First-time buyers drive the new homes market
As the housing market has recovered, sentiment has dramatically improved, which is a critical ingredient for a functioning new homes market. As rents rise to new heights and finance slowly becomes more available, first-time buyers (FTBs) are entering the marketplace in volume. They are older than before (average age mid-30s) and definitely more astute - they know what they want and where to find it. The help-to-buy scheme has also improved sentiment allowing more FTBs to purchase a home with reduced deposits.
In new homes, FTBs are key drivers of the market. Everything starts with FTBs, if an FTB is paying €300,000, then the trade-up house could be valued at €400,000.
As the population continues to increase and age, we are witnessing significant appetite return for FTB starter homes, predominantly in suburban Dublin. In some of the more affluent locations, parental support is evident as market stability and the potential for capital growth underpins their investment.
The number of inquiries to Savills new homes has dramatically increased by up to 400pc since the beginning of the year. This is due to a number of factors including pent-up demand, finance availability and, on a more positive note, more new homes developments.
Already comparisons to the boom years are being heard, yet there is an underlining difference that marks this market cycle out from that of the Celtic Tiger - lending rules. The Central Bank has capped lending and linked it to earnings, which essentially ensures people cannot borrow more than they can afford.
The other reality is that densities have been imposed by planners. If you want to live in an urban location and in a new home, you will most likely be looking at an apartment. If you want a traditional new home, you will most likely have to look further afield. Therefore, compromise of unit type is required in Dublin as it is in all other major cities in Europe.
Due to the continued lack of supply of new homes and other factors outlined above, we are expecting prices to increase through 2017 and into 2018 by between 8-12pc, subject to location and product type. In general, in the last number of years, the developments built have been at the middle to upper-end of the market due to viability issues linked to attainable prices. There was a lack of schemes aimed at FTB because the margins were so tight. This is now changing and we are seeing a greater number of starter home developments commencing with increased stock levels due to come on stream from this summer.
- David Browne is head of New Homes and a director at Savills