Ireland: House construction nose-dives

In 2006 approx 93,000 new houses were built. In 2007 this dropped to 78,000. The prognosis for 2008 is bleak with forecasts generally in the range of 40,000 to 45,000 house completions. The estimate for 2009 is even bleaker with suggestions that figures could drop to 37,000. In 2007, 20,000 construction workers were laid off
Clearly the bubble has burst.

There are a number of reasons for the slow down:

(1) The 2% rise in EU interest rates is a contributory factor.

(2) Uncertainty on the Stamp Duty issue contributed to the instability.

(3) Excessive house price inflation has priced houses out of the reach of many in the middle class.

(4) The Government tax takes is too high.

(5) The 5% general inflation rate has weakened purchasing power.

(6) Up to 200,000 houses remain unsold.

A major reduction in EU interest rates will not be sufficient to return the house building sector to health. Further reductions in VAT and Stamp Duty are required. The 200,000 overhang in unsold houses must be substantially cleared. A further substantial reduction in house prices is required. General inflation must fall substantially.

The implications for Government finances are quite severe. There was an Exchequer surplus of €2.3 billion in 2006. A deficit of €4.9 billion is projected for this year.
Tax receipts for January and February are 684 million lower than for the corresponding period in 2007 . VAT receipts for January and February are 7.3% lower than anticipated whilst Stamp Duty receipts are down 44% on the first two months of 2007. The unemployment hate has risen to 5.2%. A rocky road lies ahead for the economy.