In this paper survey data on the Irish construction sector is used to get a greater understanding of the production capabilities of the supply-side of the domestic housing market. Amongst OECD countries, the property boom and bust experienced in the Irish case over the period 1995 to the present stands out. After a period of sustained increases in both house prices and supply the Irish market went into freefall after the 2007/2008 international financial crisis. At present the level of housing supply is estimated to be less than half the amount that is required on the basis of likely population trends in the Irish economy. Unlike most studies of the housing supply-side, in this paper we avail of microeconomic data to estimate key production elasticities amongst Irish construction firms. These results, while providing valuable insight into the historical experience of the Irish market, may also give some indication as to the likely future supply-response of the sector.

Relatively few studies examine, from a microeconomic perspective, the supply capability of a construction sector. Consequently, this study is relatively unique in that we use a nationally representative survey of construction firms to examine supply-side behaviour for the Irish residential property sector. In particular, we appeal to duality theory and estimate labour input demand and output supply elasticities from a coherent theoretical framework. We use data from the years 2007, 2008 and 2009 in our analysis. Thus, we are able to compare the relevant elasticities in the last year of the Irish housing boom and the first two years of the contraction.

Our results suggest that labour demand was highly responsive to the changes that occured in the residential construction sector in 2007 and 2008. Over the period 2007 to 2009 construction firms moved to reduce the number of people employed in response to changes in the both the price of labour and the price of output (housing). It also appears that labour involved in the construction sector of the economy is particularly sensitive to fluctuations in housing output.

While such an analysis provides a useful account of the supply-side behaviour of the sector at that point, as the sample covers both the last year of the boom and the first two years of the contractionary period, we believe the analysis may shed some light on the likely supply response of the domestic construction sector at the present time.