Revealed: Noonan warned of new crisis in property market
Nama told Finance Minister ‘two distinct economies’ now exist
House prices in Dublin and the commuter belt are far outstripping the rest of the country, and the property crisis will escalate unless action is urgently taken, the State's bad bank Nama has warned Finance Minister Michael Noonan in a confidential report seen by the Sunday Independent.
In a measure of the scale of the crisis, Nama told Mr Noonan that the supply of homes in the Dublin area "could be depleted by 2015", which would further drive up prices in the capital.
Mr Noonan was told last year that the level of new building will be "insufficient to satisfy demand".
The number of new housing units to be built this year is expected to rise to about 10,000 following 8,800 completions in 2014. Property experts estimate that supply needs to at least triple to catch up with demand. A house "completion" is counted when the property is connected to the electricity network.
It can now be revealed that the confidential 2014 report to the Finance Minister warned that price gaps in the housing market between the greater Dublin area and rest of the country "will widen further over the next two/three years".
Nama also said that "two distinct economies" exist in Ireland and the main driving factors causing the disparity show no sign of reducing.
This conclusion will be seized on by opposition parties, who have accused the Government of presiding over a two-tier economic recovery in Dublin and large urban areas against the remainder of the country.
The report concludes that a shortage of supply of houses and commercial property in Dublin is causing prices and rents to soar on one hand, while significant oversupply and falling populations in rural areas are depressing prices in other parts of the country.
Michael Noonan requested Nama to produce a report to determine whether prices outside Dublin would catch up as the economy recovers or whether a more fundamental crisis exists.
He is now facing a dilemma to seek to address the escalating property crisis in the Budget.
Nama has unambiguously warned the minister that while residential and commercial prices are to improve in the Dublin area, the pace of recovery in other areas is likely to "be relatively slow", particularly given the excess supply of residential, retail and other property, which will take several years to deplete.
"Nama takes the view that the greater probability is that economic and market disparity will widen over the next two/three years," the report states.
Its analysis continues: "There is little reason at this stage to expect that the market, economic, employment and migrations trends which are driving the divergence in performance between Dublin and other regions will be reversed in the near future."
The report quotes statistics that suggest residential prices in Dublin have increased by 18pc in the two-year period from 2012 to 2013, while prices "elsewhere have fallen by over 2pc".
Worryingly, the report also concludes that official Central Statistics Office (CSO) figures, which show the level of "divergence" between Dublin and the rest of the country, are underestimating the scale of the gap.
"The CSO indices underestimate the extent to which prices in Dublin have diverged from prices in other regions," the report states.
This is because CSO figures do not include cash transactions which, at present, account for about half of all activity.
"DNG estimates that the rebound in Dublin prices from their lowest level has been of the order of 36pc, not the 18pc indicated by the CSO data," the report states.
The report contains a stark warning that, because of major supply shortages in the greater Dublin area exhibited by a fall-off in completions and planning permissions granted, "there will be further upward pressure on house prices and rents for the foreseeable future".
The Nama report, obtained under the Freedom of Information Act, examined the scale of the crisis across the country, examining various factors, including the level of empty properties and the expected length of time each county will need to deplete their excess supply of houses.
The report refers to a piece of housing-supply research carried out by the NTMA's chief economist which was presented to the Nama board.
"Recent data suggested to the NTMA that the number of households is increasing at a faster pace than expected in Dublin. Vacant stock in Dublin could be depleted by 2015 unless more stock becomes available," the report states.
The NTMA concluded that over the next three years, house prices in Dublin will continue to rise based on supply side pressure.
It also concluded that an increase in the rate of repossessions "will not have a material impact on the imbalance between supply and demand".
The emergence of the report comes as property prices nationally rose marginally in April, according to the CSO.
In Dublin, residential property prices rose by 1pc in April. Dublin residential property prices were 20pc higher than in April last year, while outside of Dublin, residential property prices rose by just 0.3pc in April.
Prices were up 11.4pc compared with April last year, the CSO said.
Prices had fallen in the first two months of the year, but have now risen on a monthly basis in March and in April.
Commenting on the report, University of Limerick economist Stephen Kinsella said rural parts of the country will continue to stagnate unless jobs are redirected to them.
"People are migrating to Dublin because that's where the jobs are. Employment is the big driver here. So the gap will widen unless jobs in those other counties are created," he said.
He also called on many excess units in rural counties to be bulldozed as they will never be fit for use.
“Many of them are built on floodplains, so of course knocking them, in some cases, is worth considering,” he added.