ESRI Special Article identifies difficulties economy faces in increasing housing supply and suggests policy options
A stated aim of Government policy is to increase housing output in the domestic economy on a sustained basis over a significant period of time. In this article, we seek to identify potential capacity constraints across different aspects of the real and financial economy, which may result from greater levels of housing supply.
The paper examines the likely increase in construction employment which would be required in order to meet Government targets for housing supply and assesses where the extra workers necessary to increase are likely to come from. The paper uses a recently developed model of the Irish construction sector within COSMO – the model of the Irish economy to assess the overall macroeconomic implications of increased housing supply.
It finds that increasing housing output by 10,000 units would increase construction sector wages by approximately one per cent. The challenges presented for the Irish financial sector in funding this increased activity levels are also assessed.
Finally, the paper teases out some policy options which may help to address some of the potential constraints. These include sustained levels of public investment, more use of vacant properties and modular housing construction, land market reform and specific measures that may facilitate greater labour supply.
Commenting on the paper, co-author Prof Kieran McQuinn of the ESRI stated: “Increasing housing activity is clearly required in the domestic economy given the imbalance observed between the structural demand for housing and the actual supply. However, in assessing and considering some of the challenges which this increased activity will present, it is important to consider policy measures which may help alleviate these constraints.”