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It’s bad in the new homes market but worse in second-hand market

Dan White


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House prices rose by 12.4pc in the year to September and are now back to within a hair’s breadth of pre-crash levels. New house building has stopped rising while the second-hand market has seized up.

First the good news. House building proved remarkably resilient during the pandemic. A total of 20,500 new houses and apartments were completed last year, down only marginally on the 21,000 built in 2019.

Unfortunately, this seems to be as good as it gets with the almost 13,600 new houses and apartments being completed in the first nine months of 2021 being up less than 3pc on the 13,200 completed in the first nine months of 2020 and down almost 8pc on the 14,700 built in the first three quarters of 2019.

What seems to have happened is that, after bottoming out at 4,500 units in 2013, new housing output initially bounced back strongly. However, it seems to have stalled since 2019, with this year’s total unlikely to significantly exceed 21,000 for the third year running.

This isn’t sufficient to meet the demands of a rising population.

Just how many new houses and apartments we need is a matter for debate. What isn’t in dispute is that we need far more than the 21,000 annual total we have been stuck on for the past three years.

The Government estimated a need for 25,000 new houses and apartments annually in its Project Ireland 2040 plan published in January.

Others put the number much higher. In an August 2020 report, TCD associate economics professor Ronan Lyons estimated we would need 47,000 new houses and apartments every year from 2020 to 2025.

Escalating house prices, now back to 7.4pc of pre-crash highs, and rents more than 40pc higher than 2007 levels is evidence of a severely-stressed market in urgent need of a large increase in the supply of housing.

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Bad and all as things are in the new housing market, things are even worse in the second-hand market. Property website myhome.ie listed just 12,300 properties for sale nationwide this week. This compared to the 17,800 properties listed for sale at the end of September 2020 and over 23,000 at the end of September 2019.

 The latest CSO numbers on second-hand houses being sold confirm the fact that the market has gone into deep hibernation with just 37,900 market transactions, ie excluding inheritances and other transfers below market value between family members, in the 12 months to September.

With just over two million houses in the country at the time of the 2016 census and a further 95,000 units having been completed since then, that’s the equivalent of every house in the country changing hands about once every 54 years.

That’s not normal. In the UK, a market with problems of its own, new mortgage drawdowns average 3.8pc of the total housing stock annually or the equivalent of every house changing hands once every 26 years.

So what can be done to unjam the second-hand housing market? Dermot O’Leary chief economist with Goodbody Stockbrokers, argues that the new and second-hand markets are inextricably linked. With so few new houses having been built in recent years, the main reason the owners of second-hand houses are so reluctant to put their properties on the market is that there is a serious shortage of other properties for them to move to.

After the stalling of building for almost three years, O’Leary predicts a major increase in new house building over the next two years. He points to the very strong increase in new house commencements, up 60pc to 8,700 in the three months to the end of September, as evidence.

He is pencilling in a 10,000 increase in output, to over 30,000, by 2023.

So will this increase in output help to free up the housing market? Perhaps, but not just yet.

While new house building is running at about 21,000, only about 8,000 of these units become available to private buyers with the rest going to one-off houses (about 5,000), build-to-rent and social housing. That’s not going to change any time soon.

O’Leary reckons his projected 10,000 annual increase in output will be split evenly between apartments (virtually all of which will be build-to-rent) and social housing. In other words, there will be no increase in the number of new houses available to private buyers.

 He is now predicting a 5pc increase in house prices for 2022, which coming on top of this year’s likely 12-13pc increase, will translate into a compound increase of 20pc-plus in just two years and a return to pre-crash house price levels.

In the Irish housing market it seems that the more things change, the more they stay the same.

Back to the future, only more so!


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