The Irish housing market: issues and prospects

Abstract

The housing sector represents an important micro-economic and macro-economic component of the Irish economy. At a micro level purchasing a dwelling is probably the biggest personal financial commitment an individual will make. The necessary funding is usually borrowed over a long time period. Borrowing constraints mean that the full purchase price of the dwelling cannot typically be borrowed. Mortgage repayment can represent a significant proportion of after tax income. Expenditure by the personal sector on housing and household equipment and operation represents around a quarter of the value of personal consumption. The performance of the housing sector is also important for the macro-economy. The substantial increase in housing output means that investment in new house building now accounts for 30 per cent of overall investment volumes and has made a significant contribution to the volume of economic growth in recent years. Construction employment, at over 204,000 in 2004, now accounts for around 11.7 per cent of total employment. Figures from the latest Quarterly National Household Survey show that much of the increase in employment in 2004 is accounted for by the construction sector. Section 1 provides an overview of recent trends in some housing market indicators. Section 2 discusses the impact of these recent developments on the affordability. Section 3 examines the consequences of high house prices for migration. Section 4 provides an analysis of the growth in housing output and the consequences for the Irish economy. Section 5 concludes.