Mind the gap — The price difference between Irish houses and apartments
Much of the focus of discussion on the housing market in Ireland concentrates on Dublin, the capital.
While Dublin does form the single biggest component of the housing market, by dint of its large population, it still represents only about 28pc of households in the country. The rest of Leinster and the province of Munster, including its three cities, both comprise roughly equal sizes in the Irish housing market, while Connacht and Ulster comprise the remaining 18pc or so of households in the country.
In other words, while Dublin may be the most important market in terms of size and perhaps even as the economic centre of gravity, it is important to recognise trends in Dublin may not reflect those elsewhere in the country. For example, the average house price in Dublin reached its lowest point in mid-2012 and rose by 40pc between then and early 2015, when the new Central Bank rules were introduced.
The average price of housing outside Dublin reached its lowest point in the second half of 2013 and rose by approximately 17pc by the time the new Central Bank rules were introduced. During the last 12 months, house prices in Dublin have effectively been stable, rising by roughly 1pc. However, house prices outside the capital rose substantially during 2015, typically by 10pc.
A similar pattern emerges, if you look at the total number of properties available across the country. In the second half of 2012 and particularly during 2013, there was a dramatic fall-off in the number of homes for sale in the Dublin area. But by summer 2014, this had largely stabilised and indeed the number of homes for sale in the capital in early 2016 is roughly the same as in early 2013, at roughly 3,500.
On the other hand in early 2013, there were over 43,000 homes for sale outside the capital. Three years later there were only 20,000 homes for sale outside the capital. This, in a way, proves both points: it is important to distinguish between trends in different regional markets, but it may also be the case that trends in Dublin - at the economic centre of the country - lead those elsewhere in Ireland.
But, of course, it is not a simple as there being one single trend outside Dublin. Suppose we split the rest of the country into four markets: the four other cities, Leinster outside Dublin, Munster outside of its three cities, and Connacht and Ulster outside of Galway. The rebound in average house prices has been far greater in the other urban centres and Leinster (between 35pc and 40pc) than it has been in Munster, and Ulster outside the urban centres (roughly 21pc).
There is one other dimension to add to all this, and that is the demand for housing is not just about location, it's also about the property itself. And the overwhelming trend in demand over the last few years since the crash, has been away from smaller properties and thus into larger properties, in particular family homes.
The graph above shows how average values have changed over time, for six different property segments. These include one-bedroom apartments and four-bedroom bungalows in three different locations: Cork city, Wicklow and Longford. At one extreme, the average value of a one-bedroom apartment in Longford has fallen from €177,000 at peak to just €35,000 now, 14pc above its lowest value of €30,000.
At the other end of the spectrum, a four-bedroom bungalow in Cork city, shows a substantial 48pc fall in its value from a peak of €482,000. But since bottoming out at just over €250,000, the typical four-bed home in Cork city has increased in value by over €100,000, or 42pc. In other words, while four-bed homes in Cork city are now just one quarter below their value at the peak of the market, one-bedroom apartments in Longford remain a full 80pc below their peak value.
What explains such hugely divergent trends? As you might expect an economist to say, the answer lies in the dynamics of demand and supply. In terms of supply, Ireland's problem of overbuilding was largely missing from Irish cities. For example, in the years between 2000 and 2008, Dublin is estimated to have built just two years' oversupply. Much of the excess supply, therefore, is concentrated in rural counties. The experience of the bubble has led some to associate lots of building with rising prices. But ultimately, it was credit that was driving prices up and the iron law of economics that more supply lowers prices, hit once the credit stopped.
On the other hand, the dynamics of demand are now very different to 10 years ago. Then, there was the "property ladder" source of demand. In other words, people bought properties that they had no particular long-term interest in, as a way of financing the ultimate purchase of a family home. Now, however, there is far greater caution among first-time buyers about what they buy. This means there is far less interest in buying one-bed or two-bed apartments, which has limited the recovery in values in such properties nationwide.
While it will be cold comfort to those who bought smaller properties in more rural locations 10 years ago, perhaps society as a whole can take this growing divergence between house prices and apartment prices as a sign that lessons have been learned from the world's most severe housing bubble and crash.
Ronan Lyons is Assistant Professor of Economics at Trinity College Dublin and author of the Daft.ie Reports