As pent-up demand spills over, supply is the only real answer
Published 26/09/2016 | 02:30
The Central Bank lending restrictions introduced almost two years ago were applied to cool the then dangerously overheating Dublin property market.
The capital was, at that time, showing price hikes of up to 20pc per annum. This sort of inflation had been driven by a chronic shortage of existing homes for sale, a famine in new home construction and a revival in mortgage lending.
However, the bank changes, which hiked up deposit and loan-to-income requirements, were only ever a temporary measure.
It was up to the Government to use the temporary window of grace to introduce policy to ramp up supply of new homes and social housing, in particular. This would allow us to continue to avoid the sort of dangerous property price inflation which might lead us to another crash.
Unfortunately, the Government reacted only recently, with Simon Coveney's Rebuilding Ireland housing action plan launched just two months ago.
Now the latest Irish Independent/Real Estate Alliance Average House Price Index shows a worrying trend that might suggest the chickens have come home to roost regarding policy delays.
Dublin prices were largely subdued since the measures were introduced, but the latest data shows a sudden surge in prices in the past quarter. Agents are attributing this to an increased availability of lending funds, but also to the fact that those potential buyers who were squeezed out two years ago have determinedly continued saving towards the larger deposits required and are now returning to the market.
The Real Estate Alliance (REA) describes this as "released pent-up demand".
It also blamed the surge on a worsening shortage of property for sale. It is estimated that less than 2pc of stock is now for sale, when 4pc to 6pc is normal.
While the REA don't mention it, banks can also avail of a certain percentage of exemptions to the regulations, which they may apply all at once, or as is more normal, at different points through the year.
It could be that banks released an amount of their 'quota' of exemptions at the beginning of the second half of the year in July. This might also account for more people being successful in obtaining mortgage finance.
The same statistics show that buyers with loans increased their share of the market from 25pc to 30pc in Dublin City and County during this period.
Another factor is undoubtedly the increasing appeal of private homes as investments, as evidenced by the surge in landlord and institutional purchasers - highlighted earlier this week by the newly revamped barometer of the Central Statistics Office (CS0).
With so many would-be purchasers crowbarred into an already crowded rental market as a result of the lending restrictions, rents have inflated at pace, in turn making housing a more attractive investment.
Whether prices continue to increase at pace in the capital remains to be seen, but hikes of 1pc per month, like what is now happening in both Central and North County Dublin, are akin to those experienced during the boom years.
This sort of inflation adds €3,000 per month to the price of a €300,000 house.
Elsewhere in Ireland, markets are behaving very much in contrasting, localised fashions. Generally, prices are rising steadily - in many regional markets by more than 1pc per month - because supply of property to market is low, but values are still too low to justify building more homes.
This is particularly true in the cheapest counties, like Longford and Roscommon, where the prices of semis are surging. Across Ireland the property market has seldom been so erratic.
In Dublin, though, the Central Bank's measures may be failing as postponed purchasers reach their savings targets to acquire much higher deposits.
The problem is that softening these lending restrictions now without an increase in supply can only release more pent-up demand and inflate city prices further.