Wednesday 7 December 2016

Real deal: Finding common ground

Philip Farrell

Published 02/10/2016 | 02:30

Exorbitant living costs in expensive cities such as San Francisco have led to the emergence of a new type of urban commune
Exorbitant living costs in expensive cities such as San Francisco have led to the emergence of a new type of urban commune

Living in a commune is not something that would immediately appeal to many Irish people, even though the country has had its fair share of communal living experiments over the years in Cork, Leitrim, Galway and Clare.

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These days, a new type of commune is evolving which has a much more practical and financial basis than the original hippy variety. Most are in the US and have come about as a result of exorbitant living costs and expensive real estate, particularly in cities like New York, San Francisco and LA. One huge change is that they are urban and in modern properties - rather than in the country and in self-builds, adobe huts or benders.

A plus is that, for example, 15 people could share a large, quality house in a good area at a rent of €10,000 per month. Each person has their own living quarters but can choose to socialise with the other residents if they wish. They are simply using economies of scale to reduce their costs of living. And, more importantly, for many millennials, they can choose to live with like-minded people, which brings an added social benefit to the arrangement.

It's a concept not far removed from that of student accommodation, where all householders share running costs. As average Irish household sizes continue to fall - down from 3.5 in 1980 to 2.6 in 2015 - this living arrangement may grow more popular, especially given the cost of renting and our high living costs. A tiny one-bed apartment in a large residential block where your rent might be up to €1,500 a month and you see little or nothing of your neighbours? Or a shared household with like-minded co-habitees?

I know which I'd prefer.

Our older first-timers

The UK and Irish property markets share many similarities, and history has shown that we tend to follow our neighbours when it comes to trends and statistics. But one place where we differ is in the average age of our first-time buyer (FTB).

A recent report highlights the fact that the average age of the FTB in Ireland now stands at 34 years, up from 33 in 2015. Back in 2005, a PTSB report pegged the average age here as 30 years. In the UK, a report just published by Halifax shows the average age of their FTB is 30 years nationally and 32 in London.

Why is there a difference? Like Ireland's market, the UK's is two-tiered, ie, London and the rest of the country. But while 27pc of the Irish population live in Dublin, only 13pc of the UK's live in the capital. As a result, in Ireland a much higher percentage of FTBs are based in the capital, unable to afford prices and holding off to save the deposit and secure finance. With an increase in prices of up to 50pc, they are being priced out of the Dublin market.

If this trend continues, there may come a time when prices will force people to rent indefinitely as the term of the mortgage will extend beyond an FTB's retirement age.

Off the (road) map

It is widely accepted that one of the real success stories of the Celtic Tiger was the huge improvements in the national road network in Ireland, with the completion of the arterial motorway routes connecting Dublin to Belfast, Cork, Limerick, Galway and Waterford.

However, in the last eight years, due to financial restraints, little has been done apart from minor improvements and repairs. Many parts of the country are still untouched by motorways. It's time to complete the job.

Take a quick glance at a roadmap and you could be forgiven for thinking that someone forgot to finish the motorway network in the Republic. The mid-west and northwest of the country have been excluded, and this will continue to hinder these areas which have been slowest to come out of the recession.

Based on the range of statistics available on national property prices, the five locations with the lowest average values, ranging from €72,000 to €85,000, are Roscommon, Leitrim, Longford, Donegal and Cavan. This is no coincidence and until these areas receive a fair crack of the whip in relation to infrastructure and accessibility, they will continue to fall further behind better-served locations.

Surely the time has come to balance the books. Proximity to arterial routes has been shown to be of real importance to those relocating from urban areas.

Mixed news on builds

Is the supply of new homes in Ireland finally starting to close the gap on demand? Maybe... or maybe not.

According to the Building Information Index, released this week, a total of 7,296 residential construction projects began in the first half of 2016, up from 5,407 in 2015, a rise of 35pc. This figure is also reflected in the varying degrees of growth in every region of the country except Leinster (excluding Dublin).

The largest percentage increases came in Munster (+145pc), which will add 1,531 properties. The Dublin numbers increased by 74pc, which will add 3,329 units over the next 15 months. Ironically the figures for the rest of Leinster fell by 22pc.

But planning applications tell a less optimistic story. According to Danny O'Shea, managing director of Building Information Ireland, "The focus on residential construction remains strong and all of the vital signs are positive. However, on a more negative note, the first half of 2016 saw a 9pc decrease in the number of residential units that submitted planning applications. This figure was most acute in Dublin, with a fall of 22pc." Make of that what you will.

A total of 17,328 residential units will be built if all of these projects proceed through the planning process. However, given the shortage of housing, it is somewhat alarming that the numbers of planning applications for 2016 are down.

Let's hope that the national housing strategy, which was introduced after these figures were collated, will reverse the above trend. It will need to.

Mortgages on the rise

Figures released this week by the Banking & Payments Federation Ireland cement the idea that upward pressure will continue on prices in the larger urban areas for residential property for the foreseeable future.

The number of mortgages approved in the three months to the end of August is up 25pc on the same period last year. This includes both FTBs and those moving up the ladder.

But herein lies the problem. The number of properties on the market currently stands at 23,500, which is down 3,000 on the same period in 2015. The sale of residential property currently stands at 2pc of the national housing stock. In a functioning market, this figure would be in the region of 4pc.

Do the maths and it becomes clear that increased numbers of mortgage approvals and reduced levels of stock on the market will only push property prices further upwards.

Philip Farrell is a property consultant and market commentator

Sunday Independent

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