Dr. Kieran McQuinn:

I thank the Deputy. In 2023, we believe that housing supply will probably be somewhere in the region of 26,000 to 28,000 units. We have not finalised our figures yet. We have a quarterly economic commentary coming out next week which will contain our finalised numbers. The total, however, is obviously in this region. As I said in the statement, this is heavily based on what happened with the construction commencements last year. There was a slowing down in this regard in 2022, compared with what we saw in 2021. This is a strong indicator of activity in respect of completions in the following year.

Regarding the structural demand estimates, and where we see them, those that exist currently were estimated by our colleagues. Depending on the assumptions adopted in this regard, the figure is somewhere in the region of 30,000 to 35,000 units annually. The work will be updated in the third quarter of this year, so it is hard to put a figure on this number now, but it is almost certainly going to be larger than that, given the way the population estimates are likely to go. In terms of where we see supply going over the medium term, if we look at the supply picture, certainly from 2017 and 2018 onwards, it is notable that there has been a pick-up in this regard and the underlying trend is certainly an upward one. What happened during the pandemic is that we had these oscillations up and down due to public health measures.

There were supply side shortages and there was uncertainty in the last year concerning inflation. Key elements of cost-price inflation in the housing sector have been particularly hit. That has distorted the picture. This year we expect supply levels to be in the region of 26,000 to 28,000 units. Next year we expect, based on the trends, supply to be in excess of 30,000 units. The imbalance depends on what the estimate of structural demand is likely to be. It will probably be 35,000 to 40,000 units, or possibly even higher. There will be a continuing imbalance in the next two to three years at least.

On the implications for house price inflation, we did some work last year where we estimated there had been over-valuation in the market, mainly because of the large build-up of savings in the economy following the pandemic, which tended to impact the demand side of the market sharply. On the supply side, there were distortions due to the pandemic. There was a slowdown in construction activity and inflationary issues. That caused house prices to jump last year, when there was a sharp increase. This year that will moderate and there is already evidence of that, but as long as the imbalance exists between supply and demand, there will be upward pressure and underlying pressure on prices. It is hard to see prices falling any time soon, even if the rate of growth is easing considerably.