THE CENTRAL BANK has estimated that around 52,000 new homes could be needed per year until 2050.

That’s around a 20,000 increase on the 32,695 new homes completed last year.

It’s also a 20,000 increase on the Housing for All strategy estimate that Ireland needs an average of 33,000 new homes to be provided each year to 2030.

As part of its Quarterly Bulletin, the Central Bank of Ireland has today published a report titled “Economic policy issues in the Irish housing market”. 

The Central Bank said its 52,000 per year estimate is the result of “pent-up demand for housing and an increased housing need for our growing population over the coming decades”.

In the report, the Central Bank said that for over a decade after the financial crisis, supply of new homes was below estimates of underlying demographic demand from population growth and migration.

This created pent-up demand that has yet to be met and “exists alongside an increased housing need from higher population estimates over the coming decades”.

Commenting on the report, Director of Economic and Statistics Robert Kelly said the Irish housing market has been “subject to a decade of under-supply, during which house price and rental growth have outstripped income growth and stretched affordability”.

While Kelly said these challenges are being seen globally, he added that housing output as a “share of national income in Ireland has been significantly below the euro area average for quite some time”.

Since around 2008, Ireland’s housing investment as a share of national income fell below the EU area average and has remained below this average since.

From a high of a 16% share of national income in around 2005, this figure fell to below 5% last year, while the EU average is 6%.

Kelly added that housing supply is unable to meet our country’s needs which is limiting the sustainable growth of living standards”.

The Central Bank said that the “underlying challenge is the housing market’s capability to produce enough viable housing projects at the scale required”.

“It has to be viable to produce housing units at costs that are within reach of Irish household incomes,” said the Central Bank.

The Central Bank noted that the Irish Government has increased spending on the housing market from around €1 billion to €6.5 billion per year over the past decade.

The Government’s housing expenditure is now the second highest proportionately in the EU and close to its 2007 peak.

The Central Bank also estimates that a “return to that peak is expected to occur this year”.

However, the Central Bank warned that increasing housing output cannot solely rely on the State and that the Government needs to consider how it uses its financial resources and policy tools to enable higher housing supply. 

The report pointed to three overlapping areas which it said will have a “bearing on construction viability and the ability of the market to deliver additional housing supply of circa 20,000 units per annum”.

The first area is in planning and building regulation, with the Central Bank warning that a “complex and protracted planning environment adds to the costs of delivering housing and enabling infrastructure in areas where demand is highest”.

The Central Bank said a “more efficient system could unlock substantial housing supply” and noted that it’s estimated that over 20,000 housing units in Strategic Housing Developments were awaiting a decision at An Bord Pleanála as of early 2024, while another 8,000 units were subject to delay due to Judicial Review.

Planning decisions on these units were an average of 16 months late at the end of 2023.

The second area pointed to in the report is the capacity and productivity of the sector, with the Central Bank stating that “productivity is low, both by historical and international standards”.

The Central Bank said this relates to an “over-reliance on small enterprises, unable to benefit from economies of scale and suffering from over a decade of relative under-investment in machinery, equipment and widespread adoption of modern technologies”.

The report said this all results in “comparatively lower output per worker and will pose challenges in scaling towards higher delivery requirements”.

The third strand pointed to by the Central Bank is access to development finance.

It stated that the funding delivery of around 52,000 units per year would “require sustainably accessing debt and equity financing of sufficient scale”.

The Central Bank estimates that €6.5bn to €7bn additional development finance over and above existing levels would be required to fund the additional 20,000 units per year.

“This additional finance need comprises debt and equity funding, across State, banks, and non-bank financial intermediaries,” said the report.

The Central Bank called on the Government to “provide policy certainty in the planning and building regulation process” and to focus public capital investment on infrastructure and funding the direct provision of more serviced land in areas of high demand.

It also called on the Government to enable measures that will “use the State balance sheet to incentivise private investment, in particular equity investment, into the construction sector”.

However, Director of Economic and Statistics Robert Kelly warned that building an additional 20,000 units of housing “comes with risks to the economy, and public finances need to be carefully managed”.

“It presents trade-offs which policymakers need to actively consider as the costs and risks of poorly managing a rise in housing output are similar to those posed by  inaction,” said Kelly.