Sunday 22 September 2019

Is Brexit affecting the price of your home?

The latest house price report shows we are a still a divided country in property terms. But Brexit could polarise property matters even more

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Ronan Lyons

Property prices are now roughly an average 9pc higher than they were a year ago, and almost 47pc higher than at their lowest point in 2012. These are the headlines of the latest House Price Report, launched today. The report, which covers the period from June to September, found that inflation in that three-month period was modest, after a pretty hectic first six months.

During those six months, house prices jumped by almost 10pc as the market reacted to the relaxation of the Central Bank's mortgage rules for first-time buyers. But in the most recent three-month period, prices rose by just 0.3pc. This is the smallest three-month increase outside of the final three months of the year - when prices recently have tended to ease back - since prices bottomed out in 2013.

But the devil, of course, is in the detail.

Drilling down into the figures, a few things jump out. Not surprisingly, Dublin has seen far bigger increases than more rural markets. While prices are 61pc higher in the capital than when they bottomed out, in Munster, Connacht and Ulster - outside the main cities - prices have risen by a more modest 37pc.

Perhaps the most noteworthy contrast, though, is between Dublin 1 and Donegal. These are of course the epicentres of all that's good and bad about Brexit for Ireland. Dublin 1 is home to the International Finance Services Centre. If any housing market stands to benefit from Brexit, it is the one next to where many Brexit refugee firms will end up.

But Donegal will lose more than any other part of the Republic if a hard Brexit happens. Letterkenny is three hours from Dublin and almost six hours from Cork, but only two hours from Belfast and 30 minutes from Derry. The county, therefore, is at risk of losing access to the two urban hubs closest to it. Prices in Donegal have risen by only 1.9pc in the last 12 months and are just a quarter higher than their lowest point.

This is in stark contrast to Dublin 1, where prices have risen by almost 90pc since they bottomed out in late 2011.

The opportunities and threats of Brexit are confirmed by looking through the price trends for each of nearly 400 'micro-markets' that make up the foundation of the reports. Two of the three markets closest to the 2007 peak are the IFSC part of Dublin 1 and the Grand Canal Docks part of Dublin 4. Both micro-markets are less than 20pc from their peak a decade ago. This suggests that - with the current lack of supply set for at least three more years - they will be among the first to reach those peaks again.

The other market closest to the Celtic Tiger peak is Sandycove, the country's most expensive micro-market and likely target for upper management in the Brexodus.

While Dublin and the other main cities have markets where prices look less than two years off their Celtic Tiger peaks, there are many others around the country that are years, if not decades, from the peak. Once again, Donegal looms large.

At the opposite end of the recovery is Bundoran. The Donegal coastal town is heavily dependent on Northern Irish tourists, among others. Prices in the town are still two-thirds below their peak - further away than any other market in the country.

Killybegs, another Donegal town, has seen the smallest increase since bottoming out. Prices in the fishing port have risen by just 9pc - well below the national average increase of 47pc.

People often speak of a two-tier market, but the reality is closer to a 400-tier market. Each area has its own amenities and attractions, drawbacks and idiosyncrasies. But the huge variety doesn't hide some obvious trends.

Our cities did not build too many homes in the final stages of the Celtic Tiger bubble; this was the preserve of the country's smaller towns and rural areas, dotted with ghost estates and empty one-offs respectively.

Overlaid on this mismatch in oversupply was an urge to urbanise. Urbanisation is a much misunderstood phenomenon - particularly so in Ireland, it seems.

Here it appears to have been conflated with sprawl. True urbanisation is the opposite: more people living on the same amount of land - an environmentally-friendly process that also allows a cheaper standard of living and greater variety.

It is this combination of strong demand in the cities and excess supply elsewhere that has driven much of the difference in housing market trends over the last few years.

Then on top of all that, along comes Brexit.

For the moment we must assume that Brexit happens - in the sense of the UK (including Northern Ireland) leaving the single market and customs union. That process will create significant economic changes for Ireland.

There is little doubt that, in net terms, Ireland losing easy access to its main trading and migration partner will on balance be negative, but there has always been the possibility that some sectors and some locations would gain while others lost out.

If the evidence of the housing market over the last few quarters is anything to go by, Donegal has recognised it will be badly affected by Brexit.

For Dublin's docks, however, Brexit appears to herald even more demand. Whether these expectations of the market are borne out remains to be seen.

Ronan Lyons is author of the House Price Report and assistant professor of economics at Trinity College Dublin

Sunday Independent

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