A ‘sustainable’ recovery or another bubble waiting to pop?

Analysis: Dublin house prices jumped 25% in last 12 months. Have we learned nothing?

Dublin house prices rose by 3.1 per cent in June and were 24.4 per cent higher year-on-year. Photograph: Alan Betson/The Irish Times

Dublin house prices rose by 3.1 per cent in June and were 24.4 per cent higher year-on-year. Photograph: Alan Betson/The Irish Times


News that house prices in Dublin jumped by just under 25 per cent in the 12 months to the end of June is enough to put the fear of God into any rational-minded person.

While some sectors may cheer this “recovery”, if we have learned anything from the catastrophic crash which started in 2007, it should be that price shifts of this scale benefit no-one in the long run.

The chasm between those who own property and those who don’t is widening and at a terrifying rate. According to one figure published by estate agents Douglas Newman Good (DNG), home owners were better off by €220 a day over the three months from March to June.

DNG’s chief executive Keith Lowe said property prices in Ireland fell too far and too fast when the bubble burst and suggested it was inevitable prices in the greater Dublin area were going to rebound strongly.

“The fact that property prices in the capital have risen at a more realistic and sustainable level this quarter than that experienced in the first quarter of 2014 is to be welcomed,” he said.

Comments from estate agents - the body benefiting most from the current upheaval - should, however, come with a serious health warning.

Dublin house prices rose by 3.1 per cent in June and were 24.4 per cent higher year-on-year. Nationally, the year to the end of June saw prices increase by 12.5 per cent compared to an increase of 10.6 per cent in April and increase of just 1.2 per cent recorded in the 12 months to the end of June last year . There is nothing in these numbers which are “realistic and sustainable” despite what Mr Lowe may believe.

Apart from estate agents, home-owners would seem to be quids in this morning. While it is understandable that property owners - particularly those mired in negative equity - are buoyed by such price increases, first time buyers or people looking to trade up or those on housing waiting lists will be further demoralised by the news.

“It is really worrying,” says mortgage broker and financial analyst Karl Deeter. “When you see double digit price increases over a period of just six months it is not a good sign and points to serious problems in the system.”

“We now have rents rising and house prices rising at rates which are excessive and unless something is done we could be facing a double whammy of more people on housing lists and even more people in mortgage distress,” he warns.

The problems are easy to identify. There is a chronic shortage of supply of new properties, particularly in the Dublin area. Last year 8,300 new houses were built across the State when three times that number would ordinarily be built to meet demand.

The Society of Chartered Surveyors Ireland (SCSI) has called for the prompt implementation of the measures recommended in the Government’s Construction 2020 Strategy to address the current housing supply shortage and pace of increases in property prices.

Policy director of the SCSI Conor O’Donovan described the current rate of price inflation as a “significant concern” and said it would challenge “levels of affordability and our economic competitiveness”.

His comments were echoed by Property Industry Ireland, which represents businesses working in the property and construction sector. Its director Peter Stafford suggested that unless measures were introduced to lower the cost of constructing new houses such as VAT reductions and a lowering of development levies, “the shortage of new housing will have a serious impact on affordability, the cost of living, quality of life and Ireland’s international competitiveness”.

It is not much of a surprise to hear the construction sector looking for a hand-out, but Deeter believes the calls have merit. He says Government should incentivise developers to build more houses despite recent history which saw previous governments propping up the construction sector with disastrous consequences for the wider economy. “Inaction at the wrong time is as bad as action at the wrong time,” he says.

Then there are the much talked about cash buyers. They are still out there in great numbers, with more than 50 per cent of homes being sold to people with cash up front. Given the increase in Dirt tax imposed by the Government and the historically low interest rates imposed by the European Central Bank, anyone with money would be doing well to get net interest of 1 per cent on long-term deposits. it is hardly surprising, then that people with money are looking to invest in bricks and mortar if yields are running at 8 per cent.

And the elephant in the room is - as ever - Nama. It is the single biggest property owner in the State and stands to benefit enormously from a rapid rise house prices. This has left the Government conflicted - it wants price increases, both because it will allow it maximise the return from Nama and boost consumer sentiment among property owners, but it will not want history to record that it sat on its hands and did nothing as a bubble inflated so soon after the last one went pop.

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