Dáil Éireann Debate, Wednesday - 11 July 2018
62. Deputy Pearse Doherty asked the Minister for Finance his views on whether the shortage of housing supply and continued significant increases in residential property prices and rents represents a major domestic risk to the economy. [31483/18]
View answerIn the view of an tAire, is the shortage of housing supply, and the significant increase in property prices including rental prices, a major domestic risk to the Irish economy? If he believes that is the case, what steps will he take in this year's budget to deal with the major risk that has been identified by many outside authorities, namely the housing crisis?
The Department of Finance continues to monitor developments in the construction and housing sectors with a view to identifying potential macroeconomic risks. The biggest such risk is a continuation of the present situation, in which supply falls significantly short of demand, estimated to be in the region of 30,000 units per annum given our current demographic projections. Yes, I see the current situation where there is a significant shortfall versus supply. If it were to continue in the future it would be a risk which is why we are taking steps to address it. The reason for this is such a shortage would increase affordability pressures, would affect our competitiveness and would harm our ability to create and retain jobs, in addition to the significant social pressure and the huge damage it would cause to our society. Due to the seriousness of the issue, housing supply is specifically listed as a domestic macroeconomic risk in the stability programme update. As such, it is accorded the highest priority within my Department and in government more generally.
In response to this challenge, and in addition to the measures implemented under Rebuilding Ireland, Budget 2018 contained a number of initiatives aimed at increasing supply. Home Building Finance Ireland, HBFI, will boost the supply of debt funding to residential development. Budget 2018 also included an increase in the vacant site levy in the second and subsequent years of vacancy. In addition to all this, total expenditure on housing, both current and capital, has more than doubled in the period 2016-18 from just over €800 million to over €1.8 billion, which is an increase of 125%.
The Minister is talking about supply. Demand is approximately 30,000. Others estimate it as 40,000. We know the output is in the region of 16,000, so it is about 50% of what is needed. The European Commission in its report will talk about the supply responses being insufficient. It talks about this as the major risk to the Irish economy. While there may be other potential risks, this is a huge risk at this time. It was echoed by Mr. Mario Draghi yesterday to my colleague Mr. Matt Carthy, MEP, in the European Parliament that there is a serious danger to the Irish economy because of the housing issue.
While some of the initiatives the Minister outlined are welcome, some of them will not have the desired effect. For example, the site levy is not enough. What we need to do is ensure there is additional capital to build the houses. Given that we know this is a major economic risk to Ireland, why is the Minister still not prepared to use the €1.4 billion which is available in this budget to construct the houses, meet the demand, ensure there is no wage pressure on businesses, to make sure those in emergency accommodation have a roof over their heads and to deal with the major macroeconomic risks identified by the Commission, the Department of Finance, the ECB and many other economists?
My Department and I have already identified we acknowledge that on a macroeconomic level, and from the point of view of our society, this is a major risk, and I laid that out in my answer to the Deputy. Second, as I acknowledged in my answer, we can see signs of progress being made. In particular, from a planning permission point of view, we have seen 24,531 new homes granted planning permission in the 12 months up to March of this year. This is up 37% on the 12 months to the end of the first quarter. In the first quarter of 2018 alone, planning permission was granted for 8,400 homes, which is an increase of more than 81%, and a 178% increase in planning permission for higher density homes. We can see signs of change in supply in the housing market. In relation to the €1.4 billion, as the Deputy knows well, we would have to borrow more to do what he outlined. I have heard the Deputy on many occasions warn of the dangers of pro-cyclical economic policies but that is what he is advocating now.
The fiscal rules prevent us from pro-cyclical economic policies. That is what they were designed for. What I am saying is under those rules, the prudent thing to do is to use the €1.4 billion available to the Government to build the houses that should have been built under Fianna Fáil and Fine Gael but were not. It left us with a massive social crisis where there are 10,000 people in emergency accommodation, 4,000 of whom are children. There are nearly 100,000 people on the housing waiting list. There are pressures on businesses because their workers cannot afford to live in the capital city and its environs. All of that poses serious risk to the stability of our economy in the future.
The Minister mentioned trends in planning permission, which are welcome, but there is a response needed from the State also. The State built fewer than 5,000 social houses last year, and zero affordable houses or cost-rental houses, yet the Minister plans in this year's budget to do very little about it while acknowledging all the risks. We need a doubling of capital investment to meet the challenge that is out there. That is what is required in this budget. That is the prudent thing to do recognising all the risks, not just the social consequences of the Government's policies but also the macroeconomic risks, which everybody says are housing supply and housing price inflation at this time.
It is not just about supply. Rents are 22% above peak at this time. The Commission tells us clearly the rent pressure zones have failed. A response is needed which is not a head-in-the-sand approach as has happened from Government until now.
The Deputy is pointing to the very fiscal rules to prevent a form of economic behaviour happening. I remember the Deputy campaigning against those fiscal rules at the time of the referendum on the fiscal compact treaty. I remember him again and again warning of the risks of policies that could overheat the economy. What the Deputy is doing now is making use of the fiscal rules he campaigned against, and saying we should borrow more at a time when all the authorities he quoted say we should borrow less.
We are not putting our heads in the sand. I have outlined the additional actions that have been taken. Next year, capital investment in our economy will be going up by €1.5 billion. The largest two beneficiaries of that investment are transport, which in turn is to facilitate the release of more land, and housing. We can see from the first quarter of this year changes in the number of homes that have been built and in the number of planning permissions given. We have 168 actions under Rebuilding Ireland and myself and the Minister, Deputy Eoghan Murphy, will continue to look at measures that can deal with what I acknowledge to be an economic risk and something on which we must make progress from the point of view of our society.
Do I have another supplementary?
The Deputy has had two.
It was worth a try.
