House prices to fall by 12 % over next 18 months, ESRI says

Decline would have been worse without Covid welfare payments, institute says

Photograph: iStock

Photograph: iStock

 

House prices could fall by 12 per cent over the next 18 months as a result of the Covid-19 pandemic, the Economic and Social Research Institute (ESRI) has indicated.

In a research paper, the think tank estimates the impact of the two possible recovery scenarios on house prices here.

The first, involving a “V-shaped” recovery, assumes a significant contraction in the economy in the second quarter of 2020, coinciding with the lockdown, and a rapid bounce back thereafter.

In this scenario, house prices fall initially compared to a baseline scenario but by the final quarter of 2021 are the same as where they are now.

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The second scenario, involving a more “sluggish recovery”, and the one the ESRI thinks is more likely, would see a more severe decline, with prices down 12 per cent by the fourth quarter of 2021.

The contraction in property prices is due to the likely decline in household disposable income and the fall-off in mortgage market activity which it said would inevitably result “from the administrative closedown implemented by the Irish authorities”.

However, the institute noted that the decline would have been significantly worse if the Government had not introduced the significant welfare payments to address the substantial increase in unemployment.

“The recovery of housing demand in the Irish economy will depend on how long these payments remain in place and at what stage the authorities decide to remove them,” the paper’s author Kieran McQuinn and Matthew Allen Coghlan wrote.

Decline in investment

The economic uncertainty arising from the shock will also likely lead to a decline in private investment in housing, causing a shortfall in supply in the future, the paper warned.

“Arguably, the greatest impact of Covid-19 on the Irish housing market over the longer-term may well be on the supply side of the market,” it said.

“Given the well-known supply shortages the country already faces this may put additional upward pressure on house prices when the domestic economy recovers exacerbating the affordability issues already noted in the market,” it said.