Our two-speed property market could soon hit skids
Published 08/06/2014 | 02:30
THE property market is again in a dysfunctional state. One stark fact illustrates that more than all the others; on average a house only changes hands once every 75 years at the moment.
That is the calculation made by Davy Stockbrokers' economist Conall Mac Coille when he looked at the small number of transactions in the market.
Out of a stock of almost two million homes, just 1.3 per cent will change hands in a year.
In Dublin, where there is a more active market, around 1.6 per cent of the housing stock changes hands. This means the average house changes ownership once every 63 years in the capital.
Other indicators that tell us the market is in disarray include surging rents, with prices jumping by 18 per cent in the capital in the past year while stabilising outside the capital, and just over 2,000 dwellings being completed in the past year.
We need something like 25,000 dwellings to be built every year to meet demand.
This is due to pent-up demand from those who have long wanted to buy but held back in the past few years, and household formation where young people leave the family home to set up on their own.
Of course, those in negative equity want property prices to keep rising, but the way the market is distorted at the moment by strong demand and no housing supply can only end in tears.
We need more properties to be built and a steadily rising market, going up in line with earnings.
In an economy where the average disposable income fell by 25 per cent between 2006 and 2012, surging property prices in urban areas is a new property crash in the making.
And government plans to provide a guarantee to banks so first-time buyers can borrow up to 95 per cent of the value of a property is the last thing we need.
Finance Minister Michael Noonan seems blase about the surge in prices in urban areas.
He is satisfied that actions in the Government's Construction 2020 strategy represent a comprehensive response to the challenges facing the property and construction sectors.
There's three things he could do immediately to help prices recover in rural areas, and slow down the scalding Dublin market.
These include cutting some of the huge chunk of taxes taken by the Government from house building.
Some 40 per cent of the cost of building a property is taxed in the form of valued added tax and levies paid to local and central government.
A move to ban 35-year mortgages would also make sense, as these loans are helping to bid up prices.
And a tax incentive to encourage older people to trade down to small homes would also be useful.
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