Continued growth in housing completions and moderating house price inflation have been welcomed as signs that Ireland’s housing crisis might finally be turning a corner.
However, a deep dive exposes problems which are difficult to ignore.
At a glance, both supply and price inflation are moving in the right direction. Nearly 16,700 new dwellings were delivered across Ireland in the first six months of 2026. This is the strongest first half of the year since before the global financial crisis and it represents an 11 per cent up-lift on the corresponding period in 2025.
This has coincided with a continued slowdown in house price inflation which has almost halved from 10.1 to 5.1 per cent a year over the last two years.
All else being equal, increased supply should dampen house price growth, so it is unsurprising that people have assumed a causal link between the continued uplift in completions and receding inflationary pressure.
However the all-else-equal condition rarely applies in nature and, in the Irish housing market, other things have been happening besides increased supply. In particular, demographic and economic headwinds have emerged which suggest that slowing inflation may be as much to do with weakening demand as strengthening supply.
[ House price inflation slows as demand fallsOpens in new window ]
Most fundamentally, population growth is slowing sharply. With the exception of a Covid blip in 2021, the rate of demographic expansion is now back to levels last seen a decade ago. On the economic front, the European Central Bank has raised interest rates twice since June, causing mortgage rates to begin moving up. By impacting debt service-to-income ratios this is imposing restrictions on the amount that home buyers can borrow.
Labour market developments are also dragging on demand. There has been a pronounced slowdown in jobs growth and unemployment has been creeping up, albeit from a low base. Just as importantly, weakness has been concentrated in highly remunerated sectors of the economy which, until recently, had underpinned the property market. Tech is Ireland’s best paid industry, with earnings levels 65 per cent above the national average.
However, whether it derives from a shift in tech firms’ investment priorities or America’s stance on foreign direct investment, tech employment in Ireland has contracted by 6.5 per cent since early 2025. There has also been a shake-out in professional services, another highly paid sector, with 17,800 jobs lost in the last year.
Inevitably, these weaker employment dynamics have impacted earnings growth. Average salaries are now rising at a rate of 3.9 per cent a year, well below the post-Covid norm.
It is hard to be definitive about the respective contributions of stronger supply and weaker demand to the current slowdown in house price inflation. However, several factors suggest that the demand side may be dominating.
Firstly, although residential sales are up by 5.6 per cent year-on-year, this has largely been driven by the heavily subsidised new homes sector where transactions have risen by 15.2 per cent.
One interpretation is that consumers who cannot avail of State supports have hit their affordability limits. Indeed, this interpretation aligns with intelligence from online sales portals which shows that, although the flow of second-hand homes to the market has remained broadly flat, these properties are taking longer to sell and are achieving lower premiums over asking prices.
Also pointing towards the demand side, a tenure shift from home purchase to renting appears to be happening. The growth rate in private tenancies is outstripping that in household numbers, and pricing dynamics suggest that frustrated buyers are being displaced into the rental market; whereas house price inflation has slowed, rent inflation has rebounded from 2.7 to 4.7 per cent a year since the start of the year.
Ultimately, housing costs in Ireland are too high. This cannot be resolved by engineering lower prices. With housing equity appearing on many voters’ balance sheets, and with banks relying on property collateral, attempting to do so would be politically and economically impractical.
Therefore, the least painful resolution would be for earnings growth to exceed modest house price inflation for a sustained period. Welcome as it is, the recent slowdown in price growth falls well short of achieving this. In fact, both property price and rent inflation are still comprehensively outstripping earnings growth, so affordability continues to disimprove.
It should also be remembered that, as property prices and rents build up, inflation rates get applied to a higher base. At the onset of Covid the average house cost €261,240 and today’s 5.1 per cent inflation rate would have represented an absolute price increase of €13,323. The average home now costs €400,201, so that same percentage increase represents €20,410.
Reflecting on recent trends, and the factors behind them, the objective of sustained moderate house price inflation should be within reach. But achieving this would require housing policy to stop working against itself. A good starting point would be for Government to review whether its housing targets are realistic, necessary or helpful.
The current target of around 50,000 completions a year appears to be based on an assumption that the rapid population growth of 2022-2024 would be sustained. This was never likely; the inflow of Ukrainian nationals during this period was inevitably going to slow at some point, just as the magnet of rapid jobs growth was also destined to weaken.
The target also appears to bake-in an assumption that household sizes in Ireland will converge towards European norms. Again, this is unrealistic; Ireland has the highest proportion of children in the EU and children naturally tend to live in larger households.
[ What is behind the slowdown in Ireland’s property prices?Opens in new window ]
Finally, the inclusion of an overbuild target to correct a supposed backlog of unmet housing demand is just plain flawed – the Census measured housing vacancy at almost eight per cent.
Recent evidence only reinforces doubts about these targets. With demand weakening, Ireland’s property market appears to be heading towards equilibrium at a run-rate of approximately 40,000 housing completions a year.
This should be embraced, and the correct policy action would be to drop subsidies like Help to Buy, the First Home Scheme, the Local Authority Home Loan and the Rent Tax Credit.
The aim of these schemes is to turbocharge supply, which is clearly no longer needed. Their mechanism for drawing out the extra supply is to widen development margins by boosting prices. This is exactly the opposite of what is required.
Current demographic and economic trends present a golden opportunity to prioritise affordability over increased housing output.
We are building enough dwellings to meet demand and backing off the inflationary subsidy schemes at this point would allow house price inflation to continue naturally moderating. Unfortunately, however, politics is politics. The Government has staked its reputation on delivering more homes, and it seems determined to do this at any price.
Despite advice from its own consultants to shut down Help to Buy, it extended the scheme until 2029 and doubled-down in this month’s budget by raising the subsidy from €30,000 to €35,000. Simultaneously, it increased the Rent Tax Credit for the third time since its introduction in 2022, while also raising the First Home Scheme price caps in July.
A sustained period of moderate house price inflation is needed to resolve Ireland’s affordability crisis. But, as long as the political system remains shackled to chasing supersized output targets, this will not be achieved. This is because, for a country with overflowing public coffers, stimulating supply generally means using taxpayers’ money to drive up prices.
John McCartney lectures in property economics at TU Dublin
