Zdeněk Čech (Directorate-General for Economic and Financial Affairs)
Ireland clearly stands out in international comparisons as a country with extraordinarily buoyant housing construction growth over the last decade. A swift supply-side response to increasing demand pressures for property increased residential building to record levels. However, it largely failed to stop the upward movement in property prices – which also partly reflects the limited supply of land zoned for development. Strong housing construction has nevertheless become a significant driver of Irish economic growth and in particular helped sustain growth in the aftermath of the global downturn in the early 2000s. In the years ahead, given a number of uncertainties (including inward migration), a gradual tapering-off in housing construction towards a more sustainable long-term path is likely. However, any external shock – such as a significant exchange rate appreciation – to Ireland’s small, open, trade-dependent economy, added to recent competitiveness pressures, might lead to a sharp contraction in residential construction from its current very high levels. Furthermore, escalating property prices (together with infrastructural bottlenecks) have the potential to constrain growth over the medium term. Maintaining a prudent fiscal stance, without compromising social cohesion and the commitments addressing the infrastructural needs of the economy, is the key challenge Ireland faces in the field.
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