How do you buy a house these days?
If you're a first-time buyer, you're faced with the challenge of saving for a substantial deposit while paying a steep rent to put a roof over your head. A loosening of the Central Bank mortgage rules, which reduced the size of the deposit amount required for first-time buyers, was no doubt a welcome relief to many at the end of 2016. While it may have made the prospect of owning a home a closer reality, it also drew with it a surge of new buyers into a market with a relatively stagnant supply of property.
Figures published last week show that loans to the value of €513m were approved for home purchases in January. This was a 54pc surge on January 2016, and a 47pc increase in the volume of approvals. First-time buyers accounted for nearly half of these figures.
On the next step of the ladder, if you're trading up without the benefit of a EuroMillions win, you probably can't afford to buy a new home before you sell your old one. Therefore you are faced with the prospect of renting a property in the interim as bridging finance (the mechanism commonly used by homeowners to bridge the gap financially between buying one house and selling another) is now rarely available. Renting a property should not be a concern but in a market where successive government intervention has pushed out so many private landlords, the stock of rental property has reduced dramatically. Consequently, rents in Dublin are currently 14pc above their peak levels in early 2008.
This leads to an undesirable chicken and egg situation for people trying to trade up. They need to sell before they buy, but they need to secure a house to move to before they can sell. The result is that many people are standing still and this is compounding a lack of supply on the market. According to MyHome data, there were just 3,619 second-hand properties available for sale at the end of 2016.
Finally, if you are trading down, you most likely are lucky enough to have equity in your home but you may not be able to afford to buy before you sell. If you sell, where do you go? The rental market is challenging, to say the least, and the supply of suitably large apartments or bungalows for sale is limited.
We need to begin the process of building the right housing stock in the correct locations. Construction activity is picking up but from a very low base. Fewer than 15,000 houses were completed in 2016 but we will need somewhere between 25,000 and 30,000 new homes every year to meet demand nationally. Meanwhile, until we resolve the supply issue we are going to continue to have these pent-up pinch points in the residential market, which effectively just drive up prices.
David Byrne is a director at Lisney.