Wednesday 28 September 2016

Rise of 6pc in property prices this year - S&P

Published 05/08/2016 | 02:30

Housing shortages will drive house price inflation
Housing shortages will drive house price inflation

The "robust recovery" in the housing market is to continue this year, credit ratings agency Standard & Poor's said.

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Prices would rise by 6pc, aided by the ongoing improvements in the labour market and a housing supply shortage.

The rise in property prices was likely despite the vote in Britain to leave the EU, it said.

Brexit will have a dampening effect, but will not derail the economic recovery in this country, S&P said.

"The prospect of Brexit will also contribute to a slowing of house price inflation, but the ongoing improvement on the labour market, along with a housing supply shortage that the decimated housebuilding industry finds difficult to address, will underpin relatively solid house price growth in the medium term," the ratings agency said in a report on Europe's housing markets.

Analysts at S&P said housing shortages will remain a key driver of property price inflation.

Supply will only gradually catch up with demand, it said.

On an annual basis, property prices are likely to rise by 6pc this year.

In 2017, annual price growth will slow to 2.5pc, S&P said.

House builders are still suffering from the housing crash that started eight years ago, and are still not in a position to provide sufficient homes for the market.

Output in the building sector was down 60pc, and will take time to recover.

House prices are still 33pc off their peak levels, S&P said.

But they are recovering, with stronger rises outside Dublin than in the capital.

"House prices have also benefited from robust gains in economy-wide incomes over the past two years, after several years of decline," the housing report states.

However, the recovery in household incomes has not been driven by rising wages, but rather by a substantial pick-up in employment, it said.

The boost to consumer incomes was despite households being among the most indebted in Europe.

Average household debt in 2015 was still equivalent to 170pc of disposable income, compared with 105pc in the Eurozone.

But this was down from the "extraordinarily high" 230pc at its peak in 2010, the ratings agency said.

"It will take some time before profit margins for builders improve sufficiently to allow the home-building sector to recover fully, supported by a gradually improving access to development finance, as banks work off the remaining crisis legacies on their balance sheets," the new report said.

The Government may need to take more policy steps to ensure house prices are affordable and to reduce construction costs, S&P said.

Despite the impact of Brexit, gross domestic product (GDP) should continue to rise this year by 4.6pc. Next year it will rise by 3.2pc.

Irish Independent

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