Construction warnings must be heeded to avoid repeating mistakes

THE Irish Fiscal Advisory Council has warned about the dangers of the economy overheating if house building ramps up to unsustainable levels.

It isn’t the first time it has raised the red flag. It’s a warning which is worth repeating ad nauseam, given that over-lending, rapid house price inflation and the construction sector were largely responsible for the crash which resulted in a lost decade and untold misery.

But we’re nowhere near the point of the construction sector overdelivering, at least not yet.

Back in 2014, the Housing Agency said between 2014 and 2018, just over 80,000 new homes were needed to meet existing and shortterm demand. By way of comparison, in 2006 alone, more than 93,000 were built.

Even if we take Department of Housing completion figures at face value, some 52,000 units have been built since 2014, meaning 28,000 units are needed between now and the end of next year, which is unlikely to come to pass at current rates of construction.

However, most housing experts believe the official figures completely overstate the number of completed units, and that the ‘real’ number of completions is, at most, not even half this amount.

The shortage is obviously leading to problems with rising prices and soaring rents. The more money households are forced to pay for their housing, the less there is to spend in the wider economy.

High housing costs hit competitiveness, and fuel upward pressure on wages, so housing shortages are not just bad news for families and individuals, but for the wider economy too.

We are not building enough today to meet demand, but the sector is beginning to ramp-up and deliver. By this time next year, we will see more homes being completed, but it’s far from clear if this will lead to any downward pressure on prices and rents.

An overheated economy brought about by rapid housing output could result in the Government cutting spending to compensate, but we’re at some remove from that scenario today. That said, those who cannot remember the past are condemned to repeat it, and we need to heed the warnings.

The more money households are forced to pay for their housing, the less there is to spend in the wider economy