Give Me a Crash Course In . . . Property prices
Ireland’s property roller coaster is on another crazy climb. Any chance of a soft landing?
Going up: a home worth €300,000 at the start of 2017 rose in value by almost €100 every day of last year. Photograph: Aidan Crawley/Bloomberg
So the property market has settled down after years of turbulence, has it?
Not even remotely, and well you know it. The property roller coaster the Republic has been on for almost 20 years shows no sign of slowing. After its rapid climb in the first part of the last decade, and its terrifying plunge after the crash, it appears to be back on almost as terrifying a climb.
Surely you’re being overly dramatic
You think? House prices increased by 12.3 per cent last year. So a home worth €300,000 at the start of 2017 rose in value by almost €100 every day of last year. And the pace of price increases is picking up: they climbed by only a comparatively modest 9 per cent in 2016.
But prices are still nowhere near their previous height, right?
It depends what you mean by near. The price of homes across the State has climbed by just over 72 per cent since the bottom of the market in 2013. Values in Dublin have climbed even more dramatically, by more than 87 per cent. That said, the average Irish home still costs 22.9 per cent less than in 2007, just before the crash; prices in Dublin are 24.4 per cent lower.
What is driving the increases?
Lack of supply is the biggest cause: not enough homes are on the market to meet demand. In a properly functioning market we would need about 35,000 new houses a year. After the crash the number of completions fell off a cliff. Even last year they were a fraction of what they were supposed to be. If 10,000 homes are being built in a market that needs up to 40,000, then are going to be serious problems.
Is it all about supply?
No. The economy is booming, so climbing employment and incomes are also forcing up prices: the strong economy has led to an increase in immigration, both from foreigners and from Irish people returning from abroad, all of whom are looking for places to live; and the Government’s help-to-buy scheme is giving tax breaks and cash to first-time buyers.
Are we in bubble territory again?
Maybe, but if we are it is not the kind of bubble we saw last time. That one was largely fuelled by reckless lending and reckless borrowing. Credit is easier to come by than it was three years ago, but Central Bank rules, and other banks’ fear of being burnt, mean we’re not seeing Celtic Tiger craziness.
What’s likely to happen next?
Austin Hughes, chief economist at KBC, remains “of the view that the Irish housing market is in the early stages of moving to more modest and, consequently, more sustainable rates of increase in the coming year”.
That sounds like a soft landing. Weren’t we promised that last time?
Yes. Yes we were.