Sunday 22 January 2017

We need 50,000 new homes a year - and without this supply, buyers best get used to rising prices

Ronan Lyons

Published 03/01/2017 | 02:30

House prices are likely to be forced upwards as the population grows, and supply doesn’t keep pace. Stock Image: PA
House prices are likely to be forced upwards as the population grows, and supply doesn’t keep pace. Stock Image: PA

Nationally, the average house price rose by 8pc in 2016, very similar to the 8.5pc in 2015. Compared with static prices in 2013 - although this masked huge regional differences - and an increase of almost 15pc in 2014, perhaps this, then, is the new normal.

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Normal does not mean healthy, however. We know in a healthy housing system, any extra demand for more housing is offset by more supply - in other words, the real price of housing should be stable, once general inflation is taken into account. In Ireland, general inflation has effectively been zero over the past decade.

So Ireland is currently trapped in a situation where housing prices are increasing far faster than prices in the rest of the economy. This is not sustainable, but latest indications are this high rate of inflation is embedded in the market, due to strong demand and weak supply.

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