The good and the bad in the market currently
Guest post by Ronan Lyons. Perhaps the most remarkable feature of the Irish housing market over the last couple of years has been the dramatic start and end of house price inflation in Dublin. Starting in 2013, house price inflation reappeared in the capital, after an absence of six years and within 18 months, prices had risen by over 40% on average – and almost 50% in some districts.
The introduction of the Central Bank rules, however, has nipped a new housing bubble in the bud and since then prices in Dublin have barely budged, rising 0.9% in the year to March according to the figures in this report. What the Central Bank effectively did was freeze credit conditions the way they were in late 2014 and thus prices are now being driven not by bank lending practices or by expectations, but rather by the more fundamental forces of supply and demand.
The issue in the Irish housing market currently – and in particular in the greater Dublin area – is a lack of homes. Every month, roughly 2,000 new households are formed, each requiring somewhere to live. But each month currently sees the construction of at best 1,000 new homes. In Dublin, the figures are even starker – nearly half of all new households are being formed in or around the capital but only 150 or so properties are being built each month in the city.
The result is that fewer and fewer homes are on the market. And this is a trend that is common to all parts of the country now, not just Dublin, which did not see any significant over-construction during the bubble years. The first graph below shows the total number of properties on the market each month from 2010 on. It is clear from the graph that the tightening of supply in Dublin took place between 2011 and early 2014 and if anything has improved slightly since.
Total number of properties actively for sale, by region, 2010-2016
Elsewhere in the country, however, the trend towards tighter and tighter supply continues, with less than half the number of homes on the market now compared to four years ago. It’s worth noting, however, that Dublin has a larger population than any of the other three regions shown in the graph. So, on a per-capita basis, Dublin remains the most starved market: there are just 27 homes for sale for every 10,000 people in Dublin, compared to 62 per 10,000 people elsewhere in the country.
This, therefore, is the unhealthy part of the housing market: a lack of homes for people to buy. It is serious, chronic and getting worse and therefore requires government action. This action should be focused not on trying to trying to drive prices further up, so as to stimulate supply, but rather to drive costs down so that they are in line with our incomes in the same way that the Central Bank now requires house prices to reflect our incomes.
But not everything about the market currently is unhealthy. The second graph below shows the gap between the final transaction price and the initial list price. Unsurprisingly it shows that during 2010, 2011 and 2012, on average the final transaction price was well below the initial list price. During 2013 and 2014, however, the market turned quickly in Dublin and by the time the Central Bank announced it was bringing in mortgage caps, the typical Dublin property was achieving 7% more than its initial list price. Where once there was too little demand, suddenly there was too much.
Comparison of final transaction price to initial list price, 2010-2016
Since then, the relationship between list prices and the sale price has normalised, both in Dublin and elsewhere. This is most definitely a positive feature of today’s market as it means decisions to buy and to sell can be made under less pressure. This mix of healthy and unhealthy gives a flavour of the housing market, as Ireland waits for a new Government.