CIF says housing shortfall may drive up prices

A MISMATCH between housing supply and demand could see "high levels" of house price inflation return in some parts of the Republic in the short-term, the Construction Industry Federation claimed yesterday.

Improved affordability coupled with stamp duty reforms for first-time buyers and mortgage interest relief had combined to produce "the first shoots of recovery" in the housing market, John Moran, chairman of the Irish Home Builders' Association, a division of the CIF, told a media briefing in Dublin.

"We can see now that there are queues outside some developments launched . . . in the last three or four weeks. Customers are voting with their feet and buying new houses again," said Mr Moran, who is also managing director of Manor Park Homebuilders.

Mr Moran said the industry was "delighted" to see the EBS/DKM Affordability index showing the average first-time buyer working couple at the end of November spending 22.8 per cent of their net income servicing a 90 per cent mortgage - a level last seen in 2005. He estimated that if this index was to be compiled now it would be closer to 21 per cent. "For the first time in many years it is cheaper to buy a new home than rent a new apartment," he said.

Mr Moran said housebuilders were "gearing up" to meet renewed demand later this year but conceded this would be unlikely to feed through into higher completions until 2010.

As few as 45,000 completions were being forecast by the IHBA this year, falling to 37,000 in 2009. These projections were based on lower housing registrations figures and "lower activity levels in the last quarter", Mr Moran said.

This figure compared to average demand of 60,000 houses a year, implying that a shortfall could emerge as developers scrambled to boost supply into a rising market.

"High levels of house price inflation could return in key growth areas over the next year," Hugh Fitzpatrick, director of housing at the Construction Industry Federation, suggested. National house price inflation over the longer term, however, would return to equal or near to levels seen elsewhere in the economy as housing supply rose to meet demand, probably in 2010 or 2011, Mr Moran said.

Mr Fitzpatrick conceded the stock of unsold houses nationally was "playing catch-up" but said the effect of this overhang to the market had been overplayed. He said a large number of these houses were occupied by "would-be vendors" who, when they did sell, would generate demand for new homes - providing an additional unrealised fillip to demand. Mr Fitzpatrick said layoffs of workers in construction had "already taken place" and improving sentiment would result in increased employment in the sector in 2009.

Meanwhile, Goodbody stock-brokers predicted the emergence of a "two-speed" housing market between Dublin and the rest of the country. They pointed to a 27 per cent fall in housing registrations in the capital in the three months to the end of February, compared to a 70 per cent drop elsewhere.