Shortage of homes for under 35s in cities to spark price surge
HOUSE prices are poised to rise quickly in some areas because of pent-up demand among under-35s seeking to buy a family home.
Nearly half of those renting could afford to buy a property -- and are ready to do so once the economy picks up, a new report finds.
It says people under the age of 35 are likely to pounce once confidence returns to the market -- driving up demand in some areas.
Once mindsets change and people decide that the worst is over for the property market, prices could then rise rapidly, says the report from the Economic and Social Reseach Institute (ESRI).
But this could lead to a two-speed market with price rises in popular urban areas fast outstripping other parts of the country where there is huge oversupply.
The ESRI has calculated that prices will rise in key areas of Dublin, Cork and Galway.
ESRI economists David Duffy and John FitzGerald also found that four in 10 of those who are currently renting could afford a mortgage -- and the majority of this group are young people under the age of 35.
Large numbers of these are based in cities, and they will want to buy a home as they marry and start families.
Property specialists are already indicating a shortage of family type homes in cities and large towns, despite five years of sharp price falls.
But it is becoming increasingly difficult to buy a family home in a mature area which has established schools and transport links.
"While property prices may never return to anywhere near where they were . . . when expectations change it is likely that the recent sharp fall in house prices will be halted," the ESRI housing report found.
"This will lead to some increase in the numbers of households seeking to buy rather than rent."
Such is the shortage in the capital, that more houses will have to be built in the next decade.
The think-tank does not say when it thinks prices will recover, but estimates that there will be a demand for between 15,000 and 20,000 houses a year for the next decade as younger people form more households.
At the moment this generation is renting, living with parents or stuck in small apartments which they are fast outgrowing. But their pent-up demand will be very focused on certain locations -- while it could be decades before there is pick-up in rural areas where far too many houses were built during the boom.
In total, there are 290,000 vacant homes in the State, but many of them are in rural coastal areas, where people do not want to live. A report from Deutsche Bank last week indicated that it could take 43 years to fill homes in some of the more remote parts of the country.
But despite this, shortages of family homes in larger cities and towns will push prices up, the ESRI said.
Referring to urban areas, the ESRI report states: "A significant increase in demand to buy houses in these urban locations could exhaust the vacant stock and, given a very low level of house-building, this would begin to put upward pressure on prices."
Stronger demand for houses in the Greater Dublin area reflects that this is where jobs are mainly being created.
At present, some four out of 10 of those who are renting could afford to buy, based on current mortgage lending rates.
And rents are rising while house prices fall -- so as soon as people decide it is cheaper to buy than to rent, they will seek to buy homes in large numbers.
Greater mortgage lending by banks will be the key to the recovery in the housing market. Property price falls in this country have been one of the most severe in the world, with average prices halving since 2007.
In April, a report from two economists with the Central Bank concluded that house prices had fallen by up to 26pc more than they should have dropped. This deep drop was largely driven by a lack of lending by our troubled banks.
Banks are now set to look more favourably on applications for mortgages for homes in more built-up areas.
But this will create an urban-rural divide in lending, banking experts warned.
Meanwhile, the ESRI said it now expected economic output, or Gross Domestic Product growth, of just 0.6pc this year compared with its previous forecast of 0.9pc. The think-tank said it expected economic growth of 2.2pc in 2013.
The institute also said that employment would continue to fall and it predicted an annual average unemployment rate of 14.9pc for 2012. It says that unemployment will continue to remain high next year, with a rate of 14.7pc predicted.
And a separate report has concluded that householders with a mortgage are set to be €1,300 better off this year due to cuts in lending rates.