Ireland should borrow more to invest in housing and could borrow an additional €4bn to €7bn a year, according to a new analysis by the Economic and Social Research Institute.
It comes as the Covid-19 pandemic has forced the suspension of Europe’s fiscal rules on government borrowing and sparked a debate over how much countries can and should borrow.
In this context, the ESRI argued that Ireland’s projected growth rates and the borrowing costs it faces in the markets means the country could take on an additional €4bn-€7bn in debt a year.
It said the Government should consider doubling its current investment in housing, from €2bn to €4bn, which could deliver 18,000 units a year.
It said housing is one of the main reasons the cost of living is higher in Ireland than other countries and warned the country faces “another decade of inadequate housing supply” with upward pressure on prices and rents.
The ESRI cited recent research that the demand for housing here is approximately 35,000 units a year, based on population growth, and could be as high as 45,000 units a year.
It said Covid-19 delivered a further blow to supply, which was already behind demand before the pandemic.
Last year, 20,676 units were completed, according to the Central Statistics Office. Estimates vary for this year from between 15,000 to 21,000 units.
The ESRI warned the lack of housing supply here is “one of the biggest challenges to our competitiveness” and is the main reason the cost of living here is higher than in other countries.
It acknowledged that more activity in the housing sector could lead to “inflationary pressures more generally” and “capacity constraints in the domestic labour market” would have to be carefully considered.
It also said more housing would reduce the €1.4bn a year the State pays in rent through the Housing Assistance Payment (HAP) scheme.
It acknowledged there are other demands for expenditure on health and green technologies but warned that without significant investment in housing, the country faces another decade of inadequate housing supply with upward pressure on residential prices and rents.
Dr Kieran McQuinn, Research Professor at the ESRI, said it is clear that unless something “fairly significant happens” as far as the supply of housing is concerned, further high costs of housing are likely in the short to medium term.
Dr McQuinn said there is potential for “crowding in”, whereby increased Government investment in the economy could stimulate private sector investment.
Speaking on RTÉ’s Morning Ireland, he said that 35,000 housing units a year are needed to meet demand, but only around 15,000 to 20,000 units a year are currently being provided.
Any substantial increase must include a sizable proportion of social and affordable housing, he said.
Dr McQuinn warned that if the current imbalance continues, it will only result in greater inflationary pressures in house and rent prices.