Many middle-income earners will be unable to afford to buy homes or rent in regional towns by end of the decade, according to an unpublished report that paints a bleak picture of future housing affordability.
t forecasts house prices in three Tipperary towns could increase by about 50pc by 2028, based on 2021 values, while rents will also grow rapidly and undermine affordability.
First-time buyers will be hampered further by a shortage of new stock and an over-dependence on second-hand homes, according to modelling by KPMG.
A property expert who has seen the report says its findings are likely to be applicable to most parts of the country outside of Dublin because “Tipperary is the typical Irish region”.
The report, prepared last year for Tipperary County Council, suggests there are too few new homes in the pipeline to meet demand.
It says the new homes that are available are typically more expensive than second-hand stock and less affordable for many buyers.
Citing examples in Clonmel, Nenagh and Thurles, the report says a household needs to earn 1.5 times the area’s average income to sustainably afford to rent a one-, two- or three-bedroom home.
Data modelling within the report suggests rents will rise by 26pc to 40pc by 2028, based on 2022 values, and it will price newly formed households in this period out of the market.
It says some renters can already be described as experiencing an “affordability constraint” because of high rents and low incomes.
Philip Farrell, the chief commercial officer at Offr, a technology platform managing property transactions, flagged issues around tightening supply and affordability in rural areas and regional towns in 2016.
He said the issue has progressively worsened in recent years and this report indicates renters who do not qualify for social housing support and cannot afford to buy are going to be in a very vulnerable position.
‘Private landlords are leaving and there’s no sign of them coming back soon’
“I think this is going to be reflected across the country. Every county you go into outside Dublin, Cork and certain parts of Galway are going to have this exact problem,” Mr Farrell said.
“Private landlords are leaving in their droves and there is no sign of them coming back soon.
“The Government has committed to delivering more social and affordable housing but there is still a market for private rental and there is nobody to deliver that.
"The people in that space will not qualify for social housing but won’t be able to purchase because they are not earning enough or cannot secure the finance. That middle cohort looks like a very vulnerable space going forward.”
The report was prepared last July to give the council a detailed assessment of future housing supply and demand for the duration of its development plan — a document setting out a framework and policies to meet local needs up to 2028.
Buyers
House price data in the report show property prices in Clonmel increased by a third (33.9pc) between 2016 and 2021. Thurles had similar increases (32.4pc) while property prices rose by 60.6pc in Nenagh, albeit from a lower base. More recent data show prices have continued to rise since.
KPMG used the recent growth to develop a forecast on where prices will go between now and 2028.
It assumed the property market would stabilise in the coming years and each town is expected to have a slightly different rate of growth, tapering by 0.25pc each year from 2023 to 2028.
Clonmel’s annual rate of growth would drop from 6.5pc to 5.25pc over this period, according to the KPMG modelling. This equates to a 50pc price increase by 2028, based on 2021 figures — or about a third (32.2pc) from this year to the end of the development plan period.
A house in Clonmel “priced within the €150,000 to €200,000 band in 2021 will be valued at between €225,544 and €300,724 by 2028”, the report said.
Thurles would experience similar growth; the average price was forecast to rise from €163,841 to about €242,000 by 2028.
Projections for Nenagh indicate more conservative growth but “it is anticipated that further increases are likely” across the three towns “as supply remains a noted constraint in the market”.
New vs old stock; supply and demand
New supply will be crucial to meet this demand but is expected to be more expensive than the second-hand stock these towns currently rely on. This raises affordability questions.
“We see poor affordability in Clonmel, with only 12pc of existing households able to purchase,” KPMG said.
It also referenced “poor affordability” in the other towns and said it was “unrealistic to expect the second-hand market can accommodate new households emerging in the next five years and those already seeking to move”.
Meanwhile, an analysis of the number of schemes with active planning permission and local demand found “the pipeline of new-build units will leave a shortfall over the [development] plan period”.
It means there would be a shortfall of 346 homes in Thurles by 2028. Clonmel would still need an extra 318 units. In Nenagh there would still be demand for 179 new homes.
A survey of popular property websites this weekend showed there were few new homes currently available in Co Tipperary, with just three new estates advertised. Two are in Cashel. One, in Thurles, has four homes available.
This picture is replicated in other counties. Three schemes are currently being advertised in Mayo and Kerry, four in Carlow and six in Westmeath.
Rental supply is also considerably constrained at present: just nine homes are advertised across Tipperary this weekend of about 1,100 nationally.
New homes are typically more expensive compared to comparable second-hand units because of rising input costs or the use of more efficient materials.
Only the top 20pc of households by income can afford to meet these prices, but this is expected to narrow before 2028, according to KPMG’s analysis, leaving the so-called ‘squeezed middle’ in an increasingly difficult position.
Renters
While the report paints a negative picture of purchasers being able to buy a home into the next decade, the rental analysis is particularly alarming, despite it not considering the impact of the introduction and lifting of the eviction ban.
This is expected to lead to an exodus of landlords from the sector. Philip Farrell said these are the backbone of rental supply outside of the main cities.
KPMG’s analysis found further rent increases are likely soon because of constrained supply. Rent prices in Nenagh are forecast to rise by 40pc by 2028, based on 2022 figures. Clonmel and Thurles are anticipated to see increases of 29pc and 26pc respectively. None of these areas are in rent pressure zones.
The report benchmarked rental affordability against rents accounting for 35pc of a household’s monthly income but found many households are already likely to be spending above this threshold.
The average income in Clonmel in 2021 was €1,697. Rent for a one-bed unit in Clonmel was €607 in 2021 but needs to be 2.2pc lower to be considered affordable, the report found.
A two-bed unit needs to “11pc lower to be considered sustainably affordable to a household on a single income in line with the study area’s average earnings” and it warned of higher earners being priced out of the market in the coming years.
In Nenagh, one-bed units need to be 6.8pc cheaper to be considered affordable.
In Thurles, two-bed units are only affordable to the five highest-earning income groups with an average household income of more than €30,142 per year. Households with an average income of less than €35,270 cannot afford to rent a three-bedroom home.
“About 40pc of the houses in Tipperary over the next five years will need to be provided by the private rental sector,” Mr Farrell said.
“The likes of the major international funds have no interest going anywhere outside Dublin, and maybe Cork, because the numbers don’t stack up.
“The private investor is gone and the Government will be providing the social and affordable aspect, but who is going to satisfy this market?”
‘Half of income earners will be unable to rent or buy’
The KPMG report had initially used a methodology from a Department of Housing toolkit to assess affordability in each of the three towns.
This Housing Need and Demand Assessment (HNDA) toolkit is designed to measure current and projected housing needs on a county-wide basis. KPMG found using this toolkit and applying it to towns instead of the wider county meant no affordability constraints were identified in Clonmel, Nenagh or Thurles.
However, it said there was separate “evidence of affordability constraints at a more granular level”, particularly for larger households.
KPMG used census data as well as information relating to incomes, recent house prices and rents to give an assessment of future affordability for owner-occupiers, renters and people in the social housing sector.
Current average earnings and prices in each of the towns were used to make projections on wage and price growth for each year.
Figures vary for each area and the report puts households into 10 different income categories, from the lowest earners to the highest.
It found that after 2028 many of these will struggle to afford a place to live “by falling outside the social housing threshold while also being unable to afford growing market rents”.
Households in many income groups “that require larger units due to family size, could struggle to sustainably afford an appropriate unit” in the coming years, the report says.
In Clonmel, the four lowest income groups in 2031, with an average wage of less than €34,315, will struggle to afford rents. The five lowest income groups in Nenagh and Thurles will struggle to afford a place to live by 2029 and 2031 respectively.
