The Housing Boom
A synopsis of an article on housing by Tony Fahey in ‘Celtic Tiger: Best of Times?’
What is driving it?
- Growing population
- Rapidly expanding economy (surplus has to go somewhere)
- Competitive mortgage market
The economic impact of this housing boom is becoming apparent: it was an unsustainable vehicle of economic growth.
The social impact relates to issues of affordability and quality of housing.
Prices and Output
The growth in supply of housing has been spectacular, as has the rise in prices. Between 1994- 2005, nominal house prices had increased over 3.7 times (i.e. from €70,000 – €400,000).
A key feature of the housing supply is its dominance by private sector construction. Historically, social housing construction played a major role in Irish housing supply. During the 1970’s one third of housing construction was in the local authority (social) sector.
This was sharply reduced during the 87’-88’ cuts and has remained below 10 per cent ever since. The current total stock of social housing is minimal: less than 8 per cent of total.
Thus, the housing boom has been overwhelmingly driven by private sector supply and demand. Furthermore, it led to a speculative bubble that burst in 2008. The full effects are not yet known, but decrease in construction growth and an increase in unemployment are two obvious effects.
11.7 per cent of total housing stock is left vacant for a variety of reasons: held by investors for capital gains purposes and holiday homes. The private rented sector is small by international comparisons: it has declined to 8 per cent of total stock. It has since increased to 11-15 per cent due to down turn in private housing market.
This paper is continued under the ‘Housing’ section above