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It's true...Ireland IS affected by housing market changes more than other countries

New research shows that households in debt are only likely to reduce if if they are comparatively well-off.

Image: Eamonn Farrell/Photocall Ireland

NEW RESEARCH HAS found that changes in the housing market are likely to have more of an impact on the economy in Ireland than in other countries.

The study also provides proof that people will reduce their spending while they clear outstanding debts.

The latest report from the Economic and Social Research Institute (ESRI), entitled ‘Consumption and the Housing Market: An Irish Perspective’, reveals that a reduction in debt levels is most likely to occur in households that have the money to do so, resulting in a slowdown in consumption.

Less well-off households are likely to be unable to pay off any debts, and so find it difficult to deleverage, the research suggests.

While this may seem obvious, the households with money are the ones who are usually expected to be spending and boosting the economy.

“Crisis”

“The recent financial crisis has highlighted the relationship between the Irish housing market, real economic activity and key fiscal variables,” said Kieran McQuinn, ESRI economist and one of the authors of the report.

“Micro-level information provides rich insights into the nature of these relationships, particularly in light of the financial crisis.”

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The report highlights that changes in ‘housing wealth’ have a relatively large impact on how much we spend in comparison to other countries.

This suggests that it will have a significant impact on the real economy.

Recent figures have revealed a slight easing in the rapid increase of activity in the construction sector.

However, suppliers are now taking advantage of the sector’s massive growth, with input cost inflation rising sharply.

Read: Construction activity eases slightly, but suppliers are now hiking their price >

More: Why is this house so expensive? >

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Nicky Ryan

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