Dr. Tom Healy:

I thank the committee for the invitation to address this question of the impact of Brexit on this area. We in the Nevin Economic Research Institute, NERI, have undertaken research in the area of Brexit and separately in the housing area but, in common with other researchers, we have not examined specifically the possible or likely impact of Brexit on the Irish housing market. In fact, I could not find any specific research carried out in this area by the Economic and Social Research Institute, ESRI, Copenhagen Economics or by any other individual researcher who has assessed the economic impact of Brexit in the Republic of Ireland.

To put this in context, we are all aware of the uncertainties about the final shape of a Brexit deal and given that uncertainty, it is extremely difficult to make any projections either on the supply of, or the demand for, housing. It is surely the case that consumption and income will be negatively impacted, all other things being equal. An important qualification to make is that in any economic outlook we are looking at the effect, in isolation, of one change, be it Brexit or another factor. However, other factors also impact on growth and the demand for housing. We do not know the evolution of the world market. Many other factors, including the extent to which multinational investment and the state of the domestic economy, can affect and interact with demographics and, thereby, impact on the housing market. Therefore, it is possible that economic growth could remain at a high level. Yet we know from the data and evidence of other research that Brexit, in isolation, in all likelihood will have a dampening effect on economic activity. My point, essentially, is that other factors could outweigh and disguise, in a certain sense, the negative impact of Brexit.

Turning to the housing market, the problem is that, as matters stand, supply is still very inadequate but we also need to reflect on the regional and the compositional aspects of the Irish housing market. There is a particular issue of excess demand in the greater Dublin area.

Over and above that, the output of apartment dwellings, for example, is relatively very low. Apartment building is almost entirely a Dublin phenomenon to the extent that it is happening nationally, according to the most recent Central Statistics Office, CSO, data. This factor makes us somewhat unique in European terms in that we have a very particular composition of housing output, that is, either single housing or housing that is part of a scheme. In many other European countries apartment living is much more the norm and there is a much greater density of accommodation in large cities. The point is that Brexit, to the extent that it may impact on inward migration, will increase in all likelihood the demand for rental accommodation, particularly in the greater Dublin area and the other cities. There are details here on the regional and compositional aspects of the housing market that are crucial. The important lesson here is to be ready and to be as best prepared as possible. This underlines the importance of good social policy not only to accelerate the output of new homes but also, over time, to adopt a strategic approach to the housing stock and the composition of housing and also the need to change the insulation of housing, for example, to meet the challenge of climate change and of moving towards a zero-carbon economy. Therefore, what we would need to be doing anyway if there were no Brexit is all the more the case with the uncertainty and the likely negative impacts of Brexit.

To focus specifically on the demand side for a moment, as already mentioned, it is the combination of household income effects and migration that works on the demand side. My view is that the net effect will probably be a higher than otherwise expected demand for accommodation arising from Brexit. We should not exaggerate the likely phenomenon of, for example, UK financial institutions relocating to Dublin or other cities. This will happen and is happening but it is likely to have a limited impact in the bigger picture. What is probably more likely to happen is that workers, families and individuals who might have moved to the UK from other parts of the EU will now, other things being equal, move to the Republic of Ireland. We should also bear in mind that if tariff barriers were to be erected between Ireland, as a member of the EU, and the UK, including of course Northern Ireland, it is quite likely that UK companies would relocate some part of their activity to the Republic of Ireland. This is exactly what happened in the 1930s if one thinks of companies such as Cadbury that located part of their operations here, in the Irish Free State, behind newly erected tariff barriers. As an English-speaking country with a common law system, we have certain elements of attraction to multinational companies quite apart from the low headline corporation tax rate of 12.5%.

I will say a quick word about the supply side. One of the issues in this regard is currency fluctuations and their impact on materials imported by the construction sector. We also need to bear in mind, however, that the construction sector is a net exporter of goods. This, too, could be impacted were sterling to depreciate significantly in the months and year after Brexit actually happens. There has recently been much focus on and discussion about the way in which a customs union could limit or attenuate some of the impacts of Brexit and avoid what people refer to as a hard border, be it in the Irish Sea or on the island of Ireland.

We must reflect that it is the non-tariff barriers and the 1,001 regulatory and product standards and inspection issues raised by divergence from the Single Market that will matter more than whether there is a customs union. People are very much focused on the visible aspect of trade in goods, but there is another issue that is much more difficult to measure that could have an effect on the construction industry.

Brexit really does challenge all areas of economic and social policy, and we need to be vigilant. We need to do more of what we should be doing already, and this includes a much more ambitious approach to building public housing. In our research we have proposed a model of cost rental that would provide much more choice and flexibility in the housing market and could be a significant game changer in terms of ending the dominance of the private rental sector or a developer-led model.

I will happily take questions or join the discussion.