The Organisation for Economic Co-operation and Development in its influential half yearly Economic Outlook report, predicts that Irish house prices are likely to have further to fall in an economy which, it points out, has the highest share of housing output as a share of GDP of any country in the 30 nation OECD area.
The Report, issued on December 6th had the following to say about the Irish housing market: ‘The decade-long housing construction boom raised the share of residential investment to more than a tenth of GDP in 2006, the highest in the OECD.
‘The current meltdown in the housing market is thus weighing heavily on activity.
‘House prices have fallen and are likely to fall further. Housing market transactions are sharply lower with loan approvals down by a fifth on a year ago.’
Consumption is likely to be affected by the housing market through weak consumer confidence, which has already fallen to its lowest level since 2003, and possible negative wealth effects.
Not all is gloom however, in the OECD’s view, because, while the downturn is expected to cause a drag on growth next year (to a still solid 3 p.c.), it says growth will rebound in 2009 to a rate of 4.5 per cent. The main risk to a downturn in the Irish economy is an underestimation of the fall in house prices or a prolonged period of readjustment of house prices, it says.
In order for the country to combat the depressed housing market and falling growth, the OECD has identified the control of government spending as a ‘vital’ component. In this respect, the report said that it ‘is vital for the medium term that expenditure growth is better controlled and spending increases at much lower rates than in recent years. Further expensive commitments should be avoided, particularly on public-sector pay.’ |
