Capital's housing market recovery 'risks emergence of new bubble'

Now that recovery appears to be under way, with the CSO recording annual property price increases of 8 per cent in the capital, Conor Skehan – a lecturer at DIT's School of Spatial Planning – has called for more houses to be built in Dublin and east Leinster as a matter of urgency to avoid the emergence of a new property bubble.

"The problem of residential property markets is the lag of time between the emergence of demand and the provision of supply – it takes a minimum of two to three years to conceive of, plan, permit, finance and build housing. Five years is more typical. This gap is the root cause of all housing property bubbles," he said.

Asked for his view on the rapid price increases currently being recorded in Dublin, he said: "Recent reports of rises in residential property prices are unreliable because they are based on very small numbers and because these numbers in turn are a complex froth of speculation, cash transactions and shortages in coveted areas of Dublin suburbs."

Cautioning further, he said: "There may well be an increase in prices in the short term – but this is likely to be due to a constrained supply in Dublin caused by negative equity vendors who are unwilling to crystallise their losses by a sale. There is also likely to be increases in prices concentrated in a small number of traditionally desirable areas that have limited availability."

However, Mr Skehan said that there is clearly a demand for homes in the capital and its surrounds.

"On the basis of a number of strands of evidence – demographic, rental trends and increasing economic activity – it appears that there is a rapidly growing need. Lack of capital combined with reluctant sellers means that much of this demand is not translating into supply of new housing because this is currently being suppressed by involuntary rental, deferred household formation and acceptance of substandard accommodation. This is unlikely to last for more than 24 months," he said.

Explaining the inevitable shift from renting to home ownership, which he believes will soon take place, he added: "Biological clocks don't stop ticking because of a collapsed property market... While new-born babies do not buy homes, their broody mothers certainly do. Estimates vary... but nobody disagrees that the demand continues – estimates for annual demand range from as high as 20,000 new units per annum to as little as 15,000. Only 8,500 new units are expected to be built in 2013."

He said that once there is a return of confidence to buy or sell property and capital becomes available, there will be a rapid increase in demand.

But that demand will not extend to much of the west and north midlands of Ireland, where he said it would be many years before there would be a need for more building.

Contrasting this with the situation in Dublin and other large cities, he added: "Other areas – particularly in and around the larger cities – and in particular in east Leinster have much lower levels of over-building and associated vacancy. These same areas are also where industrial and commercial activity are increasingly concentrating with resultant demand for residential accommodation. These are also the areas where demand is growing."