Increasing future housing supply: What are the implications for the Irish economy?

Given the widely acknowledged imbalance between the supply and demand for housing in the Irish residential market, policy measures are particularly focussed on significantly increasing the supply of housing over the medium term. This paper seeks to identify the implications for the Irish economy of a sustained increase in housing activity. In particular 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 construction activity are likely to come from. The paper uses a recently developed model of the Irish construction sector within COSMO – the overall model of the Irish economy – to assess the overall macroeconomic implications of increased housing supply. This is particularly beneficial in assessing the performance of the construction sector in the broader economy. The paper also focusses on the financial sector and the issue of funding greater levels of housing supply. Namely, is the traditional financial sector capable of providing the required funding, or will other sources, including greater involvement by the State itself, be necessary? Finally, the paper teases out some further policy options which may help to address some of the potential constraints.