Dr. David Duffy:

I thank the committee members for inviting Property Industry Ireland to attend the meeting today. I am accompanied by Tom Phillips, who is the chairman of Property Industry Ireland, and Mark FitzGerald, who is a member of the PII council.

Property Industry Ireland was established in 2011. One of the reasons for establishing PII was to have an independent and inclusive representative organisation for all sub-sectors of the Irish property industry.

There are also many different stakeholders involved in the delivery of property, from professionals who design and plan development and developers and construction experts who build property to funding bodies, such as banks and investors, and agents who sell and manage properties. All of these stakeholders are represented in the membership of PII and since the start of 2015, PII has been a sectoral association of IBEC. Our main mission is to be the trusted partner and provider of evidence-based information, policies and strategies for the property industry at national level.

Effective co-operation between the public and private sectors will be an important means of addressing the deficit in housing supply. PII estimates that annual average housing demand will be 36,000 units each year for the next 33 years. I have attached details of how we reached that estimate in the appendix to this submission and we are preparing a briefing document also. Due to substantial pent-up demand, there is a need to reach an annual output of 50,000 units in the short term. This estimate is higher than the projection underpinning Rebuilding Ireland 2040 and is based on age and gender specific headship rates from census data which suggest that the number of households in 2051 will be close to 2.8 million, a 60% increase on the 2018 level of 1.75 million. We are currently building fewer than 20,000 units per annum and this deficit in supply is resulting in issues of affordability and availability of accommodation. These difficulties are not confined to one segment of the market, but are across all tenures, including owner-occupancy, rental and social housing. It is the view of PII that the issues facing the housing market are independent of Brexit and need to be addressed regardless.

It is often difficult to assess history as it is evolving but it is our view that the Brexit vote of June 2016 has already had an impact on the Irish property market. In 2016, Ireland was grappling with a housing crisis that had been accentuated by a failure in 2012 to appreciate the bulge in demographic demand that was likely to occur because of the combination of two separate trends. The first of these was population growth since 2006 as evidenced in the 2011 census and the second was the economic recovery resulting from the swift administration of austerity policies. In January 2018, PII published the report entitled, Brexit and Ireland's Property Sector, breand the impacts on housing and the property market that we have observed since the Brexit vote are as follows. There has been a significant increase in overseas companies, in particular from the USA, seeking to locate offices in Ireland and, in particular, Dublin. This is leading to a further increase in demand for residential rental property. There has been an increase in net migration levels into Ireland beyond what had been anticipated. On the other hand, Irish people who at a generational point normally move back from the UK have encountered difficulties in selling their houses and apartments in Britain, resulting in some tempering of the rise of Dublin house prices. The analysis of the ESRI and others suggests that the impact of Brexit will be negative on the overall economy and we have seen that activity in the housing market tends to follow that of the overall economy.

One of the main unknowns is what form Brexit and the future relationship between the EU and the UK will take. This adds to the uncertainty about any impact on migration flows. If net migration reduces, this will reduce the demand for housing and slow the growth in prices and rents. However, this does not mean that our housing crisis will be resolved or that prices and rents will fall as such uncertainties in future demand may lead to a decline in confidence, meaning less investment and less overall supply of new homes. However, higher net inflows would increase demand. Brexit, including a softer form of Brexit, presents some opportunities for Ireland to attract businesses seeking to maintain access to the EU's Single Market. This has the potential to be both an opportunity for the property sector in Ireland, as well as a challenge with an ongoing housing crisis and increasing house prices and rents.

Increased foreign direct investment flows highlight the link between the commercial and the residential property sectors. A concern is that an increase in the demand for residential accommodation will result in higher prices and higher rents in the short run. Research has found that non-Irish nationals are more likely to rent accommodation when they first arrive in Ireland and that the cost of accommodation is a key factor in the decision of workers to locate here. Businesses need urgently to see a better functioning rental market. However, the effect will not be the same across the country. Brexit-related foreign direct investment represents an opportunity to locate companies in the regions. While sentiment is difficult to measure, the international political environment may increase Ireland's attractiveness as a location. As a small country, we have in the past endured many of our citizens being drawn to make their lives outside the State. However, despite a potentially adverse Brexit and existing shortcomings in housing and healthcare, Ireland has become a desirable country to return to or to come to live in.

That may have a bigger impact on regional Ireland than that envisaged. The national planning framework is a critically important document which provides a vision that will facilitate spatially balanced economic activity in Ireland. The availability of funding to support the investment in infrastructure envisaged in the national development plan will be crucial to the success of the national planning framework. Analysis by PII and IBEC in the report entitled, Better Housing, which we published in June argues that a comprehensive policy response is needed to ensure the supply of a minimum of 80,000 workers which the construction sector will need in the coming years. More resources are needed to promote and develop apprenticeship opportunities, while the work permit system will need to facilitate increased migration of skilled construction workers from outside the European Union. Ireland will need to put more effort into attracting workers from European countries and encouraging emigrants to return. Increased build of new social housing would help to offset some of the uncertainty surrounding the market in the face of Brexit and deliver much better value for money. It would also help to deliver a more stable market and avoid the volatility seen in the past.

Uncertainty caused by Brexit and uncertainty and caution during any transition period will have a negative impact in the supply of housing. In order to build, the construction of new homes needs to be viable, but home builders also need some certainty about demand levels. In the short run, any increase in uncertainty may heighten caution and have a negative impact on supply. In addition, Brexit-related uncertainty may heighten funders' caution and reduce access to funding for home building, also impacting negatively on supply. Depending on the shape of the final agreement, there are possible cost implications in the supply of construction materials due to the impact on the supply chain. Business models may no longer be able to rely on just-in-time delivery. That, combined with potential additional tariffs, will add to cost of construction.

To summarise, our research paints a challenging outlook for the housing sector, even without having to deal with Brexit. We accept that it will take a number of years for the market to reach equilibrium. Lack of supply in the residential property market, both rental and owner-occupancy, represents a key constraint in attracting foreign direct investment into Dublin and the rest of the country. Improving the viability of home provision is important for the broader economy. The viability of construction remains an important issue in many locations. Ireland's housing problems have clearly moved beyond being the social issue of our time and become a risk to future economic prosperity. A properly functioning housing market is needed to underpin national competitiveness, improve quality of life and address the plight of people in need of homes. Ireland's housing market has not functioned normally for more than two decades. Price and supply volatility have negative implications for home buyers, renters and the property development sector. The attraction and retention of talent is now the single biggest challenge facing Irish businesses. It concerns business leaders in most regions and sectors of the economy and is particularly acute in the main cities. Inadequate supply of affordable and quality housing is one of the main factors impacting on the availability of talent.

I thank the committee for inviting us. We are happy to deal with questions members may have.