A year of highs and lows
Predicting what will happen in 2019 is coloured by Brexit, a possible election and government responses to the rent crisis, writes Fran Power
What a difference a year makes. In 2017, the question was whether another boom was under way. Back then property prices were rising fast and in many places looked set to overtake their Celtic Tiger peak.
Now, prices seem to be stabilising in Dublin - or, at least, the rate of increase, according to the CSO figures for the year to September, has slowed from double digits to 8pc and looks set to fall to 5 or 6pc next year.
This cooling of the market is thanks largely to the constraints of the Central Bank's mortgage rules, increased supply and the fact that, at an average price of €375,000 for a three-bed semi in Dublin, buyers simply can't afford to dig any deeper into their pockets to get onto the property ladder.
At the top end of the market, there were even price drops - up to €150,000 in the embassy belt and the redbrick stretches of Dublin 4 and 6 as vendors' expectations of a rising market and the Brexit bonanza failed to materialise.
Some buyers, however, have been able to boost their purchase power by getting a mortgage exemption that allows them to exceed the Central Bank lending rules. But, according to Michael Dowling, managing director of Dowling Financial, the exemptions are problematic. "Managing the exceptions to the Central Bank Rules is very difficult for banks and is very frustrating for prospective borrowers. Some lenders were closed for exemptions as early as July."
He adds: "Where borrowers apply themselves for a mortgage, there is evidence that they are approved for exceptions with more than one bank. There is no way of controlling this problem and it is unfair to other borrowers looking for exceptions who are refused because a bank has breached the relevant quota for exceptions."
The Central Bank is currently reviewing the situation. "The simple way to resolve this issue is to average the exceptions over a three-year period rather than over 12 months," suggests Dowling.
Supply is up
The supply of new homes onto the Dublin market has also helped ease price inflation. According to John McCartney, director of research at Savills, "after a 46pc increase in completions last year, housing output rose by a further 28pc over the first nine months of 2018. Leading indicators suggest this is no flash-in-the-pan.
"Planning permissions are up sharply, especially for Dublin apartments; between un-started units with planning, and units already onsite, the pipeline of Dublin apartments is 31pc higher than this time last year."
However, positive as this sounds, new developments are largely focused at the upper end of the market, not where they are most needed - at first-time buyers or those on lower incomes.
"We've seen continued output at the higher price end of rental properties or properties for sale," housing policy analyst Mel Reynolds points out. "Something like 60 or 70pc, depending on what indicators you're looking at, of development is centred in Dublin and it's all aimed at the top 20pc of earners."
Ironically, while demand for property is still driving prices upwards, in the middle of what some people are calling a housing crisis, we're seeing a lot of supply at some price points and a pretty big need not being addressed in others."
Has demand peaked?
McCartney believes that demand for homes may have plateaued or even peaked. While the lack of good demographic data is a big barrier to tackling the housing problem, he points to the latest Labour Force Survey data which shows a slight drop in population growth.
"Other factors which are sometimes proposed as big drivers of housing demand are red herrings," he says. "Declining average household sizes mean more dwellings are needed to accommodate a given population. But the downward trend in Irish household sizes has long since stalled because of two major changes in the population structure.
"Firstly, we had a massive baby boom between 2007 and 2012. At the risk of sounding facetious, none of the 440,000 babies born during this period have formed one-person households.
"Secondly, the number of people in their twenties, who tend to form small households, has collapsed by 26pc since 2008. Neither factor is going to change materially in the short term.
"Another questionable claim is that we need to build up to 16,000 dwellings per annum to offset depreciation of the existing housing stock. I estimate that the number of units required for this purpose is about 3,000."
If McCartney's calculations are correct, and construction costs don't put a damper on building, then supply and demand should come into balance, he believes, in late 2022 or early 2023.
The commuter belt expands
Outside Dublin, however, it's another market altogether. In the Greater Dublin Area prices are still soaring as buyers forced out of the capital settle for a longer commuter in exchange for value for money. Schemes with good transport links are in most demand and commuter counties Laois and Offaly have seen double-digit price growth.
Nor have the regional cities seen much in the way of supply to damp down prices. The odd development in Cork and Galway came on stream this year, but prices are still rising fast, as these cities and the surrounding countryside play catch-up with Dublin prices.
Rent crisis and the knock-on effect
But if there is one sector that is a pressing concern - and looks set to stay that way into 2019 and beyond - it is the rental market. And that of course will affect property prices and demand.
Despite two years of Rent Pressure Zones, there has been no easing in rental inflation. According to the latest report from Daft.ie, there were just 3,200 available places to rent nationwide in November, and the average monthly rent is now at a record-breaking €1,334.
Those seeking to rent one of the 1,400 homes available in Dublin can expect to dole out up to €2,156 in return for their shorter commute.
Homelessness is still rising, and stands at around 10,000. There are many complex reasons why someone may find themselves without a roof but, according to new research from Focus Ireland, roughly one-third of families become homeless due to their rented home being sold or repossessed.
The number of people signing up for the HAP (Housing Assistance Payment) scheme in 2017 was 17,900, that's 50 a day. More, according to Mel Reynolds, than the number of new homes built so far that year.
"Next year we're going to spend over a billion," says Reynolds, of the HAP scheme, "and that's money inflating an already hot rental market".
Secondly, the issue of arrears resolution is coming to a head as the banks continue to sell off 'non-performing' mortgages to vulture funds.
"We still have 28,000 family home mortgages more than two years in arrears, with €2.5bn of arrears due. We have 13,000 buy-to-let mortgages more than two years in arrears, with €1.9bn of arrears due," says Michael Dowling.
It's a safe bet that as these properties begin to come to market, the available number of rental properties will fall further as tenants or owner-occupiers are pushed out to find new homes.
Fears about what a post-Brexit landscape might look like have stalled prices along the border counties. Added to that, says Pat Davitt of IPAV, "it looks like there's a possibility of a general election and if so, it's going to be an exciting year. It puts a pause on the market".
There was good news for forecasters too. Earlier this year, the CSO took over the calculation of house completions from the Department of Housing, ending a long period of confusion over the exact number of new homes coming on stream.
"You can't manage what you can't measure," says Mel Reynolds, "and in order to be able to accurately interpret trends, sales, do comparative analyses, look at demand and supply projection - these are all dependent on the accuracy of figures and we know they've been vastly overstated for years."
Predicting the future of the housing market is as much an art as a science, as this year shows. The impact of Brexit, the possibility of a general election and how exactly the Government will respond to the rent crisis are unknowns. And the law of unintended consequences is always at play.
WHAT’S IN STORE FOR 2019? —
THE EXPERTS GIVE THEIR VIEW
Director of Research, Savills
Demand may have peaked - While supply is rising strongly, there are signs that housing demand could be peaking. Births have fallen sharply since 2010 as the ‘Pope’s Children’ approach the age of 40 and are having fewer babies. In contrast, deaths are rising as the population ages. The upshot is that the demographic contribution to population growth has been plummeting. So far, strong inward migration has offset this, but it is not obvious this will continue. The latest Labour Force Survey data shows a slight slowdown in overall population growth.
Supply will continue to rise strongly and demand may have plateaued. So the market will gradually move towards equilibrium, probably in late 2022 or early 2023. As supply and demand converge, we should see a continued moderation in house price inflation (an estimated 6.2pc nationally and 4.4pc for Dublin for 2019). Rent inflation remains very robust, but is also likely to slow for similar reasons. There are clear risks to my assessment — for instance, rising development costs could make marginal apartment schemes unviable, prolonging under-supply.
Columnist, academic and author of the Daft.ie reports
Better for sales, worse for rentals - I think it’s going to be better in the sales segment and worse in the rental segment next year. The planning permissions data suggests a good chunk of family homes and housing estates are coming onto the market next year so that should relax the sales market a little bit more. We might even see prices of new homes stabilising in the Greater Dublin Area in terms of market absorption — that might actually come into balance.
Rent crisis to continue - If the rental sector was ugly this year, it might get uglier next year because there is still no let-up in terms of supply coming on stream. The earliest indications are that any meaningful increase in rental supply is still two years away, and that’s assuming that it takes only three-ish years for planning permissions for apartments to convert into units. A lot of those apartments may actually be sold to downsizers in suburban locations rather than rented out — so may not actually help the rental sector but may only help the sales sector further.
Obviously, if you help the sales sector enough, it should help the rental sector, but we’re not at that stage yet.
CEO of the Institute of Professional Auctioneers and Valuers (IPAV)
Price inflation to slow - I can’t see the market rising hugely in and around the Dublin areas. I can see some areas increasing but the days of 10pc and 12pc and 15pc are gone for the moment. I’d say under 5pc in Dublin. Countrywide, some areas will play catch-up [on prices] — probably Portlaoise, Roscommon, Leitrim, Sligo, a lot of them will still be playing catch-up. But the regional cities — Cork, Galway, and Limerick — I don’t think will be playing catch-up.
The commuter belt to grow - I think the drift of the commuter belt will continue, there’s no doubt about that. Properties near commuter lines will be popular.
Uncertainty will hit the market - We’ll be talking Brexit whether we like it or not. In the Border areas, people are talking about a lack of confidence because of Brexit. I think the market is slowing down around the Border. A lot of people figured in the beginning that the market was going to be much better because a lot of people in England were going to come to Ireland to buy properties, and maybe that is still the case, but we don’t hear about it. It hasn’t materialised yet anyway.
Managing director, Dowling Financial
No interest rate surprises - I don’t expect interest rates to rise in 2019 but borrowers should be aware that interest rates will start increasing from 2020 onwards. There are very attractive fixed rates currently available with five-year fixed rates of 2.6pc and 10-year fixed rates of 3.05pc available.
Legacy issues will need to be addressed - As an economy we have fundamentally addressed the debts of corporations, limited companies and commercial debt. However, we still have 28,000 family home mortgages more than two years in arrears, with €2.5bn of arrears due. We have 13,000 buy-to-let mortgages more than two years in arrears, with €1.9bn of arrears due, so we are a long way away from addressing legacy issues.
Mortgage market on the up - 2018 has proved to be another good year in terms of the continued growth of the mortgage market, up by 20pc to €8.7bn. The growth is driven by the increased supply of new homes, more first-time buyers, and more people switching mortgage for a cheaper rate, accounting for about 10pc of the market. The expectation is for continued growth in 2019 by 17pc to €10.2bn.
Housing policy analyst and architect
The Brexit effect - I think next year is going to be very uncertain — that in itself will have a dampening effect.
Alternative land uses will divert from housing - Site values are getting there in terms of viability but, given the fact that you can develop something far more lucrative on the same site, with the same zoning, it blows it out of the water. So we’ll probably see more student housing, hotels or high-end luxury apartments in town.
Supply will fall - We’ll see probably a levelling or fall-off of output. I think the projections of 25,000 houses next year are wildly optimistic. I think we’re not going to hit 20,000 this year, and the thing we’ll see next year is the fact that apartment developments will have stalled.
Rents to keep rising - Rental demand is going to continue to grind upwards as I can’t see any demand change, and we’ve a big amount of arrears coming down the tracks at the start of next year which will lead to vacancy. Given the very low level of sales that we have, particularly in Dublin, and the demand that’s there, I can’t see [house] prices falling significantly, but they might level off, certainly at the upper end.