic of Ireland rated by DBRS Morningstar (AA (low) Stable) faces housing challenges stemming from supply shortages and high prices, in contrast to the last crisis brought on by credit-fuelled oversupply. Years of inadequate housing investment has meant renting or purchasing property has become increasingly unaffordable. Government efforts in recent years to ease some planning rules and incentivise builders have yielded gradual positive results. Housing completions rebounded in 2022, and property price growth has started to moderate mainly due to inflation-constrained buyers and macroprudential policies. That said, last year's global price shock and the resulting high input construction costs may frustrate efforts to accelerate new housing supply and exacerbate the high social and economic costs of unaffordable housing in Ireland.

• The trend of housing shortages and high prices in Ireland has improved.
• But high and sticky construction costs may threaten the rebound in building.
• Unaffordable housing in Ireland comes at a high socio-economic cost.

“Recent shocks disrupted global supply chains and increased the cost of fundamental inputs to building and construction materials, threatening the rebound in housing supply in Ireland. Comparatively expensive housing in Ireland may place a drag on its growth model over the medium-term,” said Jason Graffam, Vice President of Sovereign Ratings Group. “As public demands to resolve the housing crisis amplify, the government may need to direct additional structural public spending on housing measures. Correcting the housing supply-demand mismatch is key for Ireland to maintain its competitiveness, and to accommodate more workers and tax payers.”