Saturday 17 March 2018

Is the slowdown in the capital a hiccup or a trend?

Dr John McCartney
Dr John McCartney

John McCartney

As we head towards the autumn house-buying season it is timely to review the first half of the year.

On one hand, the market has continued to become more liquid, with around 21,500 properties being traded in the first six months — a 36pc increase year-on-year. However the price data has been less upbeat. Nationally, prices are up 2.6pc since January. But in Dublin it’s a different story. While the index has risen 9pc year-on-year, all of this growth was recorded in the final five months of 2014. Prices in the capital have actually edged back since January.

This raises two questions. Firstly, what has caused the Dublin market to flatten out? And, secondly, is this slowdown a hiccup or a trend?

Two factors have contributed to the trend that is currently being seen in Dublin. First, there is a base effect. Average house prices in the capital have risen by almost €90,000 since August 2012. Inevitably this makes it harder to sustain the rapid growth rates that were being achieved when the market was coming off a very low base. Secondly, the Central Bank’s mortgage lending rules are impacting more heavily in Dublin where absolute prices are about 64pc higher than outside the capital. 

The second question of whether this is a blip or a trend, is more difficult. The house price index is a lagging indicator, meaning that

events on the ground today will be reflected in the figures sometime around November. Currently agents are reporting that, although deals are being done, the market is price sensitive and significant price increases are

not happening. On this basis we shouldn’t expect a repeat of the second-half price surge customary in recent years. 

Looking further ahead, the worsening supply/demand imbalance suggests that underlying price pressures are continuing to build. Figures released this week show that Dublin’s population grew by 30,700 in the year to April. This represents a 2.4pc increase — the second-fastest growth rate recorded over the last 20 years. Although this has obvious implications for housing demand, an adequate supply response is not kicking in. Just 5,625 housing units have been built this year, with only 1,372 in Dublin. The pipeline tells a similar story — commencement notices have only been filed for 3,655 dwellings, 1,261 of which are in Dublin.

All of this means that prices are likely to continue upwards in the long term. However, affordability constraints for owner-occupiers should lead to more orderly price growth which is more in line with pay increases, and this would only be positive for the market.

Dr John McCartney is director of research at Savills. Follow him on Twitter @JPMMcCartney

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