The State should increase the supply of social and affordable housing in the short to medium term in order to head off the potential impact of the Covid-19 pandemic on the long-term supply of new homes.
That's according to new research which predicts that a long-lasting impact of the crisis may exacerbate the supply issues already present in the property market and lead to a sharp increase in prices when demand recovers.
The study by the Economic and Social Research Institute (ESRI) assesses the possible effects the coronavirus emergency could have on property supplies.
It suggests that in the short to medium-term, the uncertainty and high levels of unemployment could have a major impact on demand for housing, as prospective home purchasers become less willing or able to buy if credit is constrained.
The authors also point to the fact that the employment sectors most damaged by the pandemic so far are where there is a concentration of households who rent their homes.
This, they claim, could lead to medium-term affordability challenges, unless the Government intervenes using policy.
Other practical considerations that could have a dampening impact on demand in the short-term, they say, could include potential buyers being restricted from viewing properties.
"On the demand side, the impact on incomes is likely to limit the ability of some households to purchase and may exacerbate existing affordability challenges in the rental sector," said Dr O'Toole, senior research officer at the ESRI and co-author of the study.
On the supply side, however, the researchers argue that the greatest impact will emerge over the long-term.
There could be reduced investment in housing in the short-term, caused by uncertainty around return on investment, the impact of public health measures on construction productivity and a potential hit to credit access for development firms.
But while those issues are short-term, the net result will be a drop in future house and apartment completions over the longer-run, the analysis suggests.
A recovery in demand for housing in the future as the economy recovers would, therefore, outpace the supply, leading to an exacerbation of the shortage of new property that already exists in the market, the paper argues.
A knock-on consequence of that would be that prices could also rise sharply when demand improves, moving properties further out of reach for some buyers already struggling to afford a home, it says.
"Ireland's housing market has suffered from chronic supply shortages over the past number of years and the disruptions to activity which are associated with Covid-19 place further pressure on delivery in the private sector," said Professor Kieran McQuinn, co-author of the paper.
As a result, the ESRI researchers suggest the most efficient response would be for the state to increase the numbers of social and affordable houses that it provides in the short to medium term.
"An increase in the supply of such housing at this point would help to reduce the extent to which the imbalance would be exacerbated by the present crisis," the paper says.
"Ultimately, facilitating cheaper, more efficient housing supply is the primary policy concern in the housing market over the medium term."
