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Thursday 19 September 2019

'New housing crisis' on horizon as supply comes on stream in wrong areas

Demand for smaller units, like apartments, will increase

Recommendation: More homes needed in East Leinster
Recommendation: More homes needed in East Leinster
Wayne O'Connor

Wayne O'Connor

The supply of traditional semi-detached houses will meet and "begin to exceed" demand in the New Year for the first time since the recovery from the economic crash more than a decade ago, according to housing experts.

But the "over-supply" of what will be in many cases unaffordable houses in locations congested and poorly served by public transport will lead to what is being called a "new housing crisis".

The former chairman of the Housing Agency, Conor Skehan, says the country will be hit by "a large and rapidly growing over-supply of housing in 2019".

And Ronan Lyons, of Daft.ie, also writes that banks can consequently be expected to come under pressure to keep up with demand for mortgages.

But in the Sunday Independent today, Mr Skehan predicts the over-supply of the wrong type of housing, the lack of convenient rental properties, and increasing rents will lead to the emergence of what he calls a "new urban politics".

"Whether it will be new political parties or new politics by existing parties will depend on how the next 12 months is handled," he says.

Mr Skehan's prediction that housing supply will meet demand for the first time since the crash may raise eyebrows among policymakers grappling with the housing crisis.

However, he correctly predicted in 2011 that the property market was within months of bottoming out and that house prices in the greater Dublin area could rebound with "the speed and vigour of a ping-pong ball released under water".

Now he says more houses will come on to the market next year as people emerge from negative equity and move to sell under-used homes in the next 12 months.

Supply of large semi-detached units and housing estates will be further boosted by developers responding to recent incentives to boost construction.

But while this will free up housing stock for young families and people looking to move up the property ladder, it will create additional demand among some property owners for smaller units, such as apartments, and the many still in the rental sector.

And also in the Sunday Independent today, Trinity College Economist Ronan Lyons warns specific housing demands will not be met.

Mr Skehan says that much of the new supply will be unaffordable or will emerge in the "wrong location". "Unaffordable supply is worse than shortage of supply," he writes.

Both Mr Skehan and Mr Lyons say there is a need to meet changing market demands to avoid following Germany and Spain into a similar crisis provoked by builders not adapting to meet market needs after the economic downturn.

"There will be more and more second-hand houses for sale as prices recover and people emerge from negative equity - many people are unaware that second-hand houses make up (by far) the largest part of supply.

"2019 will witness the emergence of a second housing crisis - one of over-supply of unaffordable houses in places that are congested and poorly served by public transport."

He adds that affordability, the location and type of homes becoming available will be an issue. "This combination of the quantity of newly available second-hand homes, newly built stock and the limits of affordability will cause a significant slowdown in sales and loss of profitability in the later part of 2019, quickly turning a victory into a new crisis."

This time he is warning that we need more homes in East Leinster with good public transport links to serve the jobs market.

Mr Lyons says he believes increased housing supply in 2019 will put pressure on banks to keep up with the pace at which mortgage applications are made.

It comes as Daft.ie reports the number of properties available to buy on the market increased by 10pc during 2018.

These latest figures, released today, show house prices rose by 5.5pc during 2018, a rate of just over €1,000 per month on average. This is significantly less than increases of between 8pc and 9pc over the previous three years. It also represents the lowest year-end inflation rate since the market bottomed out in 2013.

Mr Lyons, the author of the Daft.ie House Price Report, said a rise in the number of new builds in 2019 and 2020 is to be expected. He warns this will put pressure on banks to keep up with the demand for new mortgages.

Also writing in today's Sunday Independent, Mr Lyons says: "Suppose, on average, it takes 18 months to go from planning permissions to occupied units on new housing estates. The 8,500 or so units planned in the year to mid-2017 became the new homes completed during 2018. Over 2019 and 2020, we are likely to see that number rise well above 10,000 new estate homes completed in a year. The focus will switch, in the sales segment, from supply shortages to the capacity of the mortgage market to process the new homeowners."

However, crucially all of these homes will not be where they are needed.

Both experts point to a mismatch between the types of homes coming to the market and what is needed to ease the housing crisis.

"If the country needs urban apartments and is getting mostly rural one-offs, then the extra supply will be of far less benefit than if urban apartments were built," Mr Lyons writes.

"And that, at risk of simplification, is what is happening. Comparing the country's housing stock with its people, the country does not need any more three- and four-bedroom family homes. What it needs instead is homes for one- and two-person households, especially in urban areas - ie, apartments."

Mr Skehan said demand will continue to rise in urban areas with strong job growth.

"Significantly increasingly congestion in large urban centres will mean that areas with poor public transport will quickly be seen as the 'wrong location'.

"The post-Brexit economy is likely to concentrate more and more jobs into larger urban areas - especially in East Leinster which will be the 'right location'."

The Construction Industry Federation (CIF) government relations director Shane Dempsey said significant increases in private residential output are expected next year, but apartment buildings will be "under-supplied". He said the Government must address this.

"An overarching strategy that sets out the levels and type of accommodations/housing for Ireland's growing economy and population would be very beneficial in terms of allowing construction companies plan and deliver to Ireland's requirements."

The Institute of Professional Auctioneers and Valuers CEO Pat Davitt said prices have changed drastically since May and he expects them to become more consistent next year.

"The market is going to become more fluid and we would be happier with that because you can offer something for sale and prices wouldn't be running up all the time and then dropping off a cliff. A steady property market is what we are all after."

Sunday Independent

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