Oireachtas Joint and Select Committees
Tuesday, 27 May 2025
Joint Oireachtas Committee on Housing, Local Government and Heritage
Challenges Relating to the Delivery of Housing: Discussion (Resumed)
2:00 am
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I wish to advise members of the constitutional requirements that members must be physically present within the confines of the Leinster House complex to participate in our public meeting.
Today's engagement is with the Central Bank of Ireland and the Economic and Social Research Institute, ESRI. I thank the witnesses for coming here today. Last week, the committee considered some of the many challenges faced in respect of the delivery of housing with the County and City Management Association. I am pleased we have the opportunity to consider this and related matters with representatives of the Central Bank and ESRI. From the Central Bank, I welcome Dr. Robert Kelly, director of economics and statistics, and Dr. Mark Cassidy, director of financial stability. From the ESRI, I welcome Dr. Conor O'Toole, associate research professor, and research officers Dr. Rachel Slaymaker and Dr. Paul Egan.
Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the Houses with regard to references witnesses may make to another person in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in respect of an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.
The opening statements have been circulated to members in advance. I now invite Dr. Kelly to make his opening remarks on behalf of the Central Bank.
Dr. Robert Kelly:
I thank the committee for the opportunity to address you today. Dr. Mark Cassidy, director of financial stability, joins me.
Our most recent forecast for the Irish economy paints a picture of solid growth looking into a fog of uncertainty. The economy entered 2025 with strong momentum. Inflation has returned to 2% and unemployment remains historically low for the longest period in over half a century. However, this stability now faces new pressures from shifting external conditions. The US Administration's announced policies, centred on tariffs and trade, signal a reorientation in international economic priorities.
Given Ireland's strong ties with the US through trade and investment, these changes could significantly impact on domestic growth over the medium term. In the short run, the main challenge is heightened uncertainty, now estimated to be nearly twice as high as it was during the early pandemic, which risks reducing consumer spending and delaying investment decisions.
Alongside these corporate investment decisions, the pace of new housing construction is a key driver of overall investment trends. Our March forecast provided a downward revision to 35,000 units this year, rising to 44,000 by 2027. There was a marked fall-off in completions in late 2024, followed by just under 7,000 in the first quarter of 2025, both undershooting expectations.
More positively, commencements for new developments surged in 2024 to levels greater than those in 2022 and 2023 combined. The pipeline may reflect front-loading to benefit from the development levy and water connection waivers, raising uncertainty about the timing and eventual delivery of these units.
The backdrop to the housing market is one in which strong demographic pressures intersect with a significant shortfall in the housing stock. Each year, we need new homes to accommodate population growth, inward migration and household formation. For over a decade, housing supply has fallen short of demand driven by these fundamental factors. This persistent gap has created a structural shortfall in the housing stock. Addressing this shortfall progressively over the next 25 years will require an average of 54,000 new units annually. Clearing the backlog at a quicker pace over the decade would require front-loading delivery of an additional 38,000 homes per year. Not addressing this shortfall is costly. Beyond the high social cost, inadequate housing supply will lead to rising rents and house prices.
This in turn will drive up living costs, reduce disposable incomes and intensify wage pressures, undermining our competitiveness as a small open economy.
I will now address the three pillars of sustainable growth in housing supply. An increase of this scale depends on making construction both financially and practically viable. This viability rests on three interconnected pillars: prepared land, efficient planning and productive building.
First, let us delve into the critical aspect of prepared land. A shortage of zoned and serviced land is a critical bottleneck to housing delivery, particularly in urban centres such as Dublin. Delivering homes at scale requires investment in essential infrastructure like water, energy, and transport networks. Without these, development cannot proceed. Our analysis shows that delays in infrastructure planning or execution lead to long wait times, causing a permanent reduction in private sector participation and resulting in poor value for money.
Infrastructure is critical not only to unlocking the immediate housing response but also to strengthening the supply side of the economy. By easing constraints on housing delivery, well-targeted investment supports labour mobility, boosts productivity and enhances competitiveness, delivering lasting fiscal and economic benefits.
Turning to the planning process, it is a crucial enabler in accelerating housing delivery. Recent data from An Bord Pleanála show progress. Average planning decision times have significantly decreased and early results from the large scale residential development model are promising, with a 50% increase in usable permissions. Nevertheless, challenges remain. Balancing development goals that benefit the broader public good with individual and community concerns requires a planning framework that is predictable and gives citizens a voice. For our long-run economic benefit, the recent legislation reforms must ensure speed and certainty in the planning system.
Finally, given that the construction sector is operating at near full capacity with a constrained labour supply, improving productivity is crucial. With 175,000 workers employed mainly in small firms, the industry's fragmented structure hinders scalability and efficiency. This is reflected in output per hour lagging 25% below the euro area average. Policy should promote modern construction methods among smaller builders to enhance scalability and efficiency. Encouraging adoption of technologies like modular housing, which can reduce labour input by up to half, and adopting standardised design for public sector housing allows firms to deliver at greater volume without relying solely on workforce expansion.
Finance alone cannot increase supply - trying to do so would create overheating risks - but it is a key enabler. To build 54,000 houses each year, we estimate that an additional €7 billion in development finance is required annually. The State has increased spending fivefold since 2015 on social housing, affordable rental units and cost-rental schemes. However, a thriving privately financed market is necessary to ensure diverse tenure types and housing forms. Additionally, public investment is required for climate transition and infrastructure. Balancing Government spending on housing with these demands is crucial for sustaining public finances and the economy.
International investors and domestic banks will continue to be key sources of capital. On debt financing, our judgment is that both bank and non-bank lenders have the capacity to contribute to the additional finance needed to support increased housing delivery. However, each construction project requires a mix of debt and equity. Access to this equity remains challenging, especially for smaller builders, due to issues related to productivity, scale and certainty. The State can help by de-risking development through strengthening the three pillars to which I referred and using co-investment vehicles tailored to support smaller-scale developers.
Institutional investment is separate, with these investors typically raising debt from outside the Irish financial system. Recent indications suggest uncertainty about the scale of their future involvement in addressing the housing gap, which underscores the importance of policy stability to provide a predictable environment that encourages long-term commitments from institutional investors. In addition to the finance needed to increase the delivery of housing, banks and non-banks have a vital role in providing mortgage finance to support home ownership. Over the past four years, 42,000 households borrowed more than €13 billion to move into newly built homes. This lending is underpinned by our macro-prudential borrower-based measures, which ensure sustainable lending and aim to prevent a damaging credit-house price spiral from re-emerging.
The housing system faces a stark imbalance; demand significantly exceeds supply and has done so for a decade. Increasing delivery means addressing the fundamentals: preparing serviced land, streamlining planning and lifting construction productivity. These are not optional or sequential steps; they must move in parallel. In an external environment where the fog of uncertainty is building, the housing sector needs cohesive policies that do the opposite - remove complexity, provide clarity and create conditions for long-term investment and delivery.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I now invite Dr. O'Toole to make his opening statement.
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.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I thank Dr. O'Toole. Before inviting members to contribute, I remind them that we have set seven minutes each for questions and answers. The rota of speakers has been circulated, with Deputy McGrath going first.
Séamus McGrath (Cork South-Central, Fianna Fail)
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I thank the witnesses from the Central Bank and the ESRI for their opening statements, which give a good snapshot of their position on the housing situation at present. Both organisations' predictions for delivery in 2025 are similar, at in or around the 35,000 mark. There is a distinction in terms of 2026, with the Central Bank forecasting a figure of 44,000 and the ESRI saying 37,000 units will be delivered. That is quite a difference. Focusing on this year, the outturn last year was lower than we expected and was disappointing. Will the witnesses explain how they see an increase of 5,000 this year? What is the basis for the figure of 35,000 they are both giving? I ask for a brief answer from both organisations.
Dr. Robert Kelly:
I thank the Deputy for his question. To give a quick clarification, the 35,000 figure is related to 2027. The 2026 figure would be closer to 35,000, at approximately 37,500, from memory, or in that range. We have found predicting the level of completions in the housing market quite difficult over the past couple of quarters, the main reason being we have seen quite a large increase in commencements due in part to policy interventions. We undertook an analysis approximately a year ago that talked about the typical transfer across in terms of numbers. It has not played out as we expected.
There have been a number of cases where we have had downward revisions that are not very significant but are in the couple of thousands for each year, and we have done that straight through. Commencements are one of the two big factors. The second is momentum, and the reality is momentum is also slowing. Both of those factors dictate where we see the housing figures going. The reason we are slightly above last year's rate this year is the large block of commencements and how they might pass through. In reality, the most recent forecast did not include those first-quarter numbers. There are downward pressures on that forecast for the next round.
Dr. Conor O'Toole:
It is not often economists agree on things. Looking at these numbers, it certainly seems we are talking in the same ballpark. When we are undertaking short-term forecasts, particularly on the housing side, there is always a huge amount of uncertainty. As Dr. Kelly said, there is a bunch of factors we take into consideration, including the general level of activity in the overall economy and how it is performing and factors on the cost side. Then we typically look at the pass-through from the planning stage into the commencement phase and then into the completions phase. Historically, before the Covid pandemic, we got a really great forecast of completions from commencements. It was a very stable relationship. Since the Covid period, that relationship has kind of broken down and is not as accurate for forecasting purposes.
We had a slowdown last year to 30,000 units but then a big spike in commencements, which are up to nearly 70,000. Typically, they would come online between nine months and two years after commencement. The question for us then is what component of that big increase is due to the policy changes such as bringing forward activity from this year and what is the underlying-----
Séamus McGrath (Cork South-Central, Fianna Fail)
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I must ask Dr. O'Toole to speed up as my time is limited.
Séamus McGrath (Cork South-Central, Fianna Fail)
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The ESRI is making allowances for the high number of commencements in 2023-24.
Séamus McGrath (Cork South-Central, Fianna Fail)
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Dr. Kelly mentioned downward pressures. Is it fair to say he is not overly confident regarding the predicted outturn for this year and he feels there are pressures coming on that figure?
Dr. Robert Kelly:
It is less of a confidence thing than it is based on what we are seeing. We break the year into quarters. We kind of have the outturn for the first quarter now and it is below our expectations. Unless we believe there is a factor that would have catch-up in the second half of the year, it would naturally put downward pressure on our completions for the whole year. We are starting to see some real live data.
Séamus McGrath (Cork South-Central, Fianna Fail)
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Is it fair to say the high number of commencements are probably the largest input into the Central Bank's predictions?
Séamus McGrath (Cork South-Central, Fianna Fail)
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In regard to financing, Dr. Kelly made reference to an additional €7 billion. The figure the Department of Finance has put out is that to get to 50,000, we need financing of approximately €20 billion. The State is putting up €7 billion. Will the Central Bank witnesses explain where they are coming from with the additional €7 billion? I ask the witnesses to be brief in their responses.
Dr. Robert Kelly:
Currently, there is approximately €10 billion to €12 billion in funding. There is an additional €7 billion, which brings us up close to the €20 billion. In reality, I think the big decision point is how many of the units will be apartments, which are more expensive per unit. If we change the ratio slightly, it will get us from €17 billion to €20 billion. It depends on what the expectation is as to how we work the density. We have ranges within the quarterly bulletin paper.
Séamus McGrath (Cork South-Central, Fianna Fail)
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I will go to the ESRI next as my time is tight. On the commentary regarding the rental market, Dr. O'Toole put it quite starkly in referring to a trade-off between protecting existing tenants and creating a conducive investment environment. Does he see any wriggle room around that or is it a stark choice between protecting affordability for current tenants versus what needs to be done to create an environment that is conducive to investment?
Dr. Conor O'Toole:
It is a trade-off. My colleague Dr. Slaymaker might want to come in to talk about some of the work she has done on this. It depends on two things. One is the fact rent controls have a considerable benefit for existing tenants, as clearly shown in all the evidence that is out there, but they also have supply-side effects. What matters on the spectrum between the benefits to tenants and the impacts on the supply side is the calibration. The tighter the calibration towards nominal rent freezes, the more likely it is we will get supply-side effects, but the benefits are bigger for tenants the tighter the rent cap. Policymakers thinking about what options are available must think about where they want to sit on that spectrum. It is a trade-off between those factors.
Séamus McGrath (Cork South-Central, Fianna Fail)
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The trade-off is a fact. Is there no formula we can come up with that creates protection for tenants and creates an environment that can attract investment?
Dr. Conor O'Toole:
It really would depend on the calibration of the regulations. As I said, when designing those regulations, lots of factors are considered such as what properties are included and whether prices can be reset between tenancies or are applicable for any increase. Then the allowable increase in inflation really matters for the effect on tenants and the supply-side effects.
In a sense, you can try to balance factors, depending on the calibration, but it involves a trade-off on the spectrum in that you have to think about which side you are going to come down on and which objective, from a policy perspective, is the key one. That is the choice set, I believe, given the huge amount of evidence on this.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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I thank Drs. Kelly and O'Toole and their teams. It is great to have them here. I thank them for their presentations. I commend Dr. Kelly on his diplomatic use of language, which concerned frontloading the benefit from development levy and water connection waivers as opposed to people submitting commencement notices for things that were not actually commencing. I congratulate him on not upsetting anybody in that regard.
I have a couple of very specific questions. Given the short time available, maybe the answers can be pretty quick. One of the big issues we have been talking about is that of how to get more bank lending for the residential development sector. A suggestion recently floated by the Minister for housing was that the percentage of bank lending that would go in as development finance would increase significantly, from what is typically 60% to 80% plus. I would like Dr. Kelly's view on that.
Dr. Kelly talked about co-investment vehicles. Could he tell us a little more about them?
There has been some kite flying by some Opposition folks on a return to 100% mortgages. I would be interested in his thoughts on that in terms of house price inflation and also the risk to the banking sector.
The Government is considering the extension of the first home scheme to second-hand homes, although I was not pleased when the Minister said there was some concern in this regard given that second-hand house price inflation is rising at a faster rate than inflation on new homes. Does the Central Bank have concerns in this regard?
If Dr. Kelly can give me relatively quick answers to those three questions, I will then pick on the ESRI.
Dr. Robert Kelly:
I might start on some of the elements and Dr. Cassidy might respond on some of the others. I thank the Deputy for his questions. There was a lot in them. I will start at the end and move backwards.
On the first home scheme and the shared-equity aspect, the way I would think about this would be by asking where if I were positioned as a policymaker in the State, we would get the best bang for our buck. This is a demand-side measure. Demand-side measures can work very effectively at moving different cohorts up and down if we want to give them access to housing, home ownership and things like that. The challenge is mainly one of supply. The current scheme works through creating additional funding for people to buy houses, which stimulates supply. I do not see how applying that to the second-hand housing market would achieve the result in question. The net effect would be additional demand, which would likely feed its way into house prices as opposed to creating a large amount of supply. I do not know the exact aim of the policy but if it is to stimulate supply, it is as I have outlined, having thought it through logically and given the position on house prices.
I might let Dr. Cassidy take the question on the 100% LTV, linked to the likes of the mortgage measures. On the co-investment vehicle, there has been some success. The State bank, for example, has been very successful in increasing its lending to small builders, but some of the challenges for small builders relate to accessing the finance. There is a range of products under ISIF and the NTMA whereby they have partnered with some international capital interests. They basically engage in a matching process with small builders. Their websites show they have had success across the country in providing the equity finance. A genuine challenge for the small builders concerns where to get, let us say, 30% to 40% of the equity needed to start a development.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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When Dr. Kelly talks about the State bank, does he mean Home Building Finance Ireland or another vehicle?
Dr. Robert Kelly:
Home Building Finance Ireland is the State bank, but on top of that ISIF has a project. I do not know the exact name under which it has the project, but essentially it cosponsors the equity component. It is not the debt component. The approach matches international capital, slightly de-risking it, but also provides a mechanism for small builders to engage with somewhere they can see and an organisation-----
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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At the risk of putting words into Dr. Kelly's mouth, he is saying that, rather than increasing the level of debt related to development finance from a pillar bank, a better solution concerns the equity rather than increasing the bank lending beyond what is typically 60%. Would he be nervous about raising the bank lending proportion to a typical proportion of 80%? I am aware that HBFI does that, but in very restrictive circumstances. I am referring to pillar banks more generally.
Dr. Robert Kelly:
Dr. Cassidy might want to add a little, but the way I see it is that it is in the first instance a commercial decision for banks to decide where they are on the risk scale. That is the reality, and there is a long history of how we have got to where we are. The answer here is not necessarily based on whether we should move from 60% to 80% but about how we understand all the components and de-risk the lending. That really comes back to other factors, such as infrastructure and having all the things in place such that we do not have the prolonged periods that exist. I am referring to more risk in the system and to having to gain more access to finance to actually deliver a housing unit relative to the other arrangement. The actual decision around the LTBs is for banks. It is a capital allocation decision in reality. Dr. Cassidy might want to add to that.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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Unfortunately, since I am pressed for time and wish to proceed to the ESRI, Dr. Cassidy should answer very briefly on whether there should be mortgages of 100%.
Dr. Mark Cassidy:
No, we do not believe they are wise. We believe an equity deposit of at least 10% is required. There is a higher probability of default at 100%. In the event of a decline in income or in the value of the house, the borrower is immediately in negative equity and in a difficult situation.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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Perfect.
I have two questions for Dr. O'Toole. He should respond very briefly because we have only two minutes. To go back to the issue of rent pressure zones, let us be very blunt. The three options are to raise the cap for the existing zones, allow a reset to new market rents between tenancies and fully exempt new stock over an extended period. Is it fair to say a trade-off is that if any one of those is chosen, rents for existing renters will rise more than they would otherwise?
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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The question is specific because there are some suggestions from the Government that some of the changes could be made without rents for existing renters going up more than is currently the case. I do not see how that is possible. I am not asking Dr. O'Toole whether making the changes is good or bad but to state, based on an assessment of the facts, whether rents for existing renters would rise at a faster rate than is currently the case if any one or all three of the changes were made, all things being equal.
Dr. Conor O'Toole:
We have seen from the work Dr. Slaymaker has done that the inflation cap has been efficacious. The pricing has come back to the cap, according to the data, and that was actually very clear when the tightening of the policy happened. If a larger cap is allowed, it likely that pricing will move up to it. There is evidence of that.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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Likewise, I presume that because tenancies in the private rental sector are typically of short to medium duration, allowing a resetting between tenancies presents two challenges, one being that it might perversely incentivise poor practice involving landlords moving tenants out, as stated in Dr. O'Toole's own report. It would also surely have a wash-through effect among new renters generally on moving from tenancy to tenancy.
Dr. Conor O'Toole:
Typically with regard to the turnover, there is always a more rapid inflationary increase. I do not know whether Dr. Slaymaker wants to come in on this. The more turnover in the sector, the greater the likelihood of movement up to the cap and, therefore, a greater pass-through of the cap to the inflation rate-----
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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If there is no cap in respect of the turnover, it pushes the rents even higher, all things being equal.
Joe Cooney (Clare, Fine Gael)
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I thank the witnesses for the presentation. There has been a call for the reinstatement of the 100% mortgages. Should this be considered in the face of the high cost of housing, the competition that exists in the housing market and the lack of capacity to save of renters paying exorbitant rents?
Dr. Mark Cassidy:
We do not believe so. It would be a bad idea. It would add to demand without any impact on supply and therefore add to prices. More fundamentally, it would increase the risk for borrowers and banks. There would be a greater probability of default in that situation and, in the event of a loss of income or a decline in the house price, the borrower would immediately be in negative equity and a much more difficult position, and likely to get into financial distress. We believe a deposit of a minimum of 10% remains necessary for borrowers, be they first-time borrowers or existing borrowers.
Joe Cooney (Clare, Fine Gael)
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Unfortunately, that means it will probably make it very hard for young people, given the costs nowadays, to get onto the housing ladder.
Dr. Mark Cassidy:
One of the things we have done is to reduce the deposit required to 10% for all borrowers. This can involve some degree of saving. We appreciate that this can be very difficult for first-time borrowers, in particular; however, at the same time, we believe these measures are essential for the stability of the housing market.
Dr. Robert Kelly:
I agree with everything Dr. Cassidy said. There is a more fundamental point we need to look at about whether we want to interact on the demand side or the supply side. If we increase the leverage to all borrowers through 100% loan-to-value loans or any other mechanism, that will just filter through to house prices. It is not as if people will be able to buy a house they could not buy last week because if everyone has more credit, it just pushes up the house price. We need to understand that if we want policies that work on the demand side, giving borrowers more money, a lot of that will just push up house prices. We advocate much more on the supply side. The big factors and where the bang for buck is in terms of Government spending and interventions is on the supply side rather than how it is done through the demand side.
Joe Cooney (Clare, Fine Gael)
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Will the witnesses outline the amount of development funding the Central Bank is providing to builders to construct houses?
Dr. Mark Cassidy:
The Central Bank itself does not provide such funding. The banking sector has provided significant funding in recent years. It has indicated a willingness to increase this in the current year by 40% or 50%. It has the scope and the capital headroom. There is not enough demand to meet the amount of money the central banks are willing to lend. This is evident in the fact that they have undrawn credit lines available. For us in the coming years, there will be the amount of bank financing required. The real uncertainty is in availability of equity financing to top that up.
Joe Cooney (Clare, Fine Gael)
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What the witnesses are saying is there are no blockages preventing developers from buying and developing zoned land for houses.
Dr. Mark Cassidy:
We do not think there is a shortage of bank financing. There is sufficient bank financing to support development in the coming years. The issue will relate to equity financing. International equity financing has fallen dramatically to the residential real estate sector in the past two years. That will be a significant problem if it is not reversed.
Joe Cooney (Clare, Fine Gael)
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As regards the other big issue, I would like to ask about population projections and how they were used to determine housing need and, consequentially, the amount of land zoned to enable those houses to be built. In the run-up to the county development plan in County Clare in 2023, the biggest battle we faced was that 95% of projected growth for the county up to 2031 had already been reached, believe it or not, before the county development plan had been approved. Despite highlighting this issue, we were instructed to dezone land in Clare, to bring the amount of zoned land in line with the projected population growth even though the data showed it was outdated and unfit for purpose. Earlier this month, the Minister for housing said he would write to all local authorities to begin working on finding more land that can be zoned for housing. It would appear that we were right. The overcentralising and oversight of what local authorities can and cannot do on strategy planning does not work in this regard. How does the State resolve this issue? It is serious. The different methodologies for assessing population growth used by different agencies are also important as we are using the correct one to determine the most basic for requirements of housing delivery. Is it a timing issue because of the census and development of county development plans running alongside each other? Does that need to be looked at? Do the witnesses think, given the situation I set out, that local authorities should be trusted more and permitted to have more flexibility to determine their own land zoning, response to population growth and, most important, infrastructure availability? It is a serious issue.
Dr. Robert Kelly:
Others may wish to comment. I can give our perspective and others may be closer to the national development plan. I will explain how we arrive at our housing demand numbers. It is not at county level, it is at national level. We use the CSO population projections which were recently released. We also use a migration assumption. There are different assumptions. We use the higher assumption, called the M1. It includes the natural increase in family formation age in society plus the migration coming in. Part of why there is an imbalance in the housing market is the success of the economy. A lot of people have come to work in Ireland. It has caused huge growth in the employment market but it creates challenges and unexpected population growth in the system. The other huge factor in the numbers we put in is we now have a decade in which we believe there is a gap between demand and supply. One has to ask oneself how quickly or how one wants to plan to reverse that. The way we thought about that is right now we have more people per household than the average in Europe or the UK. We basically estimated Ireland will converge with the UK number in a certain time horizon. We first did it over 25 years, which would get to 52,000. If one wanted to do that in a decade, it brings it up an additional 38,000 on top of that. To get to the European norm, which is lower again, even more housing supply would be needed. All of these factors really matter. It is not just simply the natural birth and death rate that the CSO puts in. One has to take a view on how to address what is in the system as well. I believe they will feed into the national development plan. Dr. Egan may be closer to that matter.
Dr. Paul Egan:
The structural housing demand work my colleague, Dr. Adele Bergin, and I did last year followed a similar approach to that of the Central Bank. We used three parameters on which we made projections. One was the level of migration. We looked at a number of different scenarios in that regard. The second was household size, as Dr. Kelly mentioned, and the obsolescence rate of the housing stock. That is how many houses fall out of the stock each year because they are not suitable to be lived in. We broke this down to local authority level and pushed it out to 2040. That is fed into the national development plan. Our report does not take into account the issue of pent-up demand; it is just based on demographic factors - the structural demand. A measure of pent-up demand would have to be layered on top of our numbers.
Joe Cooney (Clare, Fine Gael)
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We would nearly have to admit we got it wrong in our last county development plans because we see the serious issue we have now in housing and demand. The housing situation is an ongoing concern.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I will allow a quick answer. We have gone well over time.
Dr. Conor O'Toole:
One can see in our statement that land is a key issue and having sufficient land for these population projections is critical. Combining the work we have done with the work of the Central Bank, getting an overall housing need requirement and filtering it down to county development plans and finding out how much land is needed is a critical assessment. We have to make sure land does not become a constraint, as it has in the past. More needs to be done on the land side.
Rory Hearne (Dublin North-West, Social Democrats)
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I thank the witnesses for attending today. Perhaps both bodies will address my question. Do the witnesses believe current house prices are sustainable economically? Are they a risk to the economy? At what point do the witnesses think house prices will be a risk to the economy? Will they provide the same analysis concerning rents?
Dr. Robert Kelly:
I am happy to go first and then perhaps Dr. O'Toole may answer. It is very easy to try to work out whether house prices are overvalued or undervalued or a risk. The reality is there is a set of demand factors that push up demand for housing and housing supply is on the other side. We commonly break these down and do a lot work thinking about these demand factors. Among them are growth in incomes, which has been strong, and population projections, which we just discussed. They are also quite strong. There is cost, which has gone up in terms of interest rates but it has now reduced. All of these demand factors are pushing one way at the moment. The reality is on the opposite side of the equation is that supply simply is not meeting demand. I am not sure how sustainable it is over the longer term but at the moment there is definitely a demand-supply imbalance. If we can bring the supply online, there could be a gradual closing of the demand side pressures relative to supply.
The other issue regarding the macroeconomic impact is that when we talk to firms to get soft information on where the economy is at, more and more they cite the availability of housing and its cost for their workers as a big reason not to expand or a factor in whether they expand. There is a macroeconomic consequence of the housing supply issue for the competitiveness of Ireland relative to other destinations in which people may invest becoming a bigger and bigger factor.
We are already seeing, although we should question whether this is the right approach, large corporations getting more involved in organising how their employees will be housed. Is that the right way of them thinking about how they invest in Ireland? Should it be part of those factors? It is definitely not inconsequential. For me, it is stacking up demand and supply factors.
Dr. Paul Egan:
A colleague and I did a bit of work in this regard looking at the vulnerability in Ireland's residential real estate market in December 2024. We put some of the data through some of the models we have, which look at the level of overvaluation based on the fundamentals. They include an affordability measure, which includes household income and interest rates along with things like the population in the house-buying age, that is, between 25 and 44, as well as the supply, which shows that house prices are overvalued by a measure of approximately 8%. Looking across some of the other vulnerability measures, such as price to income, price to rent, debt to income and things like that, we saw they were relatively stable. There was definitely a level of overvaluation, however. There is a danger that households could be vulnerable if there was a labour market shock, a sudden rise in unemployment or a decline in real wages. Those factors could maybe see a more abrupt or harmful adjustment. It is probably something to be vigilant of.
Rory Hearne (Dublin North-West, Social Democrats)
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I have serious concerns that we could see a serious back-to-the-Celtic-tiger shock if there were any changes to the labour market whatsoever. Do the witnesses have concerns about that?
Dr. Mark Cassidy:
We do not think there would be such an effect. The main reason relates to the much-improved resilience of both households and banks. The debt repayment burden of households is significantly less than it was at the time. Banks have significantly more capital and their exposure to the housing market is of a much safer level in the context of the loan-to-value, LTV, rates of the mortgages on which they have lent. This partly reflects measures from the Central Bank, much more prudent lending standards from banks and the strong financial positions of households. Savings have increased significantly and real incomes have been solid. Both households and banks are in a much stronger position to withstand any downturn compared with that period.
Rory Hearne (Dublin North-West, Social Democrats)
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Great. I am conscious of my time but I have two more questions, the first of which relates to the lifting of the rent caps. Maybe both witnesses wish to come in on this question. If we lifted the rent caps and took whatever measures, there is no guarantee it would lead to an increase in supply because there are other factors that influence why institutional investors do or do not invest. Research has been done on the role of interest rates in particular. How much of a factor would the lifting of the rent caps be? Do the witnesses agree there is no guarantee that it would automatically increase supply?
Dr. Rachel Slaymaker:
The key thing is that rent pressure zones are calibrated very tightly at the moment. Rent increases must be 2% or lower. They are tight caps. That is likely to be acting as a barrier towards potential investment and new construction. As the Deputy has said, however, it is one factor and there are a lot of other factors going on, such as high construction costs as a result of inflation and high interest rates. It is difficult to disentangle them. While rent caps are probably acting as a barrier at present, that does not mean that simply removing the caps or loosening them would suddenly lead to an influx of supply without addressing the other issues around planning delays and interest rates. It is one factor.
Rory Hearne (Dublin North-West, Social Democrats)
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Does Dr. Kelly wish to come in?
Dr. Robert Kelly:
I have not spoken about the rent pressure zones at all, so I will outline my opinion on them before addressing the Deputy’s supply question. With regard to the current supply shortage we see, the pain is not borne equally by all households. Some people are homeowners and have been for a long time. Some people are looking to access home ownership and are paying a burden. The reality, however, is that most of the pressure we are seeing is in the rental market. Rents have risen due to the shortage. There is a real trade-off, and Dr. O’Toole articulated this really well, when we think about the calibration between protecting people in the short run from those pressures while we address the supply problem. The reality is that they do have an impact on supply. Looking at the current calibration of measures, we are in effect creating a situation in which, in real terms, rent has to fall over time for an investor. With an inflation target, as we said, at 2% as a metric, it has to mean falling real rents over time.
It is not the only factor, but apart from the inflation surge in rental costs, a lot of the factors, such as the infrastructure and all the other deficits we talk about, were there a number of years ago. Despite this, we have seen a sudden slowdown in the build-to-rent model. While there are other factors, that is one thing that has changed. There are other factors for sure, but that is a contributing factor to the attractiveness of Ireland as a build-to-rent model for institutional investors versus elsewhere in Europe and further afield.
Rory Hearne (Dublin North-West, Social Democrats)
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We have put forward a proposal for a homes for Ireland State savings scheme, which would leverage the €160 billion in private deposit accounts. Do the witnesses see a role for a potential scheme like that, similar to one in France, that would leverage that money and enable lending for housing development?
Dr. Robert Kelly:
I can answer that, although others may also wish to come in. There is something happening at European level called the savings and investments union, which, in spirit, is very close to what Deputy Hearne is describing. Throughout Europe, we now have large levels of deposits, the majority of which sit in overnight deposit accounts. We have to find ways of using that more productively, even if that means using it for firms outside of construction. Some of it could influence construction and some of it could help support other decisions. A key issue across all of Europe, not just in Ireland, relates to how we can mobilise household assets in the banking sector into a productive use of capital. That is key to us becoming more competitive as a Continent, not only for Ireland. It is a potential lever for us to have a greater supply of funding.
Dr. Conor O'Toole:
I echo that. While I do not know the details of the proposal the Deputy is talking about, where there is a stock of assets that is not being used productively and we can find a way to channel it into a sector that has major infrastructural and supply deficits, and where the financing requirements will be really large, not only to build the houses but to retrofit housing stock for the energy efficient requirements and to make all the complementary investments on the infrastructure side, if we can use our savings better to get into those investments, then it is certainly a proposal worth thinking about.
Brian Stanley (Laois, Independent)
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Going back to the 100% mortgages, the proposal is daft. That is my own opinion about it for a number of reasons, some of which the witnesses have outlined. There is an issue with regard to people in private rental accommodation who have been paying rent over a three-, five-, six- or eight-year period. The rent they pay is in excess of what a mortgage on the same home would be. I wish to keep the answers to my questions fairly short because we are limited with time. Is there a way of addressing this? It seems there is an unfairness in that regard. People are paying €400 a week in rent, while a mortgage on the same home could be €280, €290 or €300. It seems unfair. People say they cannot save for a deposit because they are paying all this rent. Has the ESRI looked at a way or a model to reconcile that?
Brian Stanley (Laois, Independent)
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We are still paying the price of that.
Brian Stanley (Laois, Independent)
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We are still paying the interest on those loans.
Dr. Conor O'Toole:
We should not bring in a product that brings back 100% LTV financing. The market potential framework the Central Bank has instituted over a number of years protects banks and borrowers and gives more resilience in the system. We should not compromise that by extending looser credit conditions.
The other issue raised by the Deputy, regarding how young households can accumulate savings sufficiently to build up a deposit, is a really tricky one. While we have not done specific work on that area, it is a major challenge for many households. Banks trying to make a credit assessment on their lending decisions can see those payments going out, and that can be a factor. Certainly, I do not think a 100% mortgage------
Brian Stanley (Laois, Independent)
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Before I move to my next question, is Dr. O’Toole saying that perhaps lending institutions should give that aspect more attention?
Brian Stanley (Laois, Independent)
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In response to one of the contributions, Dr. Kelly mentioned that 100% mortgages would be likely to drive up prices and that he did not see them leading to an increase in supply.
Does the shared equity scheme not do the same thing? Regarding prices, the curve seemed to go on a steep incline after the shared equity scheme and some other ones were brought in.
Dr. Robert Kelly:
When we think about any of these things that operate on what I call the demand side - in essence, giving some type of policy treatment to a household - and if you are thinking about what impact they have on supply, they can only work one way. They can have other benefits. Let us say you want to target a certain cohort of households that you feel are having particularly difficult access to housing, then you can design a scheme like this under certain incomes in certain areas. If you want to incentivise certain types of living - let us say it is urban density - there could be a number of policy reasons you want to do this. Then this demand side can be very effective at incentivising households to do this because you are essentially creating an incentive. If your goal is to do this to increase the supply of homes, the only way you can do it, if it is very broad, is by pushing up prices and hence making it more attractive to supply houses for development. You are offsetting that viability by creating a higher price.
The first home shared equity scheme has elements of both. It talks a little bit about incentivising supply, and that is why it is on the new housing side but it also has income controls and limits within it with respect to house prices. It depends on what the policymaker is targeting, and whether they are targeting some of that differential. If it is purely to increase supply, the only channel through which you can do it is to increase prices.
Brian Stanley (Laois, Independent)
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Could I ask Dr. Kelly a question about supply? It has been mentioned that rent controls or rent pressure zones, RPZs, limit supply. For example, Portlaoise is in one but there does not seem to be limited supply in Portlaoise. A lot of sites are very active in the area and are being built on.
On this relationship between rents and supply, during the Celtic tiger, in one year we built 96,000 houses. Rents shot up significantly. I do not have the figures but the witnesses probably have them somewhere. During that period, we built houses that we did not even need. We were building houses and hoping somebody would move into the country and fill them. That is what was happening. I could show the witnesses the estates it happened in. Rents shot up. We had loads of supply; in fact, we had too much because when the economy crashed we had rows of empty houses. We had too many houses. Why did that happen? Surely that shows the correlation is not necessarily as solid as the witnesses have explained it, and as politicians explain it the whole time. I am not convinced there is a direct correlation between those two things because of the evidence during the Celtic tiger. Would the witnesses not agree that during the Celtic tiger, there was a four- or five-year period where we built a huge amount of houses but rents escalated at an enormous rate?
Dr. Robert Kelly:
Rents certainly did grow through the Celtic tiger. I only did it recently and I was kind of surprised at it but if you chart out how rents and prices evolved, you find house prices grew far quicker than rents even through the Celtic tiger years. During the Celtic tiger years, the reality was that housing became more of a speculative asset, as the Deputy pointed out. People bought housing as second homes or with a view to renting them out. Looking at more recently, rents and house prices have almost gone in parallel. That is a much clearer sign of an imbalance between housing demand and supply. We had less of that imbalance back in 2006 and 2007. As the Deputy said, we got close to up to 96,000 units. We were in the middle of a credit-driven, speculative housing boom back then.
Brian Stanley (Laois, Independent)
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I wish to ask both witnesses about land. The Kenny report, which was done under the then Fine Gael Government in 1974 if I recall correctly, advocated putting structures in place to deal with this issue. It was never implemented. It was put on a shelf and it has been there since. On the issue of land, how do the witnesses see this being dealt with? It is obviously driving up prices, particularly in the large urban areas. What is the short answer to dealing with that? Is the Kenny report or something similar to that the answer?
Dr. Robert Kelly:
I am not aware of the exact detail in the Kenny report to be honest, so I will not comment on that directly. The reality is that there is a need to have not just land but serviced, zoned land available and there are also potentially issues around planning. What we want to do is minimise the time it takes from someone starting the process of developing to having a final unit. There are a number of factors that can create friction there. One of them is when you get to the planning stage and you realise water is not available, or it needs infrastructural development, which delays it. There might be some other reason. The reality about land is that we need to make land available in such a way that it does not become a friction in how we supply units. It should not be a consideration when you are entering in that when you get the planning, potentially you will have to think about the infrastructure not being available and a delay of two years, etc. I do not know exactly what was in the Kenny report but for me-----
Brian Stanley (Laois, Independent)
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It was basically to cap the price of land to a small multiple of the pre-zoning period. It was agricultural or unzoned land. It would only go so much beyond that.
Dr. Conor O'Toole:
One of the things I think is really important as a landmark is if you look at some of the other countries that have very managed land systems. In Austria, they have much more active land management. What they basically do is get parcels of land, service that land, get it ready for production and bring it into the system.
Dr. Conor O'Toole:
Depending on the system and the structure they will either put it out for tender at market prices or alternatively, they will make it available for social or affordable housing. You can build into your structures and systems what you feel is the right use of that parcel of land. The aim, rather than having a passive view on land as a market where you are selling and the prices are coming through, is that you are actively using that input into the factors of production to be able to say that we need to target that piece of land, get it ready, get it serviced, that we need this type of housing on it, and we will put into the system in that shape and form so it can be developed. The Land Development Agency is obviously playing a greater role in trying to get to the State lands working more productively but we can think more broadly about trying to get land much more actively serviced and into the system in Ireland.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I thank Deputy Stanley. I ask the Leas-Chathaoirleach, Deputy Séamus McGrath, to take over for about 15 minutes. I will ask the clerk to get a copy of the oath Deputy McGrath can take before he continues the next session with our next speaker, who is Senator Aubrey McCarthy.
Séamus McGrath (Cork South-Central, Fianna Fail)
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I will read the pledge. In accordance with Standing Orders, I wish to make the following declaration:
I do solemnly declare that I will duly and faithfully and to the best of my knowledge and ability execute the office of Leas-Chathaoirleach of the Committee on Housing, Local Government and Heritage without fear or favour, apply the rules as laid down by the House in an impartial and fair manner, maintain order and uphold the rights and privileges of members in accordance with the Constitution and Standing Orders.
Aubrey McCarthy (Independent)
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I thank the Leas-Chathaoirleach, and I thank the witnesses for their presentation. As they can see, I am fairly new, so I did not know Deputy McGrath had to read that.
I want to address what Deputy Stanley mentioned there about the 100% mortgages, and I know Dr. Cassidy and Dr. O'Toole mentioned it as well. They mentioned the lower loan-to-value for the banks, so they are in a much safer position. I wonder, with starter homes in Dublin around €400,000 to €500,000, how come the 100% or 110% mortgages, which were a disaster in Ireland, work really well in the likes of Germany, and they have been reintroduced recently in the UK? How come we cannot make it work? Is it the Irish psyche or is it our banking system?
Dr. Mark Cassidy:
If you are comparing countries, you would need to look at the overall framework for mortgage measures, and different countries have different measures in place. What we know is we introduced our measures in 2015 and since then, most EU countries have introduced some form of mortgage measures, whether loan-to-income or loan-to-value. In other countries, there are restrictions upon what they can introduce. Systems differ across countries but most countries now have something in place. Many have these type of loan-to-value measures because the cross-country historical evidence clearly suggests that 100% mortgages are risky loans for the reasons I outlined earlier. In comparing Ireland to Germany, you would need to compare the overall system but we would be very confident that 100% mortgages are overly risky both from the perspective of the borrower and that of the bank.
Aubrey McCarthy (Independent)
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Was Dr. Cassidy surprised that the UK reintroduced them recently, only in the last month?
Dr. Mark Cassidy:
The UK restrictions mainly relate to loan-to-income. In fact, our own evidence suggests that loan-to-income is the more binding condition for borrowers. For most borrowers who are unable to get a loan, it is the multiple of their income that is the binding factor, hence we introduced some changes to that. We have 90% loan-to-value; therefore, there is 10% of a deposit. That is a relatively moderate restriction.
In other countries it can be 15% or 20%. In fact, here in Ireland, we previously had a higher loan-to-value of 80%. We think 90% is a prudent level. The issue for first-time borrowers does not relate so much to that as it relates to the high house prices and the shortage of supply in the market.
Aubrey McCarthy (Independent)
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Another hat I wear is as chair of Bluebell community council. We are doing a large housing project in Bluebell with the Land Development Agency and DCC. It is an affordable housing and social housing project. We are finding through our research with the community that affordable housing is not very affordable. What role does the Central Bank play in promoting affordable housing solutions while at the same time maintaining the banking stability of which the witness spoke?
Dr. Robert Kelly:
Directly with the mix of housing it has chosen to deliver, the Central Bank actually plays very little role. In our view it has two elements. One element is the lending which has been made safe in terms of its resilience to the banking sector but also, and to touch on some of this 100% loan piece, it is also in the interests of the borrower. It is not as if these rules are created in such a way as to harm the borrower. We have long experience in Ireland that maybe other jurisdictions do not have, that if we have the large unemployment shock we talked about and we have the 2011 situation, people need to have an option set then. They need to be able to resolve these loans. When they go in with very high LTVs that really restricts the level of options facing borrowers to remove themselves from that position if they are unfortunate and their employment does not progress as they expected. Whether it is across any of the products that the financial system would help to support in terms of mortgage financing, it really does not come down to that mix. The affordability is really much more on the supply side where we want a different mix so that different households can access housing across the income distribution. It is not necessarily for the Central Bank to disaggregate between each of those in terms of supporting them differently. It is about ensuring for all customers that their lending is done in a safe and sustainable way.
Aubrey McCarthy (Independent)
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Regarding lending to small builders, they are struggling to get finance for 50 to 60 houses. What role does the Central Bank play in that? Can changes be considered across the banking sector to address this?
Dr. Robert Kelly:
In essence, any of these decisions which are to individual construction firms are commercial decisions. I am happy to comment on how we see the landscape in the financial system. There is a couple of elements to it. The commercial pillar banks or traditional retail banks have started to introduce more products where they are at the debt side of something which is equity finance. They have advertised some of these products. Small builders can engage with them. They will help them to find some of the equity we talked about earlier and they will match them to loans and provide some of the loan financing. We have the non-banking sector. We recently put out new data in our frontier statistics showing the non-bank sector has an ever-larger presence in supporting these smaller builders. They can view it and have more individual relationships and back certain products. That is the second element. We talked about this earlier, there is the State banking, which particularly targets, both through some of the ISIF funds to the equity channel but also in terms of some of the debt lending. Therefore, there are a number of avenues within the financial system to support builders. Of course, we can still go further and maybe we even need to think on the builders' side. We talked a lot in both opening statements in terms of scale. There are impediments to having this fragmented small construction sector. Bringing some of that together would remove some of these barriers to finance because they would be able to access it on a much wider scale and put forward more projects and portfolio projects. There are elements on both sides but the Central Bank itself does not necessarily oversee how the credit gets allocated to each of those sectors.
Aubrey McCarthy (Independent)
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Mostly it seems to affect the development of apartments because you have to build the whole apartment block; you cannot just sell one apartment.
Dr. Robert Kelly:
It is certainly the case that development finance for apartments is a different feature. With typical housing estates, you can build ten or 20 units and recycle the finance. The recycling rate in apartments is much lower. It could take a year or two years depending on the size of the scheme. That is how we saw more institutional investments supporting the construction of apartment blocks across Dublin.
Pat Casey (Fianna Fail)
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I thank both organisations for their presentations today. They identified that a number of pillars need to be sorted in regard to housing. No one pillar is actually functioning as it should. I will run through them quickly. One relates to zoned land. I was on the housing committee when we adopted the last national planning framework. Personally, I had several arguments with Niall Cussen at the time over the population figures. My key beef at the time, and it is still my problem, is allocating population growth into unserviced lands within our county development plans and dezoning lands in centres where we had infrastructure to build housing on. We have seen that throughout the country. Would it be fair to ask now for a little more flexibility within the national planning framework to allow county development plans to dictate where population growth goes and to assign growth to where we have infrastructure today and where we can build houses? The policy can wait in the alignment of infrastructure where we do not have it and we want the population growth. We have seen a number of planning permissions refused because they exceeded population caps or it was residential low to medium density, R2, zoning. I would appreciate the witnesses' comments on that.
Dr. Conor O'Toole:
I am happy to come in there to talk more generally. I am not a planning expert but I will talk a little bit about the constraining frictions in the system more generally. It is clear from the research and from talking to the sector, that the availability of serviced zoned land close to infrastructure is a major constraint. Connection to that system is a major constraint. Therefore, when thinking about a broad framework like the national planning framework, we are doing it at a national level and trickling it down all the way to the micro level or the lowest level possible, we are trying to consider whether all these pieces are joined up and efficient all the way down. It is clear that where there are lands close to infrastructure that is currently in place, where infrastructure can be easily put in place, and where we can leverage the systematic access to the services available, then we should try to do that as much as possible. When considering what are the major constraining factors on housing supply from the structure of the system over which the State has control, things like infrastructure, making sure that zoned lands are close to infrastructure, having servicing of sites, making sure we speed up water, wastewater and electricity connections, all of that makes sense. Therefore if we can leverage the infrastructure that is in place, we should try to do that as much as possible.
Pat Casey (Fianna Fail)
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In regard to infrastructure, while we want to align with the national planning framework policy, I believe we need to zone land out beyond 2040 so that we know where we want housing built and can align the correct infrastructure with that. What is the witnesses' view on that?
Dr. Conor O'Toole:
The population trends are often the most predictable in economics. It is often difficult to find series that you can rely on to forecast predictably but population is one of the more stable factors. We know that out to 2040 we are going to have another million persons living in Ireland. After that, we will have further population growth following that. We need to start thinking long term in all of our planning, not just on the housing side but in education and healthcare provision, transport infrastructure and decarbonisation of the electricity grid needed to run all of that system. The longer we can think of our planning structure as these longer-term investments is a good thing.
Pat Casey (Fianna Fail)
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In regard to planning, is it now time to introduce time-bound decisions in relation to Irish Water and the ESB?
Dr. Conor O'Toole:
I am not an expert. I have not seen much data on the specific applications to those and the length of time in those particular applications. Certainly, the industry feedback is that is becoming a major constraint on activating supply. If that is the case then any moves towards making that process more efficient and ensuring a timely connection to the State infrastructure, be it the water, wastewater and electricity connections, will be efficiency enhancing for the supply side.
Pat Casey (Fianna Fail)
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I am trying to focus on things we can change immediately to try to improve all aspects of it. On the financing side, because financing is a critical part of it, we need both sides of it.
We need demand, otherwise there would be no supply and we need supply to equal the demand. There is a deficiency in relation to private or capital investment in housing. Can we do more in this space to increase the development side? Are there any other initiatives that we should be looking at? Dr. Cassidy said that we are in a safe position with regard to the equities. Our banks are very safe in the policy that is being implemented at the moment. Is there room for some flexibility on that to increase supply? After all, it is the apartment blocks where we have the major stumbling blocks in delivery. How do we get non-bank and bank lending into that space? Is there something we can do in that space to assist?
Dr. Mark Cassidy:
The fall-off in inward capital investment in residential is very striking. The evidence is not there yet because we are still seeing the completion of apartments that were started two or three years ago, when the supply of international capital was very good. We have probably seen a 70% to 80% fall-off in inward investment for residential building between the 2020 to 2022 period and the 2023 to 2024 period. Something needs to be done to make it more attractive and to incentivise capital here. A big issue is the increase in interest rates. That has made it much less attractive for international investors but there are other factors at play also. The decline in Ireland has been larger than in other countries. Indeed, in other countries it has already started to pick up as the interest rate environment has improved, but we have not seen that here. Again, the most important issue is making supply more attractive. We need structural and regulatory changes that improve viability and improve supply conditions. That is what is going to make it more attractive for international investors. That is the main thing. That is not to rule out the possibility of incentives or reliefs for developers to supply. They can be looked at but what is important is that there is an holistic approach so that the different incentives are targeted at where the vulnerabilities lie and interact effectively with each other. There is a range of things that the Government can look at but most important is a functioning, viable supply side.
Séamus McGrath (Cork South-Central, Fianna Fail)
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Very quickly please, Senator.
Pat Casey (Fianna Fail)
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There are two main schemes, help to buy and first home shared equity. The latter is not a grant, by the way, but is a debt that has to be repaid. Is there scope under the rent to own scheme to help in the context of apartments, so that there is somebody at the end of the line to buy them? Is there anything in that space?
Dr. Robert Kelly:
My understanding of the rent to buy scheme is essentially that the rent accumulates into being a deposit down payment. It may address some of the issues and is another way of thinking about some of the 100% loan-to-value loans we put there. In terms of how we provide support, it is an option set and it depends on what we want to achieve. For people who are paying high rents at the moment and struggling to accumulate a deposit, it would definitely help in that regard. In essence, it ultimately comes down to the same thing. If we do not address the supply side, regardless of how we accumulate them, these households are going to struggle-----
Pat Casey (Fianna Fail)
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Bringing them both together, I suppose, is the thing.
Thomas Gould (Cork North-Central, Sinn Fein)
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Just to go back to the ESRI and page 4 of its report which states that rent control measures have clear benefits for existing tenants but there are unintended consequences of the RPZs. The report points out that policymakers will face a trade-off between protecting current tenants, affordability and increasing supply. Correct me if I am wrong but if an investment company or developer brings new accommodation on stream, the first rent charged is not covered by rent controls, so that rent could be anything. How would that have a negative effect on supply when we are talking about new projects and new rents?
Dr. Rachel Slaymaker:
The point is rather that having rent controls in place is likely to deter the developer or investment company from coming in in the first place. Yes, they do have free rent setting but if they know that, moving forward, they are going be capped and will not be able to increase it over time, that acts as a deterrent in the first place and prevents them from coming in in the first place.
Thomas Gould (Cork North-Central, Sinn Fein)
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I hear what Dr. Slaymaker is saying. The Government's decision, therefore, is to protect renters. Rents are at an all-time high. Rents have never been higher in the history of the State. To go after rents and tenants now would be a savage attack. It would drive more people into homelessness and increase evictions because of people's inability to pay. Why do that in the hope that investors would come in, when they can charge what they want anyway because they can do that for the first rent? I would be very keen that the Government would not abolish the rent pressure zones. In actual fact, they should be expanded. When one looks at current rents, the RPZ system does not go far enough.
I raised a question in the Chamber a number of weeks ago about the Government's strategy. I think it was the Central Bank that said we have seen the market rebound since 2015. Is that correct?
Thomas Gould (Cork North-Central, Sinn Fein)
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So we knew in 2015 that we had a housing issue. That is ten years ago. Would it be fair to say that Government policy over the past ten years has led us to this position and has been a failure?
Thomas Gould (Cork North-Central, Sinn Fein)
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It is not a success, though. Would the witness characterise it as a success?
Dr. Robert Kelly:
There is definitely a demand-supply imbalance that continues. We are not supplying the needs that are demanded right now. There is a question as to whether all of the policy positions taken along the way were taken with the correct expectations around unemployment growth but we sometimes lose sight of the reality that the Irish economy has performed so well in the last five years, so much so that we are almost a victim of our own success. That does not take away from the social cost of these housing issues in any way or what our households are experiencing but the reality is that we need to ensure that the infrastructure and housing allows our economy to grow at the rate it is growing. We have had unexpected population growth through migration. We have had 100,000 workers join our workforce over the past year. These are very positive things but, in reality, what that creates is an unexpected additional demand on the housing system. These people have to live somewhere. Looking back, it is very easy with 20:20 hindsight to say we made mistakes along the way but while I completely agree that the gap still exists, the reality is that some of the factors were unforeseen in 2015, particularly in terms of the economic growth we have seen in Ireland.
Thomas Gould (Cork North-Central, Sinn Fein)
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When we look at Government policy over the last ten years and where we are now, I knew back then that we had a housing crisis. In fact in my maiden speech in Cork City Council in 2009, I outlined that there was a crisis on the way and I was ridiculed by the Government parties at the time. I knew it from the streets and from people coming to my clinics who were telling me there was a problem. That was at the time of the financial crisis. Even though we had ghost estates all over the place, in big cities and big urban areas there was a shortage of housing back then. I am of the firm belief that Government policy has worked, but only to increase rents and house prices to their highest levels ever and to make banks, investment funds and investment companies more profitable. I believe the policy has worked because I do not believe the policy was ever to fix the housing crisis. In actual fact, the last housing Minister, who is gone now, gave us a figure of 40,000 per year but we just got over 30,000. We see this year that the figures are going to be shockingly low again. My question for the witnesses, although I understand it is a political one, is whether the current Government's housing strategy will solve the housing and homeless crisis that we have now.
Dr. Robert Kelly: I think that if we look at where we are currently, without changes to policy, we are not going to achieve the additional 20,000 units. We will need to address some of the factors we have talked about. To be fair to the current Government, it is talking about making changes but-----
Thomas Gould (Cork North-Central, Sinn Fein)
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As policy stands now-----
Dr. Robert Kelly:
As policy stands now, we need to make changes to how we do infrastructure. There is a new national development plan coming and we will have to see what is in there. We do need to make changes. Some have been made in respect of planning but we will have to see how that pans out. A big issue that probably does not get the attention it deserves is productivity in the construction sector.
No matter what we do, we are not going to wish up 100,000 new very skilled tradespeople to build these houses. We will have to think about modern methods of construction, whether prefabrication or otherwise, to actually deliver these houses. If any one of these fails, we will not get to that 50,000 mark.
Thomas Gould (Cork North-Central, Sinn Fein)
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The problem is that the 100,000 workers Dr. Kelly is talking about are in Canada, Australia, America and England. This Government sent them there years ago. I have another question on delivery targets. Are any regional breakdowns available? The national planning framework has called for increased focus on regional counterbalances. In reality, is that happening?
Dr. Paul Egan:
The structural demand figures that we provided to the Department of housing and published last July break down the structural housing demands across our 12 projected scenarios by local authority. It does not go any lower than that. It does not go to local electoral area level. It is at county level, so it includes Dublin city, Dún Laoghaire-Rathdown and their county-level data. It has projected housing demand based on demographic factors, not just at national level but at county level.
Paula Butterly (Louth, Fine Gael)
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I thank the witnesses for the opening statements. I will start by going back to the rent caps, if they do not mind. Naturally enough, my colleagues here will have argued about increasing the rent caps rather than decreasing them to protect the tenant. I cannot remember the country, but is there not a basis for saying that if the cap was removed or increased, then over a relatively short time, you would see rents balancing out as the increase of supply takes place? Is there not an argument to at least remove the cap to get that supply up and running? I believe there is a basis in Austria or Denmark - I cannot remember which - where it was proven that once they removed the cap, supply started to kick in and levelled out. The rent did not actually go through the roof. That is my first question.
Dr. Rachel Slaymaker:
In the short term, in a market where there is such an imbalance and an excess of demand relative to supply, it would seem quite likely that removing the caps would lead to upward pressure for at least some households. From a longer term perspective, as we said, there is a lack of supply, and it is likely that the tight caps are contributing to a lack of inward investment in new construction. It is only one factor so I do not think we can necessarily say that removing the caps, in and of itself, is likely to lead to a big increase in supply. I do not think it is that straightforward, that simply removing the caps in this case is likely to lead to that in the short term, at least.
Paula Butterly (Louth, Fine Gael)
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I accept that it is only one factor but everybody here has said that it is an important factor. I agree with everybody here that supply is key to the housing issue. While it is maybe not a case of removing it, we might lessen that cap. We need the money to come in from financial investors abroad to invest for the long term. That will not happen if we frighten them off with language like vulture funds and so on. They are institutional financiers that will come in and provide the money that is essential, that we cannot supply, no matter how many apples we bite. We will not have the money for this. That is one factor. Maybe the argument is not to remove them, but there should certainly be less pressure on that. Would anyone else like to come in on that?
Dr. Robert Kelly:
I am happy to. It has been described well. There is essentially a continuum. On one extreme, there are no rent pressure caps. That would incentivise more supply but it comes at the cost of protecting certain households. I also think that, this afternoon, we became very much focused on new supply versus rent protection and the trade-offs there. These rent protection zones create a disparity between people entering the rental market and people in it for a prolonged period. That is another trade-off that members need to think about when making these policy choices. We do not necessarily know whether people entering are low income or high income. It is the whole distribution of people renting. Some of them are in the rental market with protections who might very much need it, while others do not need it for affordability. They are not targeted across income. When one thinks about that trade-off between those, that is one consideration.
The second is that we are very focused on institutional investment coming in. I certainly understand the trade-off and think it has been articulated well by Dr. O'Toole and others here. The second factor is that supply can leave the rental market, which we have seen happen. To what degree are we thinking not only of the supply of new properties in the build-to-rent type model of institutional investment, but also considering the number of landlords leaving the sector, who cite this as one of the factors? I do not think it is the only one but for them it crosses the rate of growth of rent itself under these pressure zones, taxation and maintenance costs that they face, and how they are traded off and included. There is a continuum where you need to think about the calibration. There are definitely cohorts of individuals who would be significantly worse off if the caps were removed. It is about getting the balance of those right, where you feel you have protections in place but also incentivise supply or even stop the flow out of supply, which we have seen for a number of years.
Paula Butterly (Louth, Fine Gael)
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Everybody is agreeing on an awful lot of things today, which is rather unusual. Everybody has agreed on streamlining the planning process. I would like to hear the witnesses' views on how far we go with that streamlining. You will often hear that the biggest problem with planning is objections and the process, from local authority, to An Bord Pleanála, to judicial review and sometimes even beyond, because they might want to introduce a public interest issue and try their hand at the Supreme Court too. Where do we stop? We have issues across the country with social housing. Councillors from the Opposition have blocked, at this stage, hundreds if not thousands of homes. They criticise our policy, while at the same time there have been objections over the years to block actual developments going ahead. Where do we start or stop in the planning streamlining? I would like to hear the witnesses' opinions on that.
Dr. Conor O'Toole:
We have all outlined planning as one of the frictions in the system, which it clearly is. You would hope that streamlining the process would help to unlock supply, not just in the short term, but in the medium term, by building a more resilient and flexible system. There have obviously been changes with the new Planning and Development Act. It has aimed to better integrate all the pieces, from the national planning framework down to the local areas. It is looking to streamline the judicial review process and related elements. Rather than more policy changes, we need to see how that will work in practice, because it is often the practical implementation rather than the legislation that matters for the outcomes. In any democratic system, a right of appeal is needed, which is still there. The question is how the new reforms will work in practice. That will be a key asset test going forward.
Paula Butterly (Louth, Fine Gael)
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The third issue is small businesses which are small builders. We have heard again and again about them not getting access to finance. The recommendation here is about consolidating building and economies of scale, which is fine in large urban centres, but in more regional areas, the small and medium-sized builder will be building 30 or 50 houses. Larger developers will not come to the regions to build that. They are interested in 500, 700 or 1,000 homes. How can we harness this? I believe the commercial banks really have not listened to those small and medium-sized builders about giving them the access to finance that they need. Has the pendulum swung the other way and have banks become too conservative in their approach to these businesses?
Dr. Mark Cassidy:
We have a combination of bank and non-bank lending. I do not mean equity finance. We see that non-bank lenders are more likely to lend to riskier borrowers, to smaller ones and to ones which do not have as much of their own equity or other equity to put into that.
They now represent 30% to 40% of overall lending to small builders in the real estate. That sector has been significantly hit over the past couple of years by conditions in global financial markets. Their funding costs are based on borrowing from international markets. They have become much more expensive and that has become more difficult for them. This is riskier lending for banks,. As a result, they are required to hold more capital against it, which makes it more expensive for them. Generally, they tend to not want to lend more than 60% to 70% of the value of the overall loan and, therefore, what is required is that additional equity tranche, which has become so difficult to get. The evidence is that the banks are lending, and they are willing to lend but the nature of the lending and the fact that it is more risky suggests that we also need the non-bank lending and the equity finance there. That is where we think the focus needs to be. Ultimately, it is the bank's own commercial decision. They are making commercial decisions about the viability and the riskiness of that lending. That is what governs their behaviours.
Paula Butterly (Louth, Fine Gael)
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Does Mr. Cassidy not believe at this stage that it is nearly too prudent? It has gone from in the past being maybe not prudent enough to now being too prudent and that is hindering, especially outside large urban areas, building in the regions.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I thank Dr. Cassidy. I am going to suspend the meeting until 4.45 p.m. to give the witnesses a break.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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The next slot is Fianna Fáil's. I call Deputy McGrath.
Séamus McGrath (Cork South-Central, Fianna Fail)
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Do we have five minutes in the second round?
Séamus McGrath (Cork South-Central, Fianna Fail)
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I ask the witnesses to be brief. Dr. Cassidy made reference to how equity had fallen off significantly in recent times. First, where does Ireland sit in terms of our public funding of housing? The ESRI made a statement on this in the past. Relatively speaking, we are investing €7 billion in housing. Where does that put Ireland as a country in terms of public investment? I wish to ask the Central Bank about the equity and private equity. What are the main issues relating to the fall-off?
Dr. Mark Cassidy:
State financing increased fivefold over the past decade, with approximately three quarters to capital spending and approximately one quarter to current spending. It is now the second highest proportionately in the EU.
Higher interest rates are a significant element of the fall-off in inward capital investment. Uncertainly in the international environment is also playing a role. There are issues relating to the viability of housing supply, issues relating to the regulatory framework and issues around certainly, which is where the rental cap issue comes in. Investors value certainty. They are the main factors.
Séamus McGrath (Cork South-Central, Fianna Fail)
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Dr. Kelly referred to downward pressures in respect of housing supply. Dr. Kelly's prediction for this year was 35,000 units but he felt they were downward pressures. What are the key downward pressures and what can we do to address them?
Dr. Robert Kelly:
Dr. O'Toole put this quite well. Traditionally, let us say if we are doing this pre-pandemic, we had a very clear relationship. If we saw a commencement; we could almost predict with a high degree to certainty we would see a completion. What we have seen, as Dr. O'Toole pointed out, is partially due to pandemic disruption in the building sector. There was also a policy intervention at the same time. We are struggling to understand what exactly the time difference is between seeing a commencement and when will see those come in. We had predicted closer to the historical relationship. We are not seeing them come up as completions.
We have to do two things. One, we have to pass a judgment on whether we will see the full amount of commencements to completions. The second is the timing of them. Some would have been in 2025 but if it is closer to 12 or 18 months, they will be in 2026 rather 2025. Our quarter 1 figures were below expectations. That makes me think there will be downward pressure. We will have a fresh forecast within the month.
Séamus McGrath (Cork South-Central, Fianna Fail)
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How much of a factor do the witnesses think viability is? Developers argue much construction is not viable for them and that many development types, particularly apartments, are not viable.
Dr. Robert Kelly:
I cannot comment on viability in any given project because it is very project-specific but to generalise, there are definitely factors around whether the infrastructure is available. We have anecdotally picked up that it is not even that the costs of labour or inputs have risen but that there is an issue with the availability of labour. All of these things mean for a developer that it is just more expensive. There are issues around viability such as the uncertainty around the planning process and how it will play out. They all contribute to viability. It means, based on current factors, that in projects that require capital to be at play for longer such as apartment blocks, it challenges viability.
Séamus McGrath (Cork South-Central, Fianna Fail)
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The key issue in that regard is that the capital is tied up for longer before the developer can start selling units. This leads to my next question about the cost of finance for developers. What is it typically in Ireland right now? I know it depends on bank lenders and others. If I run a development company and am looking for finance, what is the average rate at present?
Séamus McGrath (Cork South-Central, Fianna Fail)
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Developers say it can be anything between 7% and 10%. Is that a ballpark reasonable estimate?
Séamus McGrath (Cork South-Central, Fianna Fail)
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It is a high cost of borrowing. Going back to apartments, if the developer's money is going to be tied up for longer, it is a factor. Is there any way to drive that cost down?
Dr. Robert Kelly:
The easiest way to drive that down is derisking. I feel like I am saying the same thing repeatedly. I apologise if it comes across that way. If a developer thinks its capital will be out for 12 or 18 months, 12 months is cheaper. There is less risk attached to leaving it out there for less time. There is a risk the developer will spend a lot of capital to get to a point and the project will not continue, for example, or that it will have to increase the cost profile because labour becomes more restricted. The fundamentals matter to the finance because they create the risk.
Séamus McGrath (Cork South-Central, Fianna Fail)
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I have question for the ESRI about labour constraints. If we want to get to the level of output we need, labour will become an increasing factor. What does the ESRI recommend to increase the labour supply for construction? Obviously there are apprenticeships and so on. Are there short-term measures?
Dr. Conor O'Toole:
I might let Dr. Egan come in on this because he has done some research on this topic. Regarding the labour market in Ireland, we have a 4% unemployment rate. We are at capacity. We are at full employment. There is little to no slack in the labour market to expand. There are two ways to do it. Inward migration is a channel that can be used to alleviate short-term labour constraints. That may be possible in the construction sector. The second way, which we spoke about earlier, is to increase the output per worker, using productivity-enhancing measures to try to get over the labour shortage. That could involve using modern methods of construction like prefabrication.
Séamus McGrath (Cork South-Central, Fianna Fail)
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Such as off-site construction.
Séamus McGrath (Cork South-Central, Fianna Fail)
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It is about intensification.
Maria McCormack (Sinn Fein)
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It is great to get a grand overview of the issues from our guests. I thank them for coming in. It has been very informative and helpful. My question is about how macro-level data is used. It always just seems to focus on the big cities. It must be used to ensure rural towns and villages are not left behind in the wider plans to address the housing crisis. Laois is one of the fast-growing counties in the country. In the 2022 census, the population of the county was 91,657, an increase of 56% since the 2002 census. There has been a good amount of building in recent years but not enough, certainly not of affordable housing. This year, unfortunately, will see the lowest level of commencements with only eight in February, nine in March and 19 in April. House prices in Laois are soaring through the roof. The recent Daft.ie report showed that prices in Laois have jumped 52% from pre-Covid prices. How do we make sure that reports, actions and strategies reach further into towns like Portlaoise and rural areas? The housing shortage is just as chronic there as it is in big cities like Dublin and Cork.
Dr. Conor O'Toole:
We often talk about the housing market as one market but it is not. There are lots of micro-markets in any jurisdiction and in Ireland in particular. In Laois or other rural and urban areas, there are different markets operating with different structures. Common to all of that are the same factors we have been talking about. There are likely to be viability challenges, supply constraints, water connection issues and zoned land issues. The broader factors that affect the general economy or the general housing market are likely to be impactful on the ground in rural areas like Laois which the Senator mentioned. We can deal with that by making sure that when we plan at high level, it trickles down to local authorities making decisions on housing or activities in their areas. We should also have national policies that can be accessed on a disaggregated basis for funding access and the like.
Maria McCormack (Sinn Fein)
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There is a need to note the difference in rural counties. There is an affordability gap. In counties like Laois, the average wage has not kept pace with housing prices. According to the latest CSO report, Laois is the second-poorest county next to Longford regarding disposable income. There is a real imbalance there. Is that taken into account? The national strategy does not seem to fit with us.
Dr. Conor O'Toole:
When trying to explain trends at a local level, factors like income, unemployment or market structure in those areas will impact house prices differently from other areas. For example, the purchasing power of one's income to purchase a house in Laois will be different from what it may be in south or north Dublin, Donegal or Kerry. These markets operate on the basis of the economic conditions at play in those areas at that point in time. Moving from the national picture to the county development plan, one has to make sure these policies are appropriate on the ground in the local areas.
Maria McCormack (Sinn Fein)
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I am conscious that we are taking a lot of the spillover as a commuter town to Dublin. A balance is needed with regard to house prices. The average three-bed house is €365,000 in County Laois, which is a small rural county. They are not affordable. It is pushing more and more homelessness. Rents are soaring as well. Demand most definitely exceeds supply. Do the Central Bank representatives wish to comment?
Dr. Robert Kelly:
A lot of the main factors have been covered. Perhaps the numbers the Senator provided, such as the 52% increase in house prices, are so acute because there has also been a significant shift in the labour market. People who previously wanted to work in an urban centre had to locate quite close to it but with hybrid working and changing working patterns, it is now more feasible to live considerably further from your job than it was. That is felt most extremely in the commuter belt of Dublin, where we are seeing some of these demand pressures. Not alone are some of the national pressures being experienced in County Laois, but there are local pressures in Laois because of its location relative to Dublin and because of changing working patterns. We spoke earlier about house prices, and demand and supply; demand factors in County Laois are probably even stronger than some of those factors, and other factors, in a relative sense.
Maria McCormack (Sinn Fein)
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Absolutely. How do we get more developers to move into these areas? We have land. We are a very rural county. We have zoned land ready to go but small builders cannot get the contracts. How can we look at this with a solution to the problem? How can we get these investors to come into County Laois and other counties like Laois?
Dr. Robert Kelly:
It depends on whether we are talking about institutional investment, which is much more of a build-to-rent model to hold the assets long-term. To be honest, ultimately they will be dictated by where the demand is. If the demand is really high in Portlaoise and other towns, they will arrive and they will follow wherever the return on capital is. There is another issue, however, that the Senator may be getting at. If there is zoned land that has services and so on, how do we take what seems like a great opportunity for small builders? How do we activate some of what we are talking about? Maybe there is the potential for State-triggered funding for more modern construction, if the land is ready. This is a perfect example of why the Senator could be arguing that Laois should be adopting these and should be seen as being at the forefront of some of this. Especially if the demand is there on the other side, it makes perfect sense.
Pat Casey (Fianna Fail)
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I mentioned earlier that anybody with a brain in their head would have seen what was going to happen last year whereby, when an incentive was coming to an end, there was always going to be a surge in commencements, and that is reflecting what is happening. There is also uncertainty out there relating to Government policy. Is that also preventing commencements happening? Might there be hope from developers that another scheme may be on the way such that they are not going to submit their commencements until they know what the Government is going to do?
Dr. Robert Kelly:
It is hard for me to talk to that because I am being asked about the behaviour of individual construction firms. It is certainly the case that investment does not like uncertainty. If uncertainty is created, therefore, whether positive or negative, it can cause delays. If construction firms believe it will make more sense to do an investment in six months, and if that is a common belief, that will impact on it. Moreover, if we got to a point where some of the external forces started to question Ireland and our medium-term outlook, that uncertainty could also impact on whether somebody goes ahead with a large scheme and whether they think the demand will still be there. Regardless, uncertainty, positive or negative, can materially impact on the timing of investment.
Pat Casey (Fianna Fail)
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I will move on to the rental sector, because I did not mention it earlier. I was surprised that 60% of tenants had experienced no rent increase. Were the witnesses surprised by that?
Dr. Rachel Slaymaker:
Yes. It is surprising, particularly when we see how the average rents are changing, that the vast majority are not seeing any change from one year to the next. It is also to do with the timing of increases. In that piece of work, we were simply looking at one period to the next. In a lot of cases, even in the rent pressure zone areas, many landlords will accumulate rent increases. They will not impose any rent increases for some time and then they will impose a bigger one at a certain point. In that sense, it is not so surprising. Nevertheless, the 60% figure is pretty high.
Pat Casey (Fianna Fail)
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Regarding upcoming legislation for the rental sector, what are the ESRI's views on the short-term letting legislation as proposed and how will it impact on the rental sector?
Dr. Rachel Slaymaker:
We published some work on short-term lets recently. The key thing is the difference across different areas. We see high levels of activity in the centre of Dublin and Galway, which are obviously areas with large rental sectors. A different type of policy response is probably needed in those areas where there is likely to be a high crossover of properties that move between the rental sector and the short-term let centre. The more challenging questions relate to the highest shares relative to rental numbers, such as in many tourist areas on the west coast. It is quite difficult in those areas. We do not see much of a relationship between the falling number of new-tenancy commencements in the rental sector, for instance, and the increase in short-term let numbers over time. One of the main reasons for that is that the big increases have come in those coastal areas but in many of those areas, there is a large volume of holiday homes. There is a high correlation between current short-term lets and previously recorded holiday homes. Therefore, in many of those areas, the accommodation will not have been in the rental sector in the first instance. Simply putting bans in place in those areas is not necessarily likely to have the desired effect. There is a lack of rental accommodation right across the country, but it is not necessarily likely to have the desired effect of increasing rental numbers in those areas, relative to urban areas. Having different responses for different areas is the key.
Pat Casey (Fianna Fail)
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On the issue of apartments, financing and supply and demand, we need to try to find a balance. Clearly, the help-to-buy and first-home schemes are not applicable in Dublin because the properties are above €500,000 in value. They do not have a role there. Institutional investors will all want to know whether we can apply a scheme for renting homes to try to help that side of it. Should we make amendments to the current schemes to try to facilitate it? Unless we crack apartment building, we are going to struggle, especially in Dublin. How do we get this balance between supply and demand right? Dr. Cassidy said the non-bank lenders are willing to take greater risk than the pillar banks, but he also said there are very safe levels in the pillar banks at the moment. I saw an article suggesting that some central banks are calling for an easing of the European Basel rules. How do we crack this nut? We are wasting our time unless we do so.
Dr. Robert Kelly:
I can start and maybe Dr. Cassidy can come in with some of the details on financing. One thing that is worth separating out a little bit when we think about the conundrum around apartments is that there is probably two different types of investors that we need to separate in our minds. One are income-seeking investors. A lot of this relates to pension funds. What they want to do is not provide development capital but build a building, hold it as an investment asset, rent it out and take the returns. They are quite different. They all focus on what is called yield on cost. They are thinking about how much it will cost to put up a building and what yield they will get over 20 years, essentially putting it against their pension commitments.
The other side of it, which Dr. Cassidy might wish to come in on, relates to what development finance is needed, predominantly for owner-occupiers, to make them think about selling the property to a household. That is a different set of risks to the first one. Those two investors think quite differently. I think the Senator's main focus is how we can unlock the second one rather than the first. Dr. Cassidy may want to come in with his thoughts on that development finance aspect.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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Can we keep it brief? We are over time so I ask the witnesses to keep it tight.
Dr. Mark Cassidy:
On the point about the Basel framework, it is true that the level of capital that banks need to hold against this type of lending is set by international standards. We fully support the new standards that are proposed. We think they need to come in as quickly as possible. The Irish banks, in respect of those standardised holdings, have the same regulations as those elsewhere. They are based on international experience with regard to the riskiness of this lending. The standards set are appropriate. What is required is a mix of financing appropriate to the proportionate risk of each of these developments.
Conor Sheehan (Limerick City, Labour)
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I thank the Chair and the witnesses. I want to return to the issue of apartment viability. There has been a huge fall in the number of commencements for apartments. How much further do the witnesses forecast that to fall? We have issues with density in respect of apartments. I often see apartments being constructed in places where they are not particularly needed. They are then primarily used for social housing because the State is the only agent that will pay for them. What we are doing wrong? Is there an example from another jurisdiction of how we can make apartment construction at scale viable?
In regard to rent and rent caps, the witnesses have been somewhat critical of the system that was recommended by the Housing Commission in terms of moving to reference rents. Is there a mechanism by which we could move to reference rents in a way that would protect renters, as in stop the rental market spiralling further out of control, and also stimulate the level of additional investment we need? Will the witnesses also outline how they believe we could better leverage the significant amount being held on deposit at the moment?
How confident are they that the new Planning and Development Act will address the issues the planning issues they outlined? Are there aspects of it that they believe should be front-loaded? Will they reflect on the comments that the Minister for housing made today regarding judicial review possibly being weaponised? In regard to house pricing, what percentage do they believe house prices need to come down in order to take the heat out of the housing market?
Dr. Robert Kelly:
I thank the Deputy for his questions. There is quite a lot in there. To start with the apartment financing question, we can segment this a little bit. There is, as I said, an investor looking for income. I do not know that it matters whether that income is derived from the State with forward precommitted rental to the State for social housing or whether it is into the private rental sector. However, certainty around what that yield would be is really important for those investors. Where viability becomes even more of an issue is with apartment buildings for sale. There are a number of things, some of which are contained within the document. I do not want to repeat myself given time constraints, but there are ways in which we can lower the cost of that around infrastructure and all the rest. The other part regarding apartments, and there has been some work done here, is to understand essentially the specification and finish of the apartment. Such issues as car spaces can massively drive up the cost of development. If these are being located in urban centres close to transport hubs, maybe we could take a view that we could lower some of the costs by changing some of the specification in planning in order to make them more affordable. We need to think through some of the trade-offs there between the sizes and some of these things. Many of them are needed but there is a balance to be found between change and viability.
Conor Sheehan (Limerick City, Labour)
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Are they over-engineered?
Dr. Robert Kelly:
I do not know that they are over-engineered but there are trade-offs. Having two car spaces is a great addition but if it comes with the fact that it is not viable or not what people can afford, then maybe the trade off is not to have car spaces for apartments in urban centres and to lower the cost of them, for example.
The Deputy asked a question on deposits. Yes, there is €160 billion or €170 billion on deposit in the banking system. At European level quite a lot of work has kicked off in earnest around a savings and investment union, which speaks exactly to taking this and redistributing it into productive use. There is a lot there. I can come back in again.
Dr. Rachel Slaymaker:
I will come in on reference rents. We understand the appeal of a system like that. Our concerns are more around the practical or feasibility issues in Ireland at present, such as how to calculate what an appropriate reference rent is across different local markets.
In terms of the data requirements, that type of system would be very data intensive. A great deal of information would be needed on the whole range of characteristics that come into a price. For instance, we lack good data on issues such as the energy rating, property age and things to do with the amenities, fixtures and fittings and whether we have the detail. We have very good price data but I do not know whether we have the detail on the specifics to be able to calculate those in an accurate manner.
Typically these have been implemented in larger urban markets where perhaps it is easier to find comparable dwellings. However, Ireland has very small local markets. It would be much more challenging in those areas. The factors that affect rents in those areas can be quite different. It is to do with the feasibility of finding these reference rents.
Conor Sheehan (Limerick City, Labour)
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I also asked about the way things have been trending in terms of apartment viability and commencements for apartments. How much worse do the witnesses foresee that becoming?
Dr. Mark Cassidy:
It will begin to manifest itself much more in the coming years because the previous pipeline finance will come to an end and a significant increase will be required. Housing targets will not be met without a significant revival of the apartment sector. The important issue is that there is very little demand for owner-occupied apartments because they are essentially not viable. They are not affordable except for highest-income borrowers, and those highest-income borrowers are not looking to buy apartments. That is where the opportunity is for development of apartments. That is why that is so important. That is absolutely dependent on the inward flow of capital investment.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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We have 15 minutes to go and four speakers remaining, including me. I will cut my time to a few minutes and I will give everyone a chance to get in. There are a couple of issues. I am glad of the comments about 100% mortgages. That needs to be put out there, although we need to look at some sort of support for those who have been paying higher rent and have been shown to be able to pay it over a significant period. We cannot go back to the days we were at before.
On the finance end of things - the witnesses may correct me if I am wrong - the figures for 2024 show the two main pillar banks, AIB and Bank of Ireland, only lent a figure of €1.5 billion towards housing. Dividing that by €300,000 per house, on average, that is only 5,000 houses. I spoke to people in the building industry regarding the cost of finance. They told me the average they have to pay to get money, if they can get it, to proceed with a development is in the region of 11% or 12%. The banks that were bailed out by the State and the taxpayer are not lending, and we have a housing crisis. They are lending to other institutions that are lending then. That is putting up the price of housing because two institutions have to make a profit on the same money. I would like the witnesses' comments on that.
The first home scheme was mentioned. I come from County Longford. In 2008 and 2009 we were left with 124 unfinished estates after section 23. We were probably one of the counties most blighted at the end of that. There has not been a private housing development in Longford since 2008. No couple seeking to avail of the first home scheme in County Longford can avail of it. I am sure there are other areas like that. I ask the witnesses to comment on that.
Other countries were mentioned. My brother lives in Germany. The town or the state there puts in the road infrastructure and the serviced sites ready for developing and building. You buy your site and build your house. I do not believe enough local authorities are doing that in this country, whereby we have funding schemes in place for serviced sites and we are not actually doing it.
In regard to the ESRI's remarks on adopting modern methods of construction, we have companies in this country that are exporting abroad. There are packaged treatment plants and bathroom modules being exported to England. We have steel-frame building and timber-frame building and we are not availing of them. There are quicker methods of getting houses up. A few comments on those points would be welcome.
Dr. Mark Cassidy:
In regard to 100% mortgages, our mortgage message allows an amount of lending, of 15%, above our thresholds. We put a lid on overall lending in terms of the loan to value. However, banks themselves can provide some lending above that. We expect the banks to take into consideration the evidence from a potential homeowner's previous rental payments as evidence of ability to pay. The banks themselves are not operating at the full amount they could. There is potentially some scope for banks to take that into consideration, subject to the overall macro.
In regard to bank finance, we do not have indications of a shortage of bank financing.
We think that banks have been actively lending for development in recent years. We think they have the capacity to significantly increase this lending. They have significant undrawn credit lines available and they have significant capital headroom. Importantly, both major banks have announced significant increases in the amount of lending they are willing to provide for development but they would argue that the demand is not there. That is why we think the focus should be more on equity than on bank lending.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I would question that, from talking to people out there who cannot get money from the banks. They have significant capacity to do it and it is not happening.
Dr. Robert Kelly:
I can pick up the second tier and then pass on to colleagues from the ESRI.
On the first home scheme, ultimately, we need to take a step back and ask what the aim of the policy is. What I see in the first home scheme is a mix of affordability but it is also to generate supply to mitigate some of the price pressures. If that is the aim of the scheme, extending it to second-hand homes runs the risk you will increase the price pressure side of it. If the first home scheme is framed around giving access to housing - the Cathaoirleach described Longford and how there is no new housing there and maybe there are particular issues - it depends ultimately what the aim of the policy is. We need to be careful that if policies are aimed at generating supply, we make sure that is what they are aimed at doing. If they are aimed at giving cohorts, such as individuals under a certain income threshold, preferential treatment to access to home ownership, then it is different and we are willing to accept some price pressure trade-off. It is an aim-of-policy question. As I see the first home scheme, it is tackling the shortage.
On the modern construction methods, I completely agree. Probably the easiest thing we could do quickly is incentivise more productive use of modern methods and reduce our labour supply pressures. I do not want to get prescriptive in terms of policy but we could tie any supply-side incentives we do to using these modern construction methods. If we are going to do waivers for X, Y and Z, we could say it is conditional upon a certain type of fabrication and so on. It is possible to tie these and create the right incentives.
Dr. Conor O'Toole:
I will add one thing on the modern methods of construction. It is one of those mechanisms that we can and must leverage as quickly as we possibly can. Often, one finds with some of these that the order size matters – the ability to build up the infrastructure to use these. One mechanism could be that the State is a backstop and ensures it provides enough orders for the social housing system or for the affordable housing system over time to allow the capacity to be built up for the factories to build those and to build the capacity in that sector.
On the 100% mortgages, let us not go back there. We had a terrible experience of that in the past. It creates unneeded credit risks, and looser credit is not going to solve our housing crisis.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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We have nine minutes left and three speakers indicating, namely, Deputies Ó Broin, Hearne and Gould, so they will get three minutes each.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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I will be quick. I have one quick comment and then a quick question. To throw a different perspective into the debate about apartments, the assumption is that apartments have to be private rental sector. The difficulty of course is that a third of the people who live in the private rental sector should be in social housing. That is what they want, and we are paying a huge amount of money subsidising them to be in the private rental sector. We could significantly reduce pressure on PRS by dramatically increasing social housing and giving people a pathway. I know it is not the proposition from the presenters but if the proposition is we remove or lessen protections on new rental stock beyond the first rent, those investors will want to maintain those yields over the future. Dr. Kelly said it himself. They want those rents to effectively be guaranteed rises. That means you will get a very limited amount of investment and a very high rent. Therefore, the big missing piece of the apartment picture is affordable rental and affordable purchase. If the State is the investor in affordable rental, full cost recovery can be stretched over a much longer time. The State can handle that. Likewise, regarding affordable purchase, the State can absorb some of those costs. We need to broaden the conversation. I am only saying this because the witnesses are commentators on these things regularly.
We need more apartments. We need more high density development. The private sector today, no matter what level of subsidy is provided, cannot provide large volumes of good quality apartments at a range of prices that a range of workers can afford. It is just simply not possible. Therefore, the conversation needs to move to asking, how do we scale up affordable purchase and affordable rental for people who want apartments at affordable prices? I think that is the missing bit of the picture.
The question is as follows. Almost everybody has kind of agreed on structural demand. The Central Bank, the ESRI, the Government and the Housing Commission all reckon the mid-range scenario for emerging housing demand is in and around 44,000 units a year. The ESRI has not done an assessment of unmet demand. We have three assessments of unmet demand: at the high end, the Housing Commission, the Central Bank’s is lower than that and I am not sure whether the Government has an assessment of structural demand – it says it does but has yet to share it. Is there a problem that if we do not have an agreed or consensus on unmet demand, the new targets in the national planning framework will underestimate the level? If each year over the next number of years, as both organisations have said, we are not going to get to the average the Government wants anyway, the unmet demand will grow. Does that mean the way in which the NPF legislation - the Planning and Development Act - is set, where we are only going to review those HNDA targets within two years of every census, means we are already behind and we are going to be spending too much time to catch up? Would it not be better if we had an agreed methodology for determining unmet demand, pent-up demand and the deficit, revise the NPF if we need, and have more frequent periodic reviews of the NPF in terms of the good research done by the ESRI and others? I am worried the figure of an average of 50,000 units a year over the next five to six years is too low. It is lower than the witnesses’ and it is lower than the Housing Commission’s. Next year and the year after, because the deficit will grow, it will be even further behind, so we are kind of baking in a problem from the start. Do the witnesses share some of those concerns and how do we overcome them?
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I ask the witnesses to keep the answer tight. Time has gone over the three minutes.
Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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I do my best, Chair.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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I want to give the other two members time.
Dr. Robert Kelly:
Two things. I will be quick. On the Deputy’s first comment on yields needing to go up, it is important to always acknowledge that yield is a function of price. Price is being pushed up because of lack of supply. There can be a situation where yields are a little bit higher but because the overall supply situation is better and balanced, they are investing less capital because the house price, or the cost of construction, is lower to start with. Therefore, it is not just yields. There is a difference between yields and what the cost of a rental is to an individual, and they can separate.
On the Deputy’s point, I do not know if there is that much differential in how we think about arriving at this figure. I think the decision we need to make is how quickly we want to unwind this supply imbalance. The figure of 52,000 that we come with is doing it over 25 years, which feels like a long time. We did the figure and said we would try to do it over a decade, but then how feasible is it that we start to bring ourselves up into the 70,000s if we are talking about what is needed to go up 20,000? Maybe the right discussion is on what is the sustainable and sensible approach to absorbing this. If we want to do it quicker, what would we need to do, and if we want to do over a longer period? Once we get over the mid-40,000s, the Deputy will see from some of the estimate here, we are making a positive contribution and lowering it. The question is then how quickly we want to do it.
Dr. Conor O'Toole:
I agree on the point of the structure of demand piece. On the apartments, cost rental needs to be scaled up. That is a tenure that can bridge that gap, and bridge it in a meaningful way. It is expensive to build cost rental. The cost rents are not necessarily cheap. We really need to push that forward as a tenure that makes a meaningful difference in Ireland to our rental landscape.
Rory Hearne (Dublin North-West, Social Democrats)
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I have a brief question. I am trying to keep it as concise as possible. It follows on from Deputy Ó Broin’s question. The issue we face is we need an additional 15,000-plus homes built per year. The capital figure mentioned is €7 billion. Would it not be more economically and socially beneficial that the 15,000 was affordable housing, particularly affordable purchase, in terms of meeting need and demand? Second, if the State has €6 billion-plus surplus available to it, why do we just not allocate that surplus to build 15,000 affordable homes? Can that not be guaranteed, rather than trying to think of all these ways we can incentivise the private market? We have the finance. Why do we not do it?
Dr. Robert Kelly:
There are dangers in fully being State-dependent for housing supply. It needs a mix between private sector and State-funded.
On the Deputy’s comment on affordable housing, in the ideal world, it would all be affordable housing. That brings us back to why it is not and that brings us back to these underlying issues as to why it is not affordable and viable for construction at lower cost.
Those issues are productivity, which we have discussed multiple times; some of our infrastructure issues that we need to take into account; and planning. For me, it is not necessarily about trying to segment because I do not know how we would scale up affordable housing as a bloc without addressing these issues. How can we keep it affordable if there is just no water available? Putting in the infrastructure increases the cost, unless we are actually talking about a State subvention essentially to discount the actual cost of providing a house. It would be much better if our focus were on dealing with the underlying issues. If this were the case, all housing could become more affordable, which I think is to the net benefit of everyone.
Dr. Conor O'Toole:
When thinking about the housing deficit, we should ask where it lies across the population income distribution. It is all across it. It is likely to be extreme at the bottom end because certain households, certainly those on lower incomes, are unlikely to be able to gain access to housing through market means, either in the rental sector or the purchase sector. To me, that puts a greater emphasis on the State having to play a role to deal with the backlog. However, as Dr. Kelly mentioned, it is not just a financing issue. If we could have thrown capital at this, we would probably have solved it already. There are structural issues causing friction. As well as ensuring that we commit public funds – we will have to make a substantial State investment over time to produce housing, particularly low-income housing – we will need to ensure structural reforms across the system that will make the overall structure more fluid and efficient.
The Housing Commission report provides a really good blueprint for all the activities in the State sector. Thinking about these as a system for producing housing across the income distribution is an important way of thinking about how to deploy the State capital.
Thomas Gould (Cork North-Central, Sinn Fein)
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We are talking about the shortage of 15,000 houses that we need to deliver. We know they can be delivered. What needs to be done to deliver them using vacant and derelict properties? There are over 150,000 vacant properties at present and thousands of derelict sites. Should there be a key investment by the Government in this regard to deliver on top of the new builds we need?
Dr. Robert Kelly:
I am happy to take that. “Yes” is the short answer. I am referring to reactivating, especially if we think it makes provision quicker. The infrastructure should be in place even if properties have fallen into dereliction in some cases. Where there is urban decay, for example, the infrastructure tends to be quite close. The reality is that I do not believe that what the Deputy suggests alone could bridge the gap of 20,000 houses per year, but it could certainly contribute. We will need a multifaceted approach. It should not just be about supply but also about using every lever we have available.
Thomas Gould (Cork North-Central, Sinn Fein)
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Reference was made on several occasions to modern methods of construction, new technologies and modular homes. The figures for modular homes delivered by the last Government show they were as expensive as traditional homes. One reason was that none of the infrastructure was in place. There was no water, no wastewater facilities, no electricity and no roads. We have a major problem at the moment with providing serviced sites. Some of us met CIF officials in Cork recently and they were saying “Infrastructure, infrastructure, infrastructure”. They said they need water, electricity and access to serviced sites if they are to deliver the quantity of housing needed. Surely, from the perspective of where we are now, there has been major underinvestment in infrastructure over the past ten or 20 years and we are now trying to play catch-up. The management of Uisce Éireann says it does not have the money to deliver the infrastructure for 50,000 homes. Surely a priority should be giving the required capital to Uisce Éireann, the ESB and local authorities to deliver the serviced sites.
Dr. Robert Kelly:
I agree. The number one priority for capital investment in the State is infrastructure. What the Deputy said is correct. None of the three things we have outlined can exist on its own. We have seen planning cases held up because infrastructure is not available. Getting one right will not be enough; we need to move all three forward at a relatively similar pace. If we are to harness the benefits of modern fabrication methods, we have to have somewhere to put the houses, as the Deputy implied. Zoned, ready land is needed to put them on. I completely agree on that. Along with the issue of supply, probably the State’s biggest issue concerning the lower end of the income distribution in respect of social housing is infrastructure, as Dr. O’Toole pointed out. That should be its biggest focus.
Dr. Conor O'Toole:
We all agree that infrastructure is a major constraint. Rather than repeating the points Dr. Kelly just made, I will add one. We may need much more long-term thinking. If we can get much better at actively managing the land banks we have and thinking about having the right land come on stream for production over a much longer period, we can secure the required investments to get land ready and service it. It might not be developed in the short term but would be ready to go when needed. It is about having a long-term plan and putting in place the infrastructure needed to cater for the population, which we know is going to grow and age over the coming period.
Micheál Carrigy (Longford-Westmeath, Fine Gael)
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That concludes our consideration and discussion. I thank the representatives – Dr. Kelly and Dr. Cassidy from the Central Bank and Dr. O’Toole, Dr. Slaymaker and Dr. Egan from the ESRI – for attending to give their insight and knowledge. The Central Bank and the ESRI were the two organisations to whose representatives we felt at our first meeting we wanted to speak straight away to set out where matters stand and keep us up to date. I thank the representatives for giving of their time, knowledge and expertise in this area.