Pandemic set to cause major shortfall in housing supply, warns new study
The study from the Banking & Payments Federation Ireland shows that new builds have been badly impacted
THE COVID-19 CRISIS has had a major impact on housing supply, according to a new report.
The weeks-long hiatus on construction work as sites shut in response to the pandemic, combined with the limits imposed by social distancing requirements, mean that new houses might only reach 14,000 in 2020 – a major shortfall.
The figures come from a study by the Banking & Payments Federation, which was published this morning.
Construction work returned several weeks ago in Phase One – but with social distancing rules in place and strict new regulations.
Dr Ali Ugur, Chief Economist at the federation, said: “Ireland’s housing supply is going to take a significant hit this year given that the construction sector stopped all activity between the end of March and mid-May as well as the fact that current activity is very much limited due to work practice restrictions as part of Covid-19 health measures.”
He estimates that before the crisis the number of new houses built would have been between 24,000 and 26,000.
However, the impact of the coronavirus pandemic means that new builds will likely be between 14,000 and 16,500 this year.
The study suggests that demand for houses and mortgages might prove resilient even in the face of the economic shock from the pandemic.
Ugur said that it “may hold up better due to the important role which income levels play in housing and mortgage demand”.
Those on higher incomes, according to the study, were less likely to need the Pandemic Unemployment Payment or be on the Temporary Wage Subsidy scheme.
This meant that many of those who could afford to buy a house were least affected by the pandemic.
“Looking at these figures in the context of the mortgage market, it is earners in this same income bracket that account for the majority of those drawing down mortgages,” Ugur said.
“Given the significant and increasing share of first-time buyers in the Irish mortgage market, and income levels required to secure a mortgage, income losses during the pandemic may not have a significant effect on demand for mortgages from this cohort,” he said.
This means that the demand for new houses might be less likely to collapse in the months to come.
However, this doesn’t mean demand is unlikely to be affected at all. The full economic impact of the pandemic will still be borne out in the months to come.
The extent of Ireland’s recovery, Ugur said, will also play a role in housing demand.
Earlier this month, it was announced that Ireland Budget deficit hit €6.1 billion in May as spending on health and income supports added pressure on government finances.
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Source: The Journal – Dominic McGrath
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