Mark Keenan: Survey shows lending curbs have made it harder to buy outside capital
Published 23/01/2016 | 02:30
It could be argued that the Irish State has somehow managed these last few years to create the perfect conditions for the almost complete curtailment of new home construction in almost all areas.
In 'How Much Is Your House Worth? 2016' - an up-to-the-minute price guide which values all Irish homes but also features the views of 70-plus property professionals on 64 local markets - we discover that shortage is now causing rampant house price inflation all over the country. It has been an inflationary factor in Dublin these last three years, but today through this nationwide survey, we learn just what a problem it's become in regional towns where rents are now soaring at rates comparable to those in the capital. Now young families in regional towns can't get houses because they're competing with Dubliners.
It has been claimed by the construction industry that (depending on where you are located and what land and other costs are) a minimum price of between and €200,000 and €240,000 must be paid by a homebuyer for a semi-detached house for a builder to make a profit. So no homes are built as long as second-hand house prices are below this threshold.
In many rural counties with middle-sized towns, the semi detached homes currently cost between €130,000 and €150,000. Almost every town is now experiencing a shortage.
But the prices of these average family homes must now increase by more than €70,000 to make building feasible. Homes are increasing rapidly in price because of shortage but at the same time no more homes will be built to address the shortage until this sort of massive inflation has been added to local values.
Is this what was intended by the Central Bank's measures to kill house price inflation in Dublin - massive house price inflation everywhere else within 60 miles?
So let's just suppose that, through some outlandish miracle, the semi- detached houses in Longford (currently priced at around €65,000) finally reach the point where they sell for €220,000 - a point at which new homes will again be a viable proposition. A point at which new homes will again be built to satisfy demand among families. Well now, at this price level, the buyers run into the Central Bank's mortgage restrictions price threshold - €220,000.
Now it means buyers will be penalised from this price upwards with 20pc deposits. More pertinently, with a 3.5 times income regime, someone on a quite reasonable €40,000 only qualifies to buy a home at €140,000. So the buyer gets knocked out anyway, whatever happens.
Following one of the biggest property crashes in history after which 60pc or more, was knocked off the value of homes, we have also introduced comprehensive building regulations which added €30,000 to the cost of building a home here.
What this means is that we will now require yet another few years of property price inflation for that ground to be made up - to make viable the better homes we are currently not building.
But in Dublin, where prices hit that threshold some time ago, the person with a €40,000 salary can still only raise €140,000 from a bank at 3.5 times salary limit - when a very average semi is €300,000. This means that average homes are only being sold right now to those with massive savings or to those adult children of better-off parents who can call upon mum and dad.
Nama is now suggesting tax incentives to trade down. But in Dublin, lower priced smaller houses in particular are in shortest supply. In the absence of supply, do they want an army of oldies competing with their children for those "first step" homes?
Already the lower priced homes have risen in relation to larger properties which are not selling as well because punters can't raise a €100,000 deposit to buy the latter.
All of the above is why our survey shows how Dublin based families are now heading as far afield as South Kildare and even Monaghan in search of a roof over their heads.
Most who work in the property and estate agency sector are heavily in favour of Central Bank controls to ensure sensible lending takes place. But almost all are in agreement that the present regime is grossly unfair and has gone way too far in snuffing out buyer's chances in Dublin and outlying counties.