Business Property & Mortgages

Saturday 23 August 2014

The door has opened on the Irish house price recovery

Dublin house prices are up 22pc but the rest of the country is flat. Meanwhile new housing starts are up – but planning approvals are down. What does this mean for the housing market?

Dan White

Published 29/06/2014 | 02:30

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Little Or No Movement: On average an Irish house changes hands once every 75 years
Little Or No Movement: On average an Irish house changes hands once every 75 years

Average Dublin house and apartment prices rose by 22pc in the year to end of May, says the CSO. But average house prices rose by a miniscule 1.8 per cent in the rest of the country in the same period.

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The CSO data needs to be treated with a certain caution as it only includes transactions financed with a mortgage and not cash deals.

There also seems to be a growing disparity between second-hand and new house prices in the Dublin area. While average house prices in the capital rose by 22.4 per cent and apartments by 19.5 per cent over the past year, the price increases seem to be largely concentrated in the second-hand market.

"The second-hand market is where the bubble is. New house prices have gone up by a much smaller percentage," says developer Brian McKeon, whose MKN Property Group is developing several new housing projects on the northside of Dublin.

One legacy of the bust is a shortage of new housing supply in the Dublin area.

"We need to quadruple housing output in the Dublin area. We will build 1,800 units this year. That should be 8,000. There is a genuine shortage of new housing supply," says Hubert Fitzpatrick, director of housing, planning and development at the Construction Industry Federation.

"What's moving are smaller infill sites with own-door units. The banks are reluctant to fund larger sites. At present market prices are not sufficient to cover input costs on many sites. New house prices are still 50 per cent lower than they were seven years ago. Input costs have not fallen by as much," says Mr Fitzpatrick.

Even when the banks do lend to a new housing project they are being extraordinarily cautious, often sending their own quantity surveyors on to sites in order to ensure that their money is being spent on the projects which they have agreed to finance.

Even so, new housing starts were up strongly in the first four months of the year, with the number of commencement notices jumping by 132 per cent over the same period last year. Dublin experienced a 77 per cent jump in commencements.

Unfortunately, there appears to be less to the increase in new housing starts than meets the eye. It seems that the number was artificially boosted by many commencements being brought forward to beat the new housing regulations, which came into force on March 1, 2014.

Even if the increase was largely genuine, it was coming off such a low base as to be statistically insignificant with just 3,524 new housing starts being recorded up to the end of April, of which only 676 were in Dublin and a further 422 in the surrounding commuter counties of Meath, Kildare and Wicklow.

The sharp fall in the number of planning permissions granted in the first quarter of 2014 strengthens the suspicion that the strong increase in new housing starts experienced earlier this year was a once-off phenomenon, rather than the beginning of a sustained recovery.

Planning permissions for just 1,446 new houses (a 22 per cent reduction on the same period last year) and 158 apartments (down 64 per cent) were granted by the country's local authorities during the first three months of 2014.

Between them the four Dublin local authorities granted just 103 planning permissions for new houses and apartments (a single planning permission may cover several housing units) in the first quarter.

The only chink of light is that new residential planning permission applications seem to be rising strongly with the link2plans website, which monitors planning applications, recording a 19 per cent increase nationally in the first four months of the year.

Dublin experienced the strongest growth in new residential planning permission applications with a 61 per cent increase being recorded.

While this may seem impressive, it translates into just 4,396 new houses and apartments, of which 1,387 would be in Dublin, even in the unlikely event of all of the applications being granted.

What the recent crop of data tells us is that while the Dublin housing market is experiencing a recovery of sorts, it is a very different story in most of the rest of the country. The housing market west of the Shannon and in the midlands remains very depressed with Leitrim, Clare, Laois, Sligo, Mayo and Longford all recording double-digit falls in new residential planning permission applications in the first four months of the year.

Leitrim County Council granted just one residential planning permission in the first three months of this year, while Longford granted five.

Even in Dublin, the house price recovery rests on flimsy foundations, being largely driven by a shortage of supply.

According to Mr Fitzpatrick, most large sites are simply not "bankable" at current prices. Matters aren't helped by the fact that of the 30,000 new units for which planning permission has been granted in Dublin, 21,000 are apartments for which there now is very little demand.

Changing existing planning permissions to allow for the construction of more terraced houses and traditional semis is essential if the supply bottleneck is to be unblocked. Even when the banks can be persuaded to back a project, new house buyers are being very careful.

"The market is still very price-sensitive. If you don't the pricing right then you won't sell," says Mr McKeon.

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