Tackling the housing crisis requires economic sacrifices

While success may bring its own rewards, for the Government it brings new headaches.

The economic recovery since 2012 has transformed the Irish labour market: unemployment has fallen consistently. This labour market success has been based on rapid growth in the economy. This year will be the fourth in which growth in the real economy has equalled or exceeded 5 per cent, and it may well continue next year.

However, because the government in the period 2012-2014 was unsure about how successful it would be in turning the economy round, it did not prepare for success by focusing on building homes. The result has been that, while growth is very rapid, those finding jobs all need somewhere to live and building still lags far behind.

One of the failures in the run-up to the 2008 crash was that governments did not recognise that there were limits to how much goods and services an economy could produce in the medium-term.

Lost years

In the period 2003-2007, the economy was asked to produce massive numbers of new homes as well as an ever-growing range of consumer goods and services. If the priority was investment, as the then government asserted, fiscal policy should have made space in the economy for that investment by a combination of raising taxes and cutting expenditure elsewhere. The failure to take such action resulted in very painful lost years when the economy exploded.

Today the situation is rather like what it was in 2003-2004. The economy is growing very rapidly and the clear priority is investment in infrastructure, especially homes.

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