Forewarned is Forearmed, Or Not

The scenario warned about through a series of economic reports is now upon us, what can be done at this stage?

Earlier this week the Economic and Social Research Institute, or ESRI, finally articulated what it has been signalling for a number of years now; Ireland’s Government will need to double the existing level of capital investment on housing to €4 billion if it is to have any hope of addressing the growing gap between demand and supply. This would mean running an annual budget deficit on an ongoing basis.  And the warning is stark, failure to invest now will lead to a further decade of housing shortages with house prices and rent levels continuing to rise. 

The ESRI is calling for this expansion of public investment in housing to be financed through additional borrowing in order to avoid further upward pressure on prices caused by the persistent undersupply of homes across Ireland. According to the ESRI report, the gap between current supply levels and current demand has widened as a direct consequence of the pandemic restrictions over the past 15 months. By doubling capital spend, the State could potentially deliver an extra 18,000 homes per year which, according to the report, would likely require an expanded mandate for State agencies, including the Land Development Authority to identify suitable sites and co-ordinate on a nationwide basis the delivery of these new homes. Interestingly, it looks like the ESRI is priming the public for supply-side initiatives that appear inevitable at this stage. These ought to have been introduced years ago, however, no leadership party has had the political bravery to deliver this unpalatable news – yet. The Commission on Housing that is due to be established by the end of the summer may well be in a position to tackle this particular issue. If so, the timing might just be right as this week saw the cost of building apartment blocks hit the headlines again. 

According to the Examiner, a 25-storey, €90 million apartment plan in Cork City has been dropped in favour of a 16-storey, €95 million office tower. This news comes hot on the heels of an article reporting that all other BTR sites in the city remain stalled due to lack of financial viability and this is expected to “further concentrate political debate to find a solution to the cost of apartment construction, during a wider housing crisis”. Viability issues are hindering the delivery of an estimated 908 homes in Ireland’s second city, which is a problem that is further compounded by other developers sharing insights that they too cannot build apartments at current delivery cost levels. This echoes warnings given through economic reports by Deloitte, EY, Construction Industry Federation (CIF) and the Society of Chartered Surveyors (SCSI) over the past year. According to the Examiner, “yet another feasibility report, being undertaken by KPMG linking with the Construction Industry Federation is expected in a month or two’s time, anticipated to make proposals to remedy the crisis and close the funding/financial viability gap”. The scenario warned about through a series of economic reports is now upon us, what can be done at this stage?

Ian Lawlor
086 3625482

Managing Director 
Lotus Investment Group