How will future Irish housing demand be funded?

In this paper we avail of two recent modeling developments to address a number of related issues in the Irish property and mortgage market. We first use a model of long-run Irish housing demand, which explicitly incorporates... [ view full abstract ]

In this paper we avail of two recent modeling developments to address a number of related issues in the Irish property and mortgage market. We first use a model of long-run Irish housing demand, which explicitly incorporates the role of future demographic trends, to forecast likely activity levels in the Irish residential market. The results are then combined with output from ``COSMO'' a newly estimated model of the Irish economy, which itself has a specific housing and banking component. Consequently, the funding requirements of likely trends in long-run housing demand are then estimated. In particular, the analysis indicates that a ``funding gap'' is likely to emerge where the growth in credit levels to fund the increased activity in the housing market is unlikely to be matched by an increase in the deposit base of the domestic financial sector. Some of the regulatory issues which may arise if the likely resulting funding gap is to be bridged by the domestic banking sector are then discussed.