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Mark Stedman/Photocall Ireland

A boom in construction could lead to the economy overheating

A new report forecasts GDP growth of 3.8% this year.

A BOOM IN construction could lead to the Irish economy overheating, an economic think tank had warned.

The Economic and Social Research Institute’s (ESRI’s) quarterly economic commentary says that growth in the economy is set to remain strong throughout 2017 and 2018.

The analysis finds that growth to the GDP is forecast at 3.8% this year and 3.6% next year.

This growth will be driven by investment in Ireland as well as consumption.

These are being driven by increased activity in the construction sector, which is bringing higher levels of residential and commercial supply on stream.

This construction boom could also bring down the unemployment rate faster than was previously anticipated.

However, the report warns that an over-production in the construction sector could result in the economy overheating – as production outpaces demand.

“The increased level of construction activity could also cause the unemployment rate to reduce faster than envisaged,” the report warns.

If unemployment were to fall below 5.5% this would almost certainly confirm that the domestic economy is overheating.

“It is important to continuously compare the actual level of construction in the Irish economy with the underlying, long-run demand for such activity,” said report author Kieran McQuinn.

The report also warns that the “external environment remains highly uncertain” for this year and next year.

Brexit and the chance of the US pursuing protectionist trade policies may result in adverse effects the the Irish economy, the report warns.

“A small open economy particularly reliant on international trade is highly vulnerable to significant changes in international trading conditions,” warned McQuinn.

Read: Number of people granted Irish citizenship in 2015 almost half that of 2012 peak

Read: Only 8% of working-age Travellers have completed the Leaving Cert

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59 Comments
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    Mute Mark Gaynor
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    Mar 23rd 2017, 8:06 AM

    I’d take these statistics with a pinch of salt. There will never really be a “recovery” for average Joe bloggs- as long as we are annihilated with a long list of personal taxes. 50% on any income over €33k, 23% vat, high excise duties, TV license and so on.

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    Mute Blue MARIGOLD
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    Mar 23rd 2017, 8:30 AM

    Do people still pay for a TV license ?!

    66
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    Mute Jimmy Berg
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    Mar 23rd 2017, 8:31 AM

    @Mark Gaynor: Theres always the feel good option of mr.cheap credit, remember him, playing keep up with the Joneses with the pcp and personal loans will keep Joe happy until he finds himself out of a job again.

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    Mute Fred Jensen
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    Mar 23rd 2017, 9:19 AM

    @Mark Gaynor:

    IF we could keep the public sector unions down, we could have the tax cuts that you want Mark.

    16
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    Mute Dave Sherman
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    Mar 23rd 2017, 8:03 AM

    We will never learn.

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    Mute Martin Flood
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    Mar 23rd 2017, 8:10 AM

    @Dave Sherman: I did and emigrated years ago. Watching my girlfriend paying €250k for a brand new house that had the construction quality of a Lego set was the final straw for me.

    174
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    Mute mcgoo
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    Mar 23rd 2017, 8:21 AM

    @Martin Flood: are ye still together? Is the house still together? Don’t be teasing us with half a story Martin….

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    Mute Fred Jensen
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    Mar 23rd 2017, 8:36 AM

    @Martin Flood:

    Are you expecting an apology from the country about our building regulations Martin? Are you expecting us to beg you to return? Good luck with that.

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    Mute Martin Flood
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    Mar 23rd 2017, 8:36 AM

    @mcgoo: We split up. The house probably did too!

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    Mute mcgoo
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    Mar 23rd 2017, 8:42 AM

    @Martin Flood: sorry to hear that Martin!

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    Mute Martin Flood
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    Mar 23rd 2017, 8:43 AM

    @Fred Jensen: Nope. Just highlighting the desperation people had when it came to buying a house. I’ve actually no gripe with the Irish building regulations at all. There was a time a house had to be built well in order to sell it. It just comes down to supply and demand. I’ll sit this boom out and, if finances allow, consider buying something after the next crash.

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    Mute Trisha Tully
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    Mar 23rd 2017, 8:47 AM

    So that’s why you left her Martin.

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    Mute Gerard Heery
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    Mar 23rd 2017, 8:59 AM

    @Martin Flood: half the price of a house is levies and taxes

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    Mute Martin Flood
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    Mar 23rd 2017, 9:07 AM

    @Gerard Heery: So?

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    Mute John S
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    Mar 23rd 2017, 9:10 AM

    @Martin Flood: So she has her own house, is she still singe? Sounds like an ideal catch :)

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    Mute William Clay
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    Mar 23rd 2017, 8:09 AM

    A boom in construction…..
    Now where have I heard that before? Ah nowhere I suppose, carry on, sure what could possibly go wrong

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    Mute Tony Gordon
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    Mar 23rd 2017, 8:25 AM

    Strange article, yesterday our housing minister said that we were set to build 19,000 houses this year, where the minimum need year on year was 25,000 to meet demand. (And if we figure in the shortfall there we could do with 35,000 units next year in fact)
    So how are we building beyond demand?

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    Mute
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    Mar 23rd 2017, 9:47 AM

    @Tony Gordon: We might not be building beyond demand at the moment, but the demand can drop very quickly, because of a recession caused by Brexit for example, or the bursting of the Australian, London or Canadian property bubble.
    The main issue is that houses are overpriced, and the price of something that is too expensive will drop significantly.

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    Mute cortisola
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    Mar 23rd 2017, 11:57 AM

    @Tony Gordon: We are far from what we experienced during Celtic Tiger when investors used to come with 110% of money needed and everyone put everything in property like there was no tomorrow. Go to any site near you and ask about any vacancies you will be said NO. We are in fact better than 4-5 years ago but still not like before 2008.

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    Mute Richard Sweeney
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    Mar 23rd 2017, 8:06 AM

    What. It’ll never happen. Soft landing.

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    Mute Nick Allen
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    Mar 23rd 2017, 8:32 AM

    People complain if we don’t build lots of new houses and people complain if we do build lots of new house.

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    Mute Drew TheChinaman :)
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    Mar 23rd 2017, 8:57 AM

    @Nick Allen: I think the lesson is…. people are complainers

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    Mute Daniel O'Connor
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    Mar 23rd 2017, 8:13 AM

    You know what this type of article is? Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide

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    Mute Daniel O'Connor
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    Mar 23rd 2017, 8:16 AM

    @Daniel O’Connor: A wise man from a cupboard once told me that!

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    Mute Paul Tao
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    Mar 23rd 2017, 8:37 AM

    @Daniel O’Connor: Your comment could only be better if typed while collecting brown envelopes around Drumcondra in a canary yellow suit..

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    Mute Daniel O'Connor
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    Mar 23rd 2017, 8:54 AM

    @Paul Tao: i need the envelope cause i don’t have a bank account. Duh!!

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    Mute Fred Jensen
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    Mar 23rd 2017, 8:37 AM

    The construction sector is nowhere near overheating. We’re only building 15,000 homes a year, compared to 95,000 a year in the boom. We should be encouraging the construction sector to get bigger.

    Plus, this time it’s not borrowed money. Banks are not lending anywhere near what they were. It’s mostly foreign investors who will lose out if the office boom in Dublin goes sour.

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    Mute James Nellie
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    Mar 23rd 2017, 9:25 AM

    Someone needs to build the 50,000 free houses for the whinging anti everything brigade.

    Who’s funding this 3 billion investment?

    Not the ones who will avail of these shiney new houses while the people who fund them can’t even afford a new house themselves.

    Seems fair.

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    Mute Daragh Cassidy
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    Mar 23rd 2017, 9:02 AM

    I think some people don’t understand the economics of what the ESRI is actually saying. They’re not saying the country doesn’t need more houses built. They’re saying the capacity of the economy to build all those houses without inflationary and cost pressures building up (and therefore overheating the economy) is nearing its limit. Ireland needs around 30,000 houses built a year. Probably more over the next few years to keep up with pent-up demand. The ESRI doesn’t deny that. But with commercial construction ramping up at high speed, unemployment falling, and skills shortages becoming an issue again, the ability to build all those houses without construction wages and prices spiralling out of control could be difficult.

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    Mute Nick Allen
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    Mar 23rd 2017, 10:26 AM

    @Daragh Cassidy:

    But equally if we start adding more stock to the housing market it will put negative pressure on the price of houses as supply will increase. This will in turn keep pressure on cost control within the sector

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    Mute Fred Jensen
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    Mar 23rd 2017, 11:08 AM

    @Daragh Cassidy:

    Luckily we have a labour pool of 500 million to choose from. That should prevent skills shortages. We will just import the labour we need.

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    Mute Mick Jordan
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    Mar 23rd 2017, 8:42 AM

    Everyone agrees we have a severe housing shortage. Yet when house building is picking up there comes the cry “it will over heat the economy”. So what do they want? Houses don’t build themselves.

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    Mute John S
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    Mar 23rd 2017, 9:11 AM

    @Mick Jordan: What we don’t need is 100k houses built this year, in the wrong locations, and every builder out of work this time next year.

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    Mute Mick Jordan
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    Mar 23rd 2017, 9:41 AM

    @John S: I would love to know where you got 100k houses from. It is estimated we would need 30k houses this and every year for the next decade just to keep up with demand never mind over supplying the market. And building is nowhere near 30k houses at present.

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    Mute John S
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    Mar 23rd 2017, 9:52 AM

    @Mick Jordan: Just picked the figure randomly…….I didn’t investigate, just using it as an example. We need sustained development over time, not a boom to bust in our construction industry and we have to be careful we don’t do it again.

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    Mute James Keane
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    Mar 23rd 2017, 8:31 AM

    We actually need to build more houses in the right areas currently. There is a chronic lack of supply which is seriously over inflating prices for FTBs.
    Only 19k were built last year for example. It’s simple supply and demand economics.
    So I wouldn’t be too worried about an increase in activity given the current base, in fact we need to incentivise the sector to build more.

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    Mute Paul Tao
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    Mar 23rd 2017, 8:42 AM

    @James Keane: There’s an obsession with houses, it’s quality high-rise apartment blocks that’s needed more than anything else

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    Mute Tony Canning
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    Mar 23rd 2017, 9:01 AM

    @James Keane: we need to be careful when talking about incentives though. Not hard to predict where that could very easily lead. Perhaps the incentives should be about taxing unused land rather than tax giveaways for developers.

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    Mute James Keane
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    Mar 23rd 2017, 10:33 AM

    @Tony Canning: fair point Tony. Yes agreed it is important not to rush to decisions when it comes to incentives with construction.
    The idea of taxing unused prime land is a good one, specifically targeting the commuter towns and land within the M50 also.

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    Mute Thomas McGilly
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    Mar 23rd 2017, 8:54 AM

    Hmmmm…..the average memory of an Irish policy maker is 10 years it seems!

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    Mute Colm Vambeck
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    Mar 23rd 2017, 10:37 AM

    Im just waiting till I can buy an overpriced 500k house for what I can afford which is about 100k.

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    Mute Gerard Heery
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    Mar 23rd 2017, 9:02 AM

    Why don’t the ersi get Keith Barry to do their predictions

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    Mute Kal Ipers
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    Mar 23rd 2017, 9:14 AM

    @Gerard Heery: The ERSI warned the government that there was an impending housing shortage 5 years ago. This was ignored. If it hadn’t there would be a more controlled expansion of construction in a sustainable way.

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    Mute Jlocoroco
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    Mar 23rd 2017, 11:24 AM

    A boom in construction? Let’s fill the empty buildings we have before we build more

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    Mute Colm Quigley
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    Mar 23rd 2017, 10:20 AM

    Reminds me of a similar warning made in 2001 that was ignored by Bertie. The rest as they say is history

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    Mute Teddy
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    Mar 23rd 2017, 10:10 AM

    Bring it on,

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    Mute Alan Carthy
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    Mar 23rd 2017, 12:13 PM

    If there’s a boom in construction what it gonna be like when they decide to start building houses again

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    Mute Ian Oh
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    Mar 23rd 2017, 10:37 PM

    Naw. Never. Surely Not. Again? It takes an expert to come to a conclusion like this. That’s why they’re paid the big bucks. To inform us serfs.

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    Mute B-bob
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    Mar 23rd 2017, 4:16 PM

    There is only a boom for the big fat cats ,, the wages in Ireland are total S***e

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