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Ireland sees housing shortage, UK leaving EU among key risks to recovery

DUBLIN (Reuters) - A housing shortage and the possibility of Britain leaving the European Union are among the key economic and social risks to Ireland's economic recovery, a government report said on Thursday.

The Irish economy is forecast to be the fastest-growing in Europe for the second year running in 2015, a dramatic recovery from a property and banking crash that prompted the government to start issuing annual risk assessments.

This year's report highlighted the increasing mismatch between household formation and housing supply with fewer than 10,000 units built a year since 2011 compared to an average of 23,000 during the 1970s, when Ireland was a much poorer country.

Average Dublin rents climbed 9.6 percent in the year to March, according to the latest statistics from the Private Residential Tenancies Board, and are less than 5 percent below their 2007 peak.

"Improving housing supply is both an immediate issue of concern - with lack of supply leading to higher rents, increased pressure on social housing and increased homelessness - and one

of long-term strategic importance," the report said.

"A lack of housing and associated high prices and rental costs could also affect Ireland's attractiveness for inward investments and skilled immigrants."

The report also highlighted the economy's "heavy dependence on a relatively small number of multinational corporations", leaving employment, economic growth and tax revenues vulnerable to changes in Ireland's attractiveness as a location for those companies.

On Britain's planned EU membership referendum, the report said a fundamental change to the role of the United Kingdom in the EU, or a period of continuing uncertainty, could present significant challenges for the union and Ireland in particular.

It emphasized Britain's position as an important ally within the EU on negotiations, Ireland's significant economic and trading ties with its nearest neighbour, and the impact any changes would have on British-controlled Northern Ireland.

Other risks identified included the high level of household debt in Ireland - second only to the Netherlands in the euro zone - and the 60 percent of all unemployed people who have been out of work for more than a year and might not share in the recovery in employment.

(Reporting by Padraic Halpin; Editing by Mark Heinrich)