So here we are again, restricted by a Level 5 lockdown. Many of us are working from home (cursing not having invested in a more comfortable office chair last March) and glad to have seen the back of 2020.
Despite the worryingly high number of Covid-19 cases recorded since Christmas, the coming year brings some optimism with multiple viable vaccines in production. In addition, we have avoided a “no-deal Brexit” which represented a further major threat to our economy. But what does it mean for the new homes market?
Despite the pandemic, the new homes market proved remarkably resilient following the reopening for viewings in June 2020. Despite the subsequent second and third waves of the virus, the market has continued to perform well, and this has been especially true of stock priced at €500,000 and below (where the Help To Buy scheme applies).
Certainly the busy start to 2021 we had anticipated was dealt a blow as construction sites closed (with limited exceptions) on Friday, January 8th. Builders, aware that there were likely to be a greater number of mortgage exceptions available in the first half of the year, were keen to continue the positive momentum witnessed in the last quarter of 2020 but the stark increase in case numbers set this expectation back.
Anecdotally, it would seem the lockdown experience has strengthened the resolve of would-be buyers to move from unsuitable accommodation. Along with this, early expectations of price falls and a “wait and see” approach among buyers seem to have passed, for now at least. We are seeing a higher level of sales velocity in Dublin commuter towns such as Ashford, Naas and as far north as Drogheda. Covid-19 has accelerated demand for these more “peripheral” locations, with a good broadband connection a key factor for most purchasers.
In response to working from home, there’s a new focus among developers on delivering practical and well-designed workspaces within each property. Underneath stairs, larger landings, attics and just about every available space that won’t negatively impact how a room is used is being repurposed as a work from home (WFH) option.
While significant Government-paid Covid-19 supports remain in place for a large proportion of the workforce, the take home pay for middle to higher income earners remains relatively unaffected. The most negatively impacted sectors, such as hospitality and retail workers, would typically account for a smaller proportion of mortgages and a higher proportion of renters in any given year. Therefore, overall demand and approvals for mortgages have recovered strongly and have been less impacted by the pandemic than might initially have been predicted. We expect prices to remain stable throughout the year with some minor price increases anticipated, depending on the location and type of property.
As part of the programme for government, work has begun on a Shared Equity Scheme that will see the State take up to 30 per cent equity in a home, with €75 million in funding already pledged. This should help bring home ownership within range for many. In addition, the enhanced Help to Buy scheme, which increased the maximum rebate to €30,000 from €20,000, will run until the end of 2021 at least and will encourage more first-time buyers to transact this year.
Looking at new supply, 2020 saw new dwelling completions of about 20,000 units, roughly in line with output achieved in 2019. Analysts’ estimates of future demand – expressed as an annual homebuilding requirement – differ. In December 2020, the ESRI forecast that 28,000 units per annum would be required until 2040, but additional supply is required in the short term due to recent immigration inflows and could be as high as 33,000 new units per annum if high immigration persists.
However, there’s evidence of barriers to the throughput of new supply. While new home completions have held up reasonably well, commencement notices (which must be issued between 14 and 28 days before construction begins) dropped by 45.7 per cent year on year in the second quarter of 2020 and by 28.4 per cent in the third quarter. This will inevitably lead to lower completions in 2021. Further compounding this, the current cessation of all non-essential construction earlier this month will see completions fall again in the first quarter.
On a more positive note, a combination of favourable Government policy, motivated buyers and sellers, and stable pricing should combine for a strong year ahead once the latest Covid-19 restrictions ease.
Gavan Ryan is a divisional director at Savills New Homes