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.