Sunday 4 December 2016

Analysis: We're back in a housing la-la land as a fresh bubble inflates

Published 18/11/2016 | 02:30

Here we go again. The property market is back in overdrive and we have not even cleaned up the previous housing mess.

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Property prices are accelerating again, but it is not just the crazy price rises that are showing signs of a bubble just eight years after the bursting of the previous one.

In the past year prices shot up 7pc across the State.

Dublin prices are rising strongly, but outside the capital they have been rocketing, rising at a rate of 11pc in the past year, according to the Central Statistics Office.

Frighteningly, prices shot up by 15pc in the Midlands, and by 12pc in the west. These are unsustainable increases.

Among the other danger signs of the build-up of a bubble are that people are back to buying off the plans. Stock-market quoted Cairn Homes says it sold 40 houses off the plans in Dublin's Rathgar for an average price of €650,000.

And investors are back in the market in a big way, squeezing out and frustrating potential first-time buyers. A vicious circle has developed.

Want-to-be new buyers can't get a mortgage due to strict Central Bank lending rules and high property prices.

So they rent.

This has led to a situation where rents are at an all-time high. This is sucking money out of the pockets of millennials desperately trying to build a down payment.

More renters means higher rental yields. This in turn encourages more investors to enter the market, edging out new first-time buyers with their cash ready to turn the head of any seller.

Home buyers who can get their offer accepted are forced to pay more and borrow big.

The average property price across the State is now €253,000. But Dublin prices are as high as €383,000.

But to secure these properties buyers need big deposits, typically of €50,000.

The average mortgage needed to buy a house hit a fresh high of close to €200,000 in September.

So people are borrowing more - another signal we are back in a housing la-la land.

Research commissioned by mortgage lender EBS shows it now takes a third of the net income of someone on €55,000 to service a mortgage.

This level of income is one-and-a-half times average annual earnings, economic consultants DKM found.

The Central Bank made a sincere attempt last year to take some of the air out of the housing bubble.

The regulator's attempts to slow the rising market have only succeeded in clearing the way for investors and new buyers who have rich parents.

Central Bank Governor Philip Lane (right) is due to announce next Wednesday the outcome of a review of the lending limits, but we have been warned not to expect much in the way of easing.

In the meantime the Government has a plan to turbo-boost the housing market, but progress is painfully slow.

What all this means is that we are poor at learning from experience in this country, whether it is public sector pay or housing.

You would think we would at least wait for a generation to pass before we repeat the mistakes of the past. Chance would be a fine thing.

Irish Independent

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