ESRI modelling signals boosting housing supply would calm prices

There is a school of thought among some Irish housing activists that dramatically increasing housing supply will not necessarily lead to more affordable homes for people. They argue that many of the new units built or planned in recent years, especially in Dublin, are pitched too expensively to make any difference to the challenges faced by most ordinary people.

“Supplying Mercs doesn’t make second-hand Micras [more] affordable,” said one.

The latest research paper from the Economic and Social Research Institute appears to poke a hole in their argument. Using economic modelling, ESRI researchers suggest that an increase in annual housing supply from a 25,000 baseline to 35,000, which is an annual target considered the minimum necessary to meet medium-term demand, would cause house prices to fall by 12 per cent within eight years.

Affordability of homes

The activists argue there is no point building more homes that are not affordable. But as the ESRI research seems to suggest, the mere act of building more homes is what makes them more affordable. The think tank’s research is not perfect. It does not distinguish between the respective impact of private homes and social housing, and its modelling assumes that all of the extra 10,000 homes are private. But even still, its models appear to buttress the arguments of those who say that a dramatic boost to supply of homes will, eventually, help to calm the current crisis.

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The problem, however, is that the drive to build more new homes appears to be stalling and may even go into reverse. Housing completions have been falling for three months. Fresh data on Friday from the Central Statistics Office shows a 10 per cent decline in new planning permissions in the first nine months of the year.

The decline is even more pronounced with apartments, and it is also accelerating. This suggests that many of the institutional funds that have funded much of Ireland’s apartments boom in recent years may be looking at other options for deploying their capital, now that interest rates have risen sharply. The Government has work to do to keep its housing targets on track.