The Central Bank is suggesting that around 52,000 new homes could be needed a year up to 2050, to meet pent-up demand and a growing population.
This equates to a 20,000 unit increase relative to the current supply in 2023.
They said these estimates rely on assumptions and are subject to uncertainty, as was evident for example in the faster than expected population growth since the last set of population projections in 2018.
The analysis is part of the Central Bank's quarterly bulletin for Q3 where they said the capacity of housing supply to meet underlying demographic needs is a key driver of sustainable growth in living standards.
They said following the financial crisis, the Irish housing market has been subject to more than a decade of under-supply. Over this period, house price and rental growth have outstripped income growth, stretching affordability.
While these challenges have a global dimension, housing output as a share of national income here has been significantly below the euro area average for a prolonged period.
The bulletin said "At its core, the underlying challenge relates to the housing system’s ability to produce viable housing projects at the required scale.
"Viability refers to producing housing units at sale or rental prices that are consistent both with the costs of production and within the reach of Irish households, given income levels.
"Sustainably bridging the gap between purchaser affordability and viability for the construction sector is a priority for public policy, with increasing economic implications both now and into the future, if not achieved."
Policy has already responded to this challenge. From a fiscal perspective, the State has increased spending on housing from an estimated €1 billion to €6.5 billion per year over the past decade, with around three quarters now devoted to capital and one quarter to current spending.
Housing supply
Irish government housing expenditure is now the second highest proportionately in the EU, and close to its 2007 peak.
They said housing supply has increased meaningfully in recent years. In 2023, levels of housing completions were broadly in-line with previous estimates of underlying demand embedded in the Government’s housing plans.
However, population growth has exceeded previous expectations in recent years, meaning that previous estimates must be revised upwards.
The under-delivery of homes relative to underlying demand over more than a decade has meant that significant “pent-up” demand has accumulated.
They said there are three overlapping dimensions that will have a bearing on construction viability and the ability of the market to deliver additional housing supply to the scale envisaged in this report:
The first of these is planning and building regulations. They said a complex and protracted planning environment, alongside issues relating to the size and specifications of housing units, add to the costs of delivering housing.
Capacity to deliver the necessary enabling infrastructure, as well as zoned land, in areas where demand is highest also remains a source of uncertainty.
The second is around the construction sector itself. They said the financial crisis has left long-lasting scars on the construction sector. Its productivity is low, both by historical and cross-country standards.
In part, this relates to an over-reliance on small enterprises, not able to benefit from economies of scale and suffering from over a decade of relative under-investment in machinery, equipment and more widespread adoption of modern technologies.
Finally, the third issue is access to development finance: delivery of circa 50,000 units per annum would require sustainable access to financing of sufficient scale.
Their analysis suggests that an estimated €6.5 billion to €7 billion of additional development finance over and above the maintenance of existing levels would be required to fund 20,000 additional homes per annum.
The additional finance would require a diverse set of domestic and international sources.
