Ireland may need to turn to returned emigrants to tackle its chronic homes shortage, one of Ireland’s leading economic think tanks told the Irish World.
In a just-published report, Capacity constraints in the Irish economy? A partial equilibrium approach, the country’s Economic and Social Research Institute (ESRI) says immigrant, or returned emigrant, building workers may well be the only way out of the housing impasse.
But they themselves would find it extremely difficult to get accommodation they can afford anywhere near where the work is, property hotspots like Dublin and other major cities.
The report’s author, Kieran McQuinn, the ESRI’s own research professor and head of economics, told the Irish World that returning emigrants may have a particular advantage – even having a neutral overall impact – but would have to brace themselves for long commutes into places like Dublin on roads and public transport that haven’t seen proper investment for several years.
The report also says the necessary increase in housing output will require a large increase in bank lending to construction firms and house buyers to levels not seen since 2008 – the peak just before Ireland’s economically devastating property and banking crash.
To avoid history repeating itself, it says, strict lending rules are needed to avoid a repeat of the last property bubble and collapse.
The report says construction employment in Ireland – once disproportionately and dangerously high – is now low by historic and European levels.
“Employment levels in construction compared to those over the past 20 years are still quite low as is the proportion of employment in construction,” it reads.
“However, in spite of the low level of housing supply at present, employment in construction is relatively high. This suggests that employment in construction would have to increase to elevated levels in order for increased housing supply to be provided.
“It now appears that much of the additional labour required for housing supply and other construction and infrastructural work would have to be secured through inward net migration; most of this additional labour supply would likely come from immigration.”
Acknowledging that the extra construction workers will have to come from outside Ireland, it also admits the shortage of homes and the high cost of renting – particularly in the greater Dublin area - is a significant discouragement to anyone to move there.
The report’s author Kieran McQuinn told the Irish World: “There is a need in the economy for housing in the medium term and, at present, we’re building something in the region of 17,000 or 18,000 units per annum when the structural demand we’ve estimated is closer to 25,000-30,000 and we’ve been missing that target for a number of years.
“We were looking at how we are fixed in terms of increasing the levels of supply going forward. The issue is: because of the economy performing strongly over the last number of years, the unemployment rate is actually very low by historical standards.
“That suggests there isn’t a huge amount of slack in the domestic labour force to meet that demand for extra housing. Construction, in particular, is a very labour-intensive sector and you need a significant increase in the number of people working there if you are going to increase output.
“And so, therefore, that then gives rise to the notion that you’re going to have to rely on significant inward migration as a way of addressing the shortfall.
“As we’ve observed in the paper, the level of employment in the construction sector is actually quite low but it’s not that low when you compare it to the level of output in the sector – the level of output is very low.
“If you’re going to increase the level of output, you’re going to have to increase the numbers working in the sector considerably. It’s not evident that there is much room in the domestic labour force to accommodate that [increase in workers].
We asked Mr McQuinn just how many construction workers from overseas are needed and he replied:
“There’s around 145,000 in the construction sector at present. Back when we were building ridiculously large numbers of houses in 2007, 2008 – we were nearer to 240,000 people working in construction.
“You are probably talking about increases [in construction workers] in the region of 40-50,000 over the medium-term in terms of the people required.
“In the latest figures, we’ve already seen a sizeable increase in inward migration – we’ve seen 34,000 for the year to April – which is large for Ireland on a historical basis.
“We have seen larger at the height of the Celtic Tiger but there’s evidence that this process – if that’s what you’d call it – has already kicked off.”
We asked if returned emigrants – especially those who were forced to leave after the crash – held the answer. He replied: “Wherever it may come from; whether its other European countries, people who have never been to Ireland before, or whether its returned emigrants – they all fit the bill.
“The problem we do identify, however, is rents in Dublin and the cost of housing is so expensive because we have such a shortage of supply.
“If people are going to come back through the inward migration channel then, unfortunately, in the short-term you’re going to see increased demand-side pressures in both the rental market and the owner-occupy market.
“That’s the kind of chicken-and-egg-type situation where we need these people to come into the country in order to build the houses but unfortunately, it could have an impact on housing prices and rents in the short-term.”
But would there be an intrinsic advantage or preference for returned emigrants?
“If somebody has never been to a country before and they come to Ireland, then they automatically need a place to live unless they have friends here already.
“When somebody is returning to Ireland, however, there is the chance that they have some accommodation possibilities that don’t involve renting or owner-occupying.
“In a way, a returning emigrant coming back into Ireland may not have the same impact on the demand and rental costs as somebody who has never been to the country before. A person coming back into Ireland would also be more familiar with the trade and with where the possibilities and opportunities are.
“In that sense, I suppose there would be some slight advantage in returning emigrants entering the labour force rather than people who have never been before.”
But how do you square the increased numbers of workers with the additional pressure they bring from their need to have somewhere to live?
“It’s a very difficult square to circle…the problem is that the demand in the economy grows as the economy expands and increases its levels of activity and that’s what we’ve witnessed in Ireland in the past four or five years.
“There has been a very swift recovery and a sharp increase in activity.
“The level in the pace of the housing supply has not kept up with that.
“The long-term solution is more supply, and in order to get that we need people to come in and work.
“It may well mean workers having to live somewhere outside of Dublin and commute into the city. That could one way of dealing with the increased cost of living in the Dublin area…”
“The Irish economy has been growing at multiple the rates of other European economies – growing at 5 or 6 per cent for a number of years.
“When the opportunities are here, people will come. I’m sure there will be difficulties such as long-distance commuting but people will probably still come and work here notwithstanding the high levels of housing costs.
“But the infrastructure around Dublin is creaking after two years of rapid growth in economic activity.
“The M50 has huge volumes on traffic on it every day…it’s a bit like the housing in that there was no real investment in the past 10 years in transport infrastructure and now, in many respects, we’re paying the price for that.”