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.