Tuesday 12 December 2017

Kenny denies bubble despite record surge in the price of homes

Average house value soars by €20,000 in just three months

Taoiseach Enda Kenny. Photo: Frank McGrath
Taoiseach Enda Kenny. Photo: Frank McGrath

Charlie Weston and Fionnan Sheahan

TAOISEACH Enda Kenny insists there is no new property bubble despite house prices rising at the highest rate on record.

And he admitted that the cost of buying a home will continue to rise for up to two years as supply fails to meet growing demand.

Overall, the cost of buying a house continues to rise at its fastest rate since the economic crash – with prices nationally up 12.6pc in a year.

And the Central Statistics Office confirmed that June's monthly increase of 2.9pc nationally was the highest since the property index began in 2005.

Even during the house-price boom of 2006 and 2007, the monthly rises were not as steep – although this time it is being driven to a huge extent by activity in Dublin.

Latest figures reveal the cost of buying a house in the capital has surged 24.4pc over the past year.

The average house is worth an extra €20,000 since March, or €220 per day.

The Government is under renewed pressure to ensure that the market recovers from the disastrous crash of 2008 in a sustainable fashion and doesn't overheat.

There is also concern about affordability for first-time buyers, and prices in certain parts of the country stagnating while a bubble inflates in Dublin.

But Mr Kenny said: "I don't accept there is a bubble now, but I do accept that prices are rising because of the law of supply and demand.

"You can't sort this out unless you build new houses, and to build new houses, you've got to have a strategy – a combination of issues that can help that forward," the Taoiseach added.

While thousands of homeowners who bought during the boom have been lifted out of negative equity by the 12.5pc annual rise in prices, many more are struggling to find affordable homes.

Analysts have warned that cash buyers dominating house sales, and a lack of suitable housing, are squeezing out these first-time buyers.

Economist with Davy Stockbrokers Conall Mac Coille said since the end of 2012 around 7pc of mortgage accounts have moved out of negative equity.

This indicates that around 40,000 homeowners have escaped from negative equity – meaning their house is now worth more than what they owe on their mortgage.

But while prices are rising across the country, there remains a wide discrepancy between cities and rural areas, where there the market is stagnant and homeowners are still trapped in negative equity.

House prices in Dublin are now rising at more than seven times the rate of the rest of the country, which is hugely inflating the national average.

In a worrying indicator of the growing two-tier market, when the capital is taken out of the equation, house prices have risen just 3.5pc over the past year.

However, estate agents pointed out that at least prices were rising again after years of steep falls.

There is evidence of recovery in cities including Cork, Galway, Sligo and Kilkenny. Counties around Dublin are also experiencing price rises.


Outside the capital, the average property is changing hands for €154,000, up €5,000 on a year ago.

It was the sixth month in a row that prices have risen outside the capital when compared with the previous year, the CSO figures show.

But in a further complication, it is estimated around half of all houses being sold are to cash buyers.

And building of new developments is relatively scarce and mortgage lending remains low.

These factors are driving a different type of price inflation to the boom years, when developers were constantly building on new sites, and credit was freely available.

Dermot O'Leary of Goodbody Stockbrokers said it was 15 years since property prices rose by anything like 24pc in the capital, stressing that we are "partying like it is 1999 in Dublin".

"At that time, falling borrowing costs triggered by Ireland's entry into the euro were fuelling leading and thus house prices," Mr O'Leary said.

"This time around, an acute shortage of property in the capital is the culprit."

The Taoiseach last night admitted the "pressure" in the housing market in Dublin would continue for another 18 months to two years, until building gets up and running again.

He said he believed that between 14,000 and 15,000 new houses would be completed this year, compared with 8,900 last year and 90,000 at the peak of the boom.

He insisted that housing provision was of "particular importance" and that the Government wanted to see house building rise back up to 25,000 houses a year.

Peter Stafford of Property Industry Ireland, a body that lobbies on behalf of builders, engineers and surveyors, said: "Rising house prices may be good news for many homeowners, but the speed at which prices are growing is putting pressure on the private rental and social housing sectors."

It was the 13th month in a row that prices rose nationally on an annual basis. But prices are still 43pc off their peak value nationally which was in early 2007, the CSO said.

Irish Independent

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business