House prices increased by almost €30,000 on average last year, according to new figures underlining the worsening effects of supply constraints on the property market.
lack of new homes is preventing second-hand houses coming on to the market because sellers fear they will not find a replacement, Pat Davitt of the Institute of Professional Auctioneers and Valuers (IPAV) warned. “The storm clouds of rising inflation could scupper many prospective buyers,” he said.
A report published today by the IPAV warns that property prices are likely to remain high, with many counties seeing double-digit percentage growth in the past six months for three-bedroom semi-detached homes.
Some of the most significant price growth has been outside Dublin.
The data show that in Clare and Wexford, the cost of a three-bed semi-detached house grew by 20pc last year. Border counties Louth, Cavan, Donegal and Monaghan saw growth of more than 15pc for the same type of properties.
“We are now very close to 2006/7 levels of house prices,” said Mr Davitt, the IPAV’s chief executive.
On average, prices increased by €14,000 in the past six months, according to the IPAV residential property price barometer measuring growth in the second half of 2021.
When the figures are compared with the same period in 2020, they show house prices last year rose nationally by 10pc on average. At the end of last December, homes cost €294,623 on average, an annual increase of more than €27,000. Six months earlier, homes cost an average of €280,629.
The report measures sums achieved at sale rather than advertised asking prices for two-bed apartments and three- and four-bed semi-detached homes, giving a fair reflection of current values. It says new buyers are leaning heavily on parents for financial support, while lower-income families are being frozen out of the market. An analysis of the data shows a huge year-on-year increase in rural counties. The price of a two-bedroom apartment in Mayo increased by almost a quarter (23pc) last year and a four-bed in Monaghan was up by 21pc in December compared with 2020.
While parts of Dublin saw significant price growth for in-demand properties, most types of homes in other parts of Leinster saw increases of more than 10pc last year. Agents around the country said this has been driven by changing work dynamics and a shift in demand by new buyers.
Mr Davitt said supply shortages and pent-up demand meant the Central Bank and the Government will have to intervene to address the affordability crisis. He called for the VAT rate on new homes to be reduced to 5pc.
“Given that rental levels exceed the cost of repaying a mortgage, often to a considerable extent, and that Ireland has finally introduced genuine long-term fixed interest rates of up to 25 and 30 years, anyone hoping to own their own home realises it makes sound financial sense. Such mortgages at interest rates of the order of 3pc, even though way ahead of the euro area average, are unprecedented.
“However, with scarcity of supply, the current market favours those on higher incomes and those fortunate enough to have family support. In some cases it’s also preventing potential sellers from placing their properties on the market in case they would not find a suitable home, or that by the time they do, the price they would have to pay may have outstripped their planned budget.
“Supply is improving, but so far not quickly enough. We need to see measures that tackle severe planning impediments, the tax take on buying a home where mortgage holders borrow money and pay interest on those borrowings for the lifetime of the mortgage to cover upfront VAT charges.”
He said mortgage lending rules must also be adjusted.
“There is a real danger that unless these issues can be dealt with without further delay, the storm clouds of rising inflation could scupper many prospective buyers. While the ECB is not predicting an interest rate rise for 2022, if current high levels of inflation across the EU persevere, that situation will no doubt change, hampering the ambitions of some buyers but also impacting house prices, which for now look like continuing on an upward trajectory.”
In the past six months, Wexford saw three- and four-bed home prices grow by 13pc and 14pc respectively. The slowest price growth was seen in Dublin 12. Prices there rose by less than 1pc (0.88pc), to €570,000.
TU Dublin senior lecturer in planning and development Dr Lorcan Sirr agreed change was needed to tackle the affordability crisis.
“Nothing I have seen so far says that is going to change it,” he said.
Planning rules also made it difficult for homeowners to downsize or find homes they wanted to move to in rural towns such as Westport or Thurles, he added, because planning density rules often mean smaller builders need to develop more units than they can afford. The guidelines generally require densities of 35 to 50 units per hectare in urban areas and more in central urban areas.
While the Government’s Housing for All plan aims to deliver 11,500 private homes and private rental units this year, only about 7,500 units will be made available for private purchase because an increase in social housing will account for a significant portion of new supply this year.
“In rural locations where it should be viable for builders to develop, because they would be cheap enough, the planning changes around density and the minimum requirements per acre means they cannot do them any more,” Dr Sirr said.
“Analogies with factory farming and housing are becoming increasingly the same. You have changing regulations, with big money squeezing out local small farmers, for example, so the meat market becomes dominated by a small number of processors and small farmers find it increasingly difficult to make a living.
“If you equate a small farmer with a small builder, the market is becoming dominated by a smaller number of large builders in Ireland. An EU report in 2018 pointed to one of the issues with affordability in Dublin was a lack of competition.”
Young families can’t trade up and elderly can’t move out
The areas around Mullingar in Co Westmeath paint a picture of what is happening nationally in our housing market.
House prices have soared in the past 12 months with more people attracted by the idea of living near the countryside and within a reasonable distance of Dublin. Apartment prices there grew by 16pc in 2021, showing how demand for smaller homes has now spread beyond Dublin and its traditional commuter belt.
CSO map data from the last Census shows more than 1,000 people living in Mullingar but commuting to Dublin for work every day. This is likely to have changed drastically in the meantime because of the working-from-home boom.
Like everywhere else. however, housing supply is lacking, Dillon Murtagh of Murtagh Brothers Auctioneers said. “Options for homebuyers, especially first-time buyers, are very limited. We are seeing very few new builds, which means there is very little movement. This means there are very few people moving up — so young couples or families can’t get into the bigger homes they may want as they have more children. Equally, we have a problem at the other end where retirees who have children who have flown the coup cannot downsize because there is nothing appropriate for them.”
There is a shortage of second-hand stock on the market.
West of Mullingar, in areas around Mayo, Galway and Roscommon, agents have noticed some buyers are willing to change their priorities to secure a property.
Gerry Coffey, an auctioneer and valuer in Williamstown, Co Galway, has noticed a rise in people moving out from urban areas to secure cheaper and often larger homes. Some are happy to buy homes that need considerable work to make them habitable.
“I sold a derelict house recently that I valued at €25,000 in 2020. It went for €55,000 in 2021. I probably wouldn’t have given it away in 2019 but they were in love with the area and wanted it.”
He said buyers weigh up extra costs and hardships against benefits such as clean air, more space, being able to send children to a school with smaller class sizes and the advent of new hubs where people can work remotely of their bases in Dublin or Galway city. However, not all of them are able to get the properties they need, Coffey said.
“What breaks my heart is when you know a couple has a mortgage capacity of €220,000 and you are selling the house at €200,000 so everyone expects them to be able to get it. But it’s difficult going back to them and telling them it has gone up to €225,000, €230,000 and €240,000.
“Someone coming from Dublin realises they can get a three-bed semi-detached house here for €200,000 cheaper than he would pay in a traditional commuter town, so they are willing to go a bit further than other buyers.”
Coffey and Murtagh said changes, and more supply, were desperately needed.
“Our planning system is slow,” Murtagh said. “The trends we are seeing cannot be reacted to in a timely fashion. If the market showed there was demand for 300 more homes in Mullingar, it could take three or four years to meet that demand. Nobody knows where that market is then in three or four years.”
