“We will continue to focus on protecting financial stability today, and ensuring risks do not build up which we will regret in the future” - Deputy Governor Sharon Donnery

• A higher level of credit by itself will not build more homes.
• For every 12 new jobs in Dublin, one new dwelling was built in the past five years.
• Supply has started to respond, but it’s still below estimates of what is needed.

Speaking at the second annual conference on the Irish Housing and Mortgage Market, Deputy Governor Sharon Donnery said that the strong economic growth has coincided with rising housing costs.

“Compared with five years ago, today, house prices and rents are both over 40 per cent higher. House price growth affects households differently. Higher house prices is an affordability challenge, particularly for younger households, and households that are renting. These people face larger hurdles to finding a home. However as part of the legacy of the credit fuelled house price boom and bust, the rise in house prices has also benefitted some households.” 

Deputy Governor Donnery said that the number of households in negative equity has reduced substantially, thousands of households therefore have more options now than they did five years ago. In addition, households at or close to retirement benefit from higher house prices as the family home represents the majority of savings for most Irish households, strong price growth leads to an increase in the value of those savings.

“The bottom line is there is not as much housing per person as there was five years ago. The number of people in Ireland has increased around seven times more than the number of dwellings. For every 12 new jobs created in Dublin over the past five years, just one new dwelling has been built.”  

Ms Donnery highlighted that housing affordability concerns are not unique to Ireland. “Housing supply constraints have been raised as an issue by the IMF referring to European cities such as London, Paris, Stockholm, Copenhagen and Oslo. Even countries such as Canada and Sweden, who were relatively unaffected by the financial crisis, have seen real house price growth of 28 and 24 per cent respectively since 2014.”

Ms Donnery also noted that here in Ireland: “The fact remains that demand for housing is high but supply of housing does not appear to be increasing sufficiently fast enough to satisfy it. At the end of the day more dwellings are needed. But the construction of a new dwelling involves a huge number of policies that extend well beyond the mandate of the Central Bank.”

Commenting on how these policies can affect the market in complex ways, she said that: “In order to understand the impact of these policies better, the Central Bank of Ireland is engaging with a range of stakeholders from industry to civil society among others on an ongoing basis.”

Recognising the ongoing public debate on the mortgage measures, she noted that: “Prices have risen substantially, and are now back to 2005 levels in nominal terms, or 2003 in real terms. So the demand is there. What is needed is a sustainable level of supply. Supply has started to respond, but it’s still below estimates of what is needed. The fact is, a higher level of credit by itself will not build more homes.”

“The mortgage measures aim to ensure that households do not take on excessive pro-cyclical debt while competing to purchase a relatively fixed supply of homes. We will continue to focus on protecting financial stability today, and ensuring risks do not build up which we will regret in the future.”

Notes:

The Irish Housing and Mortgage Market Conference was jointly organised by the Economic & Social Research Institute (ESRI) and the Department of Housing.

Further information on the macroprudential mortgage measures is available on the Central Bank website.