New out-do second-hand homes as an investment
The new homes market has been on a roller coaster for the past decade and a half. It ran into difficulty 15 years ago when the foolishness of 100pc mortgages de- stabilised it, along with the fact that many of the new homes being built were in the wrong locations. It went from deluge to drought, with over 93,000 completions in 2006 falling to just 12,666 in 2015.
The lack of new residential construction in the past decade has resulted in unsatisfied demand from aspiring homebuyers and has been further exacerbated by untimely mortgage regulations. Due to their structure, these regulations are forcing many people to move long distances from their places of work and network of family and friends or else into the rental market, as a result of which they cannot save a deposit.
These factors, combined with the hostile treatment of residential investors in recent budgets and the ending of the successful self-funding Section 23 incentives, are directly contributing to the 9pc rise in rents in Dublin in the past year and 9.9pc nationally, as just reported in the RTB Quarterly Rent Index compiled by the ESRI.
There is currently an annual requirement of 15,000 new homes in Dublin, 6,000 of them for social housing and 9,000 private houses and apartments. There were only 2,254 new homes completed in the first seven months of this year with a likely end-of-year outcome of just 4,000 units, leaving a shortfall of 11,000, adding to previous shortfalls.
Why are more new homes not being built? It's down to building costs or, to be more precise, non-building costs such as VAT and other taxes and development levies, planning delays and consequent funding costs. Minister Simon Coveney has indicated a willingness to remove the barriers to housing supply. Time is of the essence in this regard.
A significant characteristic of the new homes market is that new homes are now far superior to second-hand properties in terms of energy efficiency, annual heating bills, future maintenance, repairs and upkeep, better internal layouts and overall design standards. This receives insufficient attention and credit and it should be recognised by the Central Bank and lenders when repayment capacity is being considered and by homebuyers when assessing purchasing options and future outlays
Ken MacDonald is managing director of Hooke & MacDonald