Housing market inhibiting competitiveness, council warns

The housing market is currently inhibiting the performance of Ireland’s competitiveness, the National Competitiveness and Productivity Council (NCPC) is warning.

The competitiveness watchdog also says the housing issue is undermining potential improvements in sustainable growth and in people’s well-being.

“In effect, housing affordability is a significant concern for Ireland,” the NCPC writes in its latest analysis, which looks in particular at the effects of labour capacity constraints on residential construction.

“It is also a capacity constraint representing a risk to Ireland’s international competitiveness, albeit that this is a concern across many advanced economies.”

The NCPC report outlines the extent of labour shortages in the construction sector and pointed out that it is the only one with fewer employees today than during the Celtic Tiger-era, despite Ireland having a much larger population now compared to then.

It claims that addressing these labour market constraints is crucial when it comes to meeting targets under the Government’s Housing for All plan, along with targets for retrofitting and emissions reduction under its climate plan.

The bulletin also states that close attention has to be given to the competing demands for labour across the construction sector and, in particular the impact this has on younger people competing in the housing market.

It also argues that greater adoption of modern methods of construction (MMC) is crucial to lowering the pressure for labour demand in the construction sector.

The NCPC says the broad implications for Ireland’s competitiveness arising out of the housing shortage resonate across the economy.

“The consequent impact – via both upward wage pressures and staffing challenges – present particular difficulties for the domestic SME sector,” it claims.

“In some cases, private firms can find it necessary to purchase housing stock – leading to a reallocation of scarce capital and the assumption of new responsibilities outside of the scope of their day-to-day operations.”

“Increasingly, housing has also been identified as an issue by the multinational enterprise sector.”

Employment permits are part of the solution to increasing labour supply and key skills in the short-term, the research says.

“However, this solution increases pressures on our already over-constrained housing market, and we are also competing with other countries – particularly across the EU – which are also experiencing a severe shortage of construction workers,” the paper claims.

“In the longer-term, it is therefore critical that we also increase emphasis on other solutions, such as ramping up the adoption of MMC and engaging more of our domestic workforce in construction.”

The paper also looks at the changing nature of those buying homes, including the increased role of so-called non-household buyers, such as private companies, charities and State institutions.

It found that while the activity of these buyers adds to the stock of available housing, the cost to employees of renting is often higher than for owner-occupied housing and gives less tenure guarantee than in other countries.

This, it claims, impacts negatively on competitiveness and constitutes another draw on limited supply of labour in the construction sector.

“The challenges are manifest particularly with regard to the labour market, by undermining worker mobility and staff retention alongside the risk of limiting Ireland’s capacity to attract and retain internationally mobile talent and skills,” it concludes.