‘Another decade’ before property supply meets demand

Standard & Poor’s says Irish market remains severely impaired becuase of legacy issues

In its report, S&P forecast house-price inflation of 7% this year and 5% in 2018.

It may take another decade before supply matches demand in the Irish property market, Standard and Poor’s (S&P) has warned.

In a new report, the rating agency said the property market here remains impaired by what it called “crisis legacy issues”. In particular, it highlighted the high levels of household debt that still prevail eight years on from the crash.

Economy-wide debt-to-disposable income ratio in Ireland fell to 150 per cent last year, down from 170 per cent a year earlier, and from above 230 per cent at its peak in 2009.

“Despite this remarkable improvement, household debt remains very high compared to most European economies, and deleveraging will need to continue for the situation to normalise,” S&P said. With house prices in 2016 still 30 per cent below their peak, many households remain in negative equity, unable to move on, it said. Another issue was the low level of investment in residential construction since the crash.


The agency noted that private investment in housing, in real terms, had fallen by a “staggering” 80 per cent from its peak in early 2006 to its trough in 2012.

“The recovery is now on the way, but from very low levels. It will likely take a decade or so to recover to equilibrium levels,” it concluded.

S&P said several years of extremely low investment in residential construction have contributed to the build-up of pronounced shortages in key areas, particularly in Dublin, and will be an important driver of prices in the foreseeable future. As a result, it predicted house prices would remain on an upward curve for several years to come. This trend was likely to be underpinned by improvement in the labour market; the Government’s new help-to-buy scheme; and the Central Bank’s recent decision to loosen its mortgage lending rules.

In its report, S&P forecast house-price inflation of 7 per cent this year and 5 per cent in 2018.

Lag effect

The firm also predicted a pronounced lag effect related to key Government policy measures.

“Given that the housing shortage is set to remain a key characteristic of the market over the forecast horizon and beyond, any policy that stimulates demand will first stoke house-price inflation in the short term, before relatively inert supply responds in the medium term,” it said.

“This will also be the – partly intended – effect of the Government’s new help-to-buy scheme, active since January, as well as of more relaxed mortgage lending rules for first-time buyers put in place by the central bank late last year,” it added.

S&P said against the background of still high household leverage, negative equity, inability or reluctance to move, stock limitations, and macroprudential rules introduced in the aftermath of the crisis, overall demand for mortgages remains more muted than supply offered by banks that are increasingly able and willing to lend again.

According to the Central Statistics Office (CSO), property prices nationally rose by 8.1 per cent last year, while prices in the capital climbed by 5.7 per cent. Its latest property price index, however, showed the rate of house-price growth unexpectedly slowed in December, bucking a trend of accelerating growth in 2016.

Prices nationally fell by 0.4 per cent in December, marking the first monthly reverse since March.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times