Housing Affordability in Ireland

Maria Jose Doval Tedin and Violaine Faubert

No 61, European Economy – Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This Economic Brief analyses the main drivers of housing prices in recent years and examines policy options to improve housing affordability. A decade of under-investment following a property crash in 2008 led to a decrease in the housing stock per capita in Ireland. Its composition also became inadequate to meet the increased demand for urban apartments. As a result of persistent housing shortages, house prices grew faster than household income and home affordability worsened, especially for low-income tenants and homebuyers living in and around Dublin. Macroprudential measures have helped curb house price inflation in the owner-occupied sector since 2018. By contrast, prices in the rental sector continued growing to levels well above those prior the 2008 crisis. The evolution of house prices after the COVID-19 pandemic will depend on the speed of the economic recovery. Lower house prices and uncertainty may reduce housing construction and worsen affordability. Increasing housing supply by scaling-up the construction of social housing, reducing the restrictiveness of rent legislation and the relatively high delivery cost of housing could improve affordability. The latter might entail curbing land price inflation, increasing the relatively low productivity of the construction sector and addressing skills shortages. In case of a sluggish recovery following the COVID-19 pandemic, this may be combined with a temporary use of housing subsidies so as to help stabilise house prices and avoid risks in the financial markets.

Persistent link: https://EconPapers.repec.org/RePEc:euf:ecobri:061