Dr. Robert Kelly:

I will start at the end and work backwards to the economics. As I answered earlier on the subject of the investment prospectus from Israel that the Deputy is talking about, I am not a legal expert. The Deputy's question has gone outside my understanding of how exactly they come together. As I said earlier there are people much better placed to talk about the detail of the subject, but the understanding I have seen from our side is that this matter falls under an EU regulation. This means that unless we have a legal basis to refuse approvals, such as financial sanctions in Europe, we do not actually have a legal basis not to approve the prospectus. The country issuing the prospectus chooses across the euro area if it wishes to sell to European bonds. There could be legal aspects that the Deputy has pointed out that perhaps could be true, but I do not know because I am not expert enough to comment and would not like to misinform the Deputy. I really cannot go any further on that issue.

I can talk a little bit about the inflation profits piece and then perhaps work backwards to housing. On profits and inflation, I will not talk about individual projects but we did quite a lot of work on this across the economy generally. Early in the pandemic, when we decomposed the information, we saw there were additional profits relative to wages in the components of inflation, especially in domestically generated inflation. We said then that the thing we were watching most was whether the firms would absorb wage pressures or whether they would become further inflation. What we have seen since then is that profit margins have actually become compressed on aggregate and have absorbed the wage pressures. What has actually happened over the past year or so is that we have seen less of the domestically generated inflation coming from profit margins and we are seeing them instead absorbing some of the wage pressures. We saw strong wage growth from looking at the national accounts figures for last year, with an increase of more than 6%. That has not been reflected through into inflation, so what is absorbing those wage increases is the previous markup. It is, therefore, a balancing through the cycle that we have seen on aggregate. I cannot speak to individual instances.

Turning to the Deputy's housing questions, there was quite a lot in them. Let me make a general statement. I did not want to come in after the last question on how we think about the spending here. We use the word "additional" quite a bit. I would change that to "prioritise". I think there is a key difference there. It is about making space. One of the opening statements referred to this. It is about making space in the economy. In terms of demand pressure, construction is particularly strongly constrained by capacity, but it is about making space for these investments, so we are moving demand elsewhere. This can be done by looking across total spending. It can be done by looking at taxation. It really does, however, bring us back to the rule we talk about so often. This gives us a guiding post to think about how we balance these elements. It is really about prioritisation.

The Deputy talked about a State construction company. I think the State has quite a lot of involvement in this area. My view is that what the Deputy referred to actually speaks a great deal to productivity within the construction sector. There is a decision to be taken about whether the State or the private sector will own it, but the reality is that we need to think about how we can take a constrained labour base and, essentially, create more housing units from them.

That is the big challenge. Looking at a European basis, we are below European averages when it comes to productivity in the construction sector. What does this mean? It probably points to, for example, scale. We have all talked about small builders, which the Deputy said was potentially a solution. However, the other one is the scarring impact of the financial crisis. We have not invested in the machinery used in construction at a rate that is comparable with Europe. We are about 20% below the levels we had in 2008. It means we find it hard to harness new technologies.

There was a good Department of housing report that looked at modular housing, for example. Much of the focus was on the cost reduction of using modular houses, which is 20% to 40% lower than other ways. Crucially, also in that report, the labour usage was 70% lower. This is about thinking about productivity and how we harness more output and more housing from the same labour base, because we are not going to drastically increase that labour base in the short term. That is the reality.

Some of what was talked about, such as making Ireland more attractive for its skilled labour and so on, are all things that will benefit, but it will not happen immediately. That is a process that builds upon itself.

The other element, which the Deputy mentioned, is that the State has a role to play, and it is the infrastructural piece. That crosses housing. The degree to which services are impacted was mentioned. However, when we talk to people and investors, one of things that comes up from engagement is serviced land within Dublin that is ready to invest in. It is a blockage to seeing future investment from the private sector. Even when we think about businesses, we talk about the attractiveness of FDI. The reality is they are all using the same infrastructure. They are all using water, electricity, communications and the transport networks. It crosses all of these things together. The State could prioritise that and think about private capital unlocking potential housing delivery with a focus on productivity.