A spokesperson from a representative body of US businesses which includes some of the biggest employers in Ireland, has warned the Irish people that their housing crisis is so severe that it could damage the country’s competitiveness.
Housing costs are at their highest
The official house price index in Ireland has leapt to an eight-year high – almost since the start of the financial crisis – with prices in Dublin up by 87% since 2013. The average house prices all over the country have risen by 70% over the last four-and-a-half years while house prices in Dublin have risen by an appalling 77% over the same period. Rent prices have not been spared either, these are equally remarkable. A property website in Ireland, Daft.ie, estimates that average rent prices have gone up by 72% since October 2011 while rents in Dublin have risen by 67% up to 85% over the same time.
During the same period, the median price paid for a home was €219,999, though the figure for Dublin was much higher, at €340,000, and in one area of the Dublin region – Dún Laoghaire-Rathdown – the average price paid was €510,000. Average monthly rent in Dublin is around €1667, comfortably higher than London’s €1467 average.
The annual rate of price growth in Dublin was 12.4% for houses and 11.4% for flats. The west region saw the greatest annual increase at 16.5%.
The housing crisis is due to a “misalignment” says a Government report
Since 2006, Ireland has seen the formation of 187, 000 new households, each in need of housing. The housing supply being limited, prices have risen. This is explained by one of the most basic laws of economics, the law of demand and supply. Usually, a low supply and high demand increase price. In simpler terms, the law of demand and supply states that when an item is scarce, but many people want it, the price of that item will rise. Thus, this mismatch between the number of housing needed and the number of houses available being lesser is what is causing this housing crisis.
A report for the American Chamber of Commerce Ireland has stated that more than 30,000 new, one and two bedroom properties are going to be needed in Dublin by the year 2022 so as to sustain new jobs in multinational companies and maintain the growth levels in inward investment.
This report also stated that around 232,500 new housing properties are going to be required all over the country over the incoming five years which includes around 81,500 in the greater Dublin region. Concerning the rental sector, around 32,500 housing units will be needed in or around Dublin.
With this increasing demand for housing and the limited supply, housing costs can only be assumed to keep on rising which will have many consequences for the country.
The impacts of this housing crisis may be destructive for the Irish economy
In the National Competitiveness Council’s yearly Competitiveness Challenge report, the NCC warned that: “The shortage and cost of residential property is damaging competitiveness. It impacts upon our (Ireland’s) attractiveness for mobile investment and talent. High rents affect decisions around labour mobility and entering employment.”
The American Chamber of Commerce Ireland reported that newly arrived companies and those looking to expand are finding it extremely hard to house their staff members because of the shortage of city-centre apartments. It mentions housing as one of the most critical “pressure points” when looking to recruit to expand their operations in Ireland. Demand for new housing properties has been estimated to be “at least 40,000 and closer to 50, 000 per year,” says a report on the housing crisis and its consequences on foreign direct investment (FDI).
The chamber’s report said that rental shortages are so severely impacting their operations that many companies have started indulging in a “hedging strategy.” This strategy refers to starting to renting short-term housing for staff in urban locations even before the staff in question has been hired. This is to ensure that new staff get an accommodation before prices rise even more and before all housing units are taken. The companies are trying to keep their operations running, trying to mitigate the disadvantages this housing crisis creates as much as they can but they are now “reaching a tipping point” the report states.
The economist David McWilliams has pointed out that commercial rents in Dublin, at €673 per square metre, are now 42% higher than in Frankfurt, adding up to decreasing Ireland’s competitiveness.
This housing crisis may lead to inflation
Despite the increased housing costs, earnings have remained the same. At the same time, the unemployment rate decreased from a peak of 15.9% in 2012 to only 7.2% by 2016. The inflation rate and average incomes failing to respond to the rapidly increasing housing costs and falling unemployment is truly notable.
The ESRI, an economic think tank pointed out that wage levels are slowly starting to increase and added that “As the labour market approaches full employment levels, wage growth has intensified, rising four times faster in the period between Q2 2016 and Q2 2017 compared to the same period in the previous year.”
Rising wage rates are then going to cause the “wage-rate spiral.” This is a term that describes the relationship between how prices increase when wages increase. Increased wage rates increase general expenses to businesses who then pass it on to consumers through higher prices of their goods and services which thus, causes inflation.
As the Celtic Tiger was roaring during the period between 2000 and 2010, Ireland slipped from 11th place in the World Economic Forum’s Global Competitiveness rankings in 2001 to the 22nd place by 2007. Recently, the downward trend in Ireland’s international competitiveness has been altered with Ireland rising in the rankings from the 28th place in 2014 to 23rd by 2017. But is this downward trend Ireland’s incoming future again? Probably. The country’s housing crisis and higher prices contribute to an increase in the general living costs, Ireland will become increasingly costly and uncompetitive country to have a company and do business.