Where are all the houses for sale?

There was little good news for putative property buyers in today’s reports from property portals Daft.ie and myhome.ie, which both find house prices continuing to rise amid a shortage of supply. And the situation may not improve in the short term, as a combination of insufficient new development, negative equity still trapping boom-time buyers conspires to restrict supply, while on the other side a potential hike in demand may be on the way on the back of a first-time buyers-style grant in next week’s budget.

Anyone searching for a home in recent months, or viewing RTÉ's Find Me a Home!, will be familiar with the frustrating scenario of bidding on a house, particularly in Dublin but also other urban areas such as Cork and Limerick, only to find it sells for 10, 20 or even 30 per cent more. The problem, it seems, is an uneven balance between supply and demand; while mortgage lending rules may have curbed housebuyers' appetite in recent times, supply is such that demand still appears to outstrip supply, particularly in the middle of the market, with many buyers actively seeking the holy grail of a three-bed semidetached.

"Supply is very,very tight," agrees Dublin agent Owen Reilly,

Falling supply

Marian Finnegan, chief economist with Sherry FitzGerald, notes that the stock of homes listed for sale fell to 27,800 in July 2016, down 14 per cent on the year. The squeeze in supply was particularly acute in Dublin, where stock has fallen by 18 per cent in the year to July, with about 4,600 units advertised for sale.

“The commuting counties around Dublin and the regional centres also recorded a notable decrease in supply during the year,” Ms Finnegan said.

Compare this with August 2012, when there were 39,978 properties listed nationwide on the myhome.ie portal, 4,926 of which were in Dublin.

The trend is also backed up by a decline in transactions. The Property Price Register (PPR) reveals that approximately 21,100 residential units transacted during the opening half of 2016. According to Finnegan, when multifamily/portfolio sales are extracted, this figure reduces to approximately 19,750, down by about 1 per cent compared to the same period in 2015.

Rising demand

But if stock is shrinking, demand continues to rise. Last week figures from the Banking and Payments Federation showed that mortgage approvals soared by 55 per cent in the year to August. If we consider homeowners typically get mortgage approval for a period of six months or so, then some 16,700 mortgage approvals were granted in the period March-August 2016. With cash buyers still accounting for one in every two purchases, one could suggest that there are as many as 30,000 buyers actively seeking to purchase – but with just 27,000 or so properties available for sale,

This lack of equilibrium could deteriorate further if the Government goes ahead with its mooted tax rebate of as much as € 15,000 to encourage first-time buyers to get their first step on the property ladder. If it goes ahead with the measure, to help buyers of new properties priced between € 220,000 and €320,000, one can only expect price pressure will continue to increase – unless supply takes off.

As Ronan Lyons, economist with Trinity College Dublin and author of the Daft.ie report says: "It is tough to argue that there is a compelling case for help for first-time buyers in the upcoming budget. This is particularly the case once the potential negative side-effects of further stimulating demand, in order to bring about more supply, are factored in."

However, a jump in supply appears unlikely, with just 14,000 new properties expected to be built this year.

“We’re not building anywhere near enough new homes,” says Reilly.

Where new developments are happening, they’re often in the low double digits. In Kilternan, south Dublin, for example, Collaboration Land is building 11 four-five-bedroom homes, while on the Upper Kilmacud Road, Stillorgan Gate consists of 48 houses, duplexes and apartments.

Outside of the capital, you can still buy a house in many parts of the country – Longford and Roscommon, for example – where average house prices are less than €100,000, for less than the cost of building it.

When it comes to second-hand stock, Reilly suggests that negative equity is an ongoing problem, noting a client who bought a property in Ringsend in 2006 for €595,000 – and now has it on the market for €400,0000. While this client can afford to sell, many others cannot afford to crystallise their loss – and save up the requisite 20 per cent deposit required by Central Bank lending rules.

“Even though values have recovered strongly, they’re still 30-40 per cent off peak values,” says Reilly, adding: “[Negative equity] is still a massive issue why stock isn’t coming on. People who should be moving, and want to move, can’t.”

Empty-nesters also remain reluctant to move on, with few properties being built that suit their needs.

“They have very few options,” says Reilly.

More construction?

The emerging imbalance between supply and demand may nonetheless attract new developers of scale, however, for whom the sums might stack up. US property developer Kennedy Wilson, for example, which until now has been focused on acquiring or developing apartment blocks such as Vantage in Leopardstown, south Dublin, has said it is considering getting into the market of building properties for sale.