House prices in urban areas to rise 7pc a year
Experts advise city values will jump significantly but warn government targets must be increased
Price pressure in Dublin and other key urban areas will see house values soar until the Government's housing action plan meets demand, property experts have predicted.
They said the value of homes in the capital, Cork and Galway will rise by up to 7pc per annum in the coming years as persistent and long-standing supply issues continue, despite Government efforts to end the housing crisis.
Thousands of homeowners are expected to attempt to cash in on the value of their homes in the coming years with experts warning supply issues will persist even if the Government's target of building 25,000 houses per year by 2021 is met.
The crisis will not be dealt with unless the number of homes being built every year is increased to 35,000 units, warned property consultant Philip Farrell.
He said government targets will need to be increased substantially to end long-standing supply problems.
"This year, we are going to come in at about 14,000 new units," added Mr Farrell.
"That requirement of 25,000 has existed for the past three years and there has been a shortfall of 10,000 to 15,000 for each of those last three years. Therefore, you need far more than 25,000 going forward - probably 35,000 units, to satisfy the pent-up demand.
"I think you are looking at price increases in the region of 5pc to 7pc [in Dublin and urban areas].
"Away from Dublin, you are looking at half of that, so somewhere around 3.5pc per year."
However, Daft.ie economist Ronan Lyons said rural areas will see more significant price rises from a lower base.
"Outside of the cities, the average price now is €173,000, and in 2015, this was €153,000.
"Housing supply does need to be up around 35,000 [new units per year], and as long as it is below that, there will be significant price pressure.
"I would be expecting Dublin prices to drift up rather than drift down because while the Central Bank rules are in place, they do not limit the number of buyers - they limit the amount people that can borrow."
Auctioneers are now writing to homeowners in popular parts of Dublin to make them aware of soaring demand for homes.
Property Team estate agent Patrick Moran said prices have definitely improved in South Dublin in recent months.
"I think you could be up 6pc to 7pc this year, which is colossal.
"When you go to value a property now, invariably you will end up with more than you would expect in terms of interest and that leads to an increased price.
"When people see something they like, they are pulling out all the stops to get it."
However, Mr Farrell warns that the cost of construction will cause the supply issue to be a huge problem for a number of years. He said building was still too expensive to attract developers to construct residential units again.
"The supply will be more limited outside the M50. There will be a demand but no supply, because the gap is too big.
"If you have a property in Kerry that is being sold for €130,000 and it is costing the builder €200,000, including site costs, to build it, the value of the property is 33pc short of the builder breaking even.
"It will be a long time before builders can build a house to make money."
A survey carried out by the Society of Chartered Surveyors Ireland (SCSI) found the cost of building a three-bed semi-detached house in Dublin is more than €330,000. However, the average asking price is €285,000.
Figures released by the Central Statistics Office (CSO) show residential construction output is up 31.5pc in the first six months of this year, compared to the same period in 2015.
In a pre-budget submission to Government last week, Construction Industry Federation (CIF) Director General Tom Parlon said government investment in infrastructure was key to reducing costs for builders.
"The price for increasing infrastructure investment is huge, but the price for not doing so is even greater as we could see our economic growth threatened, a continuing housing shortage and economic imbalances across the country."
He also suggested the Government introduce a 'help to buy' scheme to connect those who can afford a mortgage to a supply of suitable homes.
CIF previously called on the Government to introduce tax incentives and to cut VAT rates for developers in order to encourage them to build homes and apartments.
"Construction is a central driver of Irish economic growth," said Mr Parlon.
"All other sectors depend on it for the infrastructure, housing and built environment they operate within," he added.