Dr. Kieran McQuinn:

We have been making these points to the Deputy for a number of years now. We agree with much of what he said. Dr. O'Toole and I, and colleagues from the Department of Housing, Local Government and Heritage, including Mr. Eoin Corrigan, did detailed work and a fairly deep dive into housing affordability in the Irish market. We looked at the survey on income and living conditions from 2018 going back to 2005. It is very clear that affordability, and issues around it, is what we call a structural issue in the sense it is not something that arrived today or yesterday. It has been there for a good many years in the Irish market. What the ESRI used to classify or define it was the proportion of people's income spent on housing cost, whether it was rent or house purchases. It is clear a substantial cohort of the private rental sector market were just above the supports payments. These were people who were paying very high proportions of their income on housing costs, mainly rents. This cohort has been there for a long period. This problem has been in existence for a considerable time.

Overall, our assessment of supply, as I said to Deputy Doherty, is the pandemic has brought a lot of turbulence as far as the supply side of the market is concerned. Looking at the underlying trend, it is clear supply levels have been increasing since 2017 or 2018. The pandemic has impacted on that and we have had ups and downs. We will probably get more than 30,000 units next year. On the impact that will have on affordability and prices, we have argued for a while that we will still need, even with that supply and greater levels of supply, a significant portion of that supply to be social and affordable in order to address this issue. It will not be resolved purely through basic supply and demand. We need a significant proportion of that increase to be social and affordable to address the ongoing affordability issue.

On whether we think prices will start to fall, we could see that scenario, particularly if interest rates continue to increase over the medium term. We have had significant increases in interest rates for many people over the past while. If inflationary pressures persist and we continue to see higher interest rates over the next period, that will have a fairly significant impact on housing demand. It is instantaneous in a sense because it directly affects people's ability regarding what they can borrow, which has an almost automatic knock-on effect on prices. There is a possibility of prices beginning to fall towards the end of the year and into next year. That would not be our baseline forecast at this stage but we could see that scenario occurring. If we continue to see supply increasing, as I said, next year or the year after that, in that context, we could see a scenario where prices start to stabilise and even come down a little.

On the other sectors of the economy and their ability to perform, it is interesting, from our point of view, to look at the housing market over the past five or six years. When we looked at the housing market and the issues around it initially, including affordability challenges etc., we did so almost in isolation. It is clear, however, that over the past three to four years, both in terms of the overall headline data from the economy and from talking to different agencies, including people in the IDA and even those in local authorities who deal a lot with multinationals, for example, the point they made to me was that increasingly multinationals want to see what the housing strategies of local authorities are, for example. These companies have clearly identified that housing costs and pressures are a significant issue and challenge to our competitiveness as an economy. It is clear that issue has been and is growing all the time with the rising prices and rising costs.

The land issue, again, as I outlined to Deputy Doherty, is the one area where the Government can have a direct impact as far as the cost side of the housing market is concerned. I will flag the issue that we will see local authorities back in the market for building housing, and we also have the Land Development Agency and the approved housing bodies, AHBs, so there will be a lot of competition for land in future. It is important that we manage land more effectively. We outlined the case for the site value tax and we warmly welcomed the residential zoned land tax. These need to be integrated but, in an ideal world, I see a scenario where we increasingly adopt the continental model of local authorities providing and servicing the land and then getting private developers to build on it in order to reach the kind of supply levels we need. That would be the most efficient outcome as far as the housing market is concerned. In the short term, however, measures such as the site value tax and the residential zoned land tax will ensure we incentivise the use of land as much as possible and do not have the hoarding issues that clearly have been there in the market.