Dr. Conor O'Toole:

Let me begin by thanking the Cathaoirleach for the invitation to appear before the committee. I am joined by my colleagues Dr. Paul Egan and Dr. Rachel Slaymaker.

Following the financial crisis, the economy and financial system have recovered strongly, driven by robust employment growth and rising incomes. This economic development is notable given the recent repeated shocks. Downside risks have recently increased, however, due to changing geopolitical tensions and international trade relationships. Since the financial crisis, the Irish population has also increased notably. The combination of increases in incomes, employment and population has given rise to rapid inflation in house prices and rents as housing demand factors have outstripped supply. This has led to affordability challenges for cohorts of the population.

A further legacy of the financial crisis was the drop-off in residential housing supply but a recovery has been evident from 2015 onwards. Notable weakness was evident in housing completions for 2024, with just over 30,000 units completed. This slowdown is likely to be driven by multiple factors. Typical drivers of housing production include land costs and availability, labour costs, materials and inputs costs, the cost of financing and price developments. The policy environment also has a major impact on production by targeting both the demand and supply sides. Taking these factors together, coupled with current international uncertainties, we do not foresee any major uptick in 2025 or 2026 in housing supply. We are currently forecasting just over 34,000 units in 2025 and 37,000 units in 2026. However, most of the risks weigh on the downside.

To move to the longer term and to understand the investment requirements for overall housing need, a critical input is an assessment of the demographic demand for housing. Dr. Adele Bergin and Dr. Paul Egan recently published estimates of Ireland’s long-term household formation out to 2040. The report delivers 12 scenarios for housing demand based on a range of population projections combined with estimates of household size and housing stock obsolescence. Across these scenarios, projected structural housing formation is estimated to average about 44,000 units annually out to 2030 and roughly 40,000 annually after that. The report emphasises that estimates are highly sensitive to assumptions around migration, household size and the age of the housing stock.

While this provides a robust framework for future planning, the analysis does not address current unmet or pent-up housing demand. Research that has included measures of pent-up demand such as that by the Central Bank points towards an annual housing need in excess of 50,000 units when both elements are included. Combining these estimates of housing need with existing supply levels, there is a clear undersupply of housing in the Irish economy relative to the 2024 outturn. It must be noted that Ireland is not the only jurisdiction facing supply challenges, with numerous research reports highlighting lower levels of supply relative to demand in recent years.

A factor often noted as a constraint on the Irish housing system is planning. The timeframes, delays and decision making in the system can add substantially to the cost of production. For example, recent research by Longoria et al. on planning for Irish energy infrastructure notes that decisions are not made within mandated timeframes and discrete approval processes are infrequent. A given delay may be compounded where multiple approval processes exist in sequence. Streamlining the planning process and ensuring consistency in decision-making on applications would improve efficiencies.

Over and above planning, there are a range of other supply-side reforms that can support housing production. Reform of the land market is important in this regard. Land is a critical input into the development process and access to sufficient levels of zoned land is likely a constraint on the supply side with considerable price variation. Active land management is a feature of some well-performing housing sectors, such as in Austria. This entails sourcing and servicing of development land that can be made available to public and private entities on which to produce housing. The Land Development Agency is beginning to play an increasing role in activating production on State lands but a more expansive approach could be used in Ireland. The use of taxation measures to ensure land moves into production quickly is also important.

An issue that is increasingly coming to the fore relates to the provision of services and utilities such as water, wastewater and electricity connections. Increasing efforts must be made to ensure the timely provision of services to housing developments to reduce the timeframes in the production process. Further supply-side measures such as those aimed at vacancy and dereliction are also important to ensure efficient usage of the existing stock of dwellings.

Finally, the issue of financing arises and was highlighted in a recent piece in our recent quarterly economic commentary. Funding the additional production will require financing from both the State and the private sector to deliver the mix of social, affordable, cost rental and market housing needed. This will require private financing from bank lending, domestic and international equity and other sources such as European funds where available.

There are other challenges that are likely to inhibit the production capacity of the construction sector. Recent research has pointed towards lower productivity for small and domestically owned construction firms relative to foreign-owned construction firms in Ireland. This lack of productivity is likely to be inhibiting activity in the sector. Productivity could be enhanced through economies of scale with larger firms. The second productivity-enhancing step is a movement towards modern methods of construction, which can help standardise production, lower costs and increase timeframes.

The private rental sector has become increasingly important as a provider of housing for the Irish population. At present, reforms to the current system of rent pressure zones, RPZs, are under discussion. Recent ESRI research found that average annual rent increases at the property level were just 2.6% nationally, with 60% of tenants experiencing no increase in rent year on year. Properties in RPZs saw notably lower rent increases compared with those in non-RPZ areas. These findings highlight that RPZs have been broadly effective in their aim of limiting rent increases for properties in designated areas.

Rent control measures have clear benefits for existing tenants but are not costless. Overly tight restrictions can lead to unintended consequences. Recent research highlights the clear need for reform of the current RPZ system. The merits and drawbacks of three potential options are discussed. Under all options, policymakers will face a trade-off between protecting affordability for current tenants and the need to increase rental supply. The approach must be carefully calibrated to balance affordability and housing supply objectives while ensuring clarity and stability in the regulatory environment.

The challenges in housing supply and delivery are complicated, interlinked and multifaceted. Ensuring structural reforms on the supply side, in planning, land management, and zoning and regulation, are likely to yield the best returns in terms of fostering the long-term production of housing. Increasing productivity in the sector and adopting modern construction methods, alongside reforms in these areas, are likely to support the development of a housing system that can better meet the needs of Ireland's expanding population.

I thank members for their time. We look forward to taking questions.