Hard market dynamics in play when buying housing in Ireland

Cantillon: price growth will only level off when higher incomes can no longer afford to buy

“The three-and-a-half times income ceiling on mortgages means that as house prices go up, the cohort of households that can meet that condition shrinks.” Photograph: Getty Images

“The three-and-a-half times income ceiling on mortgages means that as house prices go up, the cohort of households that can meet that condition shrinks.” Photograph: Getty Images

 

After a sustained period of price growth, the UK housing market appears to be in slowdown mode. Leading indices from Halifax and Nationwide recorded price declines of between 0.1 per cent and 0.4 per cent in April, while the annual rate of inflation is now less than 4 per cent, the lowest level in four years.

“Housing demand appears to have been curbed in recent months due to a deterioration in housing affordability driven by the sustained period of rapid house price growth during 2014-16,” Halifax housing economist Martin Ellis said.

The trend may be instructive as to how things might play out here, not least because we are already in a period of sustained price growth with annual inflation at about 11 per cent.

At the launch of the Central Bank’s annual report last week, Prof Lane was repeatedly quizzed about where the Irish property market was going and whether we were on the brink of another housing bubble.

His view was that as mortgages were tied to 3½ times people’s incomes, there was only so much price growth the market could accommodate.

“The 3½-times-income ceiling on mortgages means that as house prices go up, the cohort of households that can meet that condition shrinks,” he said.

While the logic is sound, it will come as cold comfort for those struggling to bridge the affordability gap. Essentially price growth will only level off once those on higher incomes can no longer afford to buy.

At what point will that be? Not anytime soon, judging from the current level of demand.

Some 12 out of 15 available apartments, with prices starting at €415,000 for a one-bed, were sold in a matter of hours over the weekend at the launch of Hanover Lofts, a new high-end development on Dublin’s Grand Canal Quay.

In Ireland, as in other Anglo-Saxon economies, it’s the hard market dynamics that prevail. The alternative is mass State intervention, and it’s obvious the Government is ideologically pointed in a different direction: its Rebuilding Ireland housing strategy is entirely reliant on the private sector meeting supply.

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