Supply Response in an Uncertain Market: Assessing Future Implications for Activity Levels in the Irish Housing Sector

After ten years of unprecedented increases in both prices and activity levels, the Irish housing market has entered a period of significant decline. In 2007, Irish house prices, for the first time in recent history, experienced negative growth rates. Similarly, rates of house building began to slow appreciably and leading indicators within the housing sector suggest that house building will contract significantly in the years ahead to levels well below the record level of construction in 2006. The sustained increase in housing construction prompted by the rapid increase in prices resulted in the Irish construction sector assuming a position of considerable importance within the overall economy. A significant slowdown in housing activity could have far-reaching domestic consequences. In this paper, we use a recently developed model of the housing sector to gauge what the likely future supply levels of housing will be in response to the slowdown in demand-side pressures.