Irish eyes are smiling at the prospect of Brexit
Corporate refugees could head West, but can Ireland’s housing cope? writes Martin Hawes.
For the Irish, Brexit is both a threat and an opportunity. The threat is that a major downturn in the UK would badly affect Ireland. The UK is Ireland’s biggest trading partner and if Brexit caused major damage to the UK economy, Ireland would take a hit.
But Brexit is also an opportunity. A hard split will mean some major companies take their headquarters out of the UK, and some will find their way to Ireland. Ireland already has a big finance sector and could well attract more banks, fund managers and insurance companies. This will be very competitive, but Ireland is well placed.
The Irish economy is now doing quite well. In 2012, Ireland was still working through a plan to get itself out of its trouble following the GFC. Ireland had endured a major property crash (house prices fell more than 50 per cent) and this brought down its banks and almost the government. However, Ireland worked its way through the plan, swallowing some bitter, but effective medicine.
The darkest cloud on the horizon for Ireland is probably a housing shortage and, in some areas, a resurgence in property prices. Amongst other things, this may stop Ireland attracting some businesses from the UK, because new businesses coming to Dublin will not be able to accommodate their staff.
In fact, just like in New Zealand, there is serious concern about property prices rising too far, too fast. The Irish have recent memory of the consequences of a house price crash.
Also, in parallel to New Zealand, the Irish are looking for ways to curb house prices. It has tried restricting lending by requiring bigger deposits, low income to debt ratios and even rent control in some areas. These moves have made some difference but last year the average house price in Ireland still rose 8 per cent.
When it comes to housing shortage and price inflation, the Irish are up against it. According to research, Ireland needs roughly 40-50,000 new houses each year, but in the last five years added on average only about 3,500 house a year – a potentially crippling deficit.
Ireland has to build a lot more houses. Again, that would have a familiar ring to Kiwis but, as we know, it is easier said than done.
Ireland has less capacity to build than New Zealand as many building companies went broke during the GFC. Tradesmen have gone abroad and are only slowly returning. Apparently there are plenty of Irish rebuilding Christchurch – but they are also needed back home.
Most know there is no quick fix. You can fiddle with a few things like debt ratios, but in Ireland (and New Zealand), the only lasting, long term solution is a steely determination to free up land and to build, build, build.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.