Housing market in 2018: will there be relief for buyers?
Nine property market professionals review 2017 and forecast what the new year will bring
'The pity is that most of the dockland buildings will be offices rather than apartments.'
Chief executive, DNG
Property prices in the capital have risen 11 per cent in the past 12 months, and while a number of commentators report that the level of price inflation is increasing, we would argue that a new trend of price stability is actually emerging and that the annual rate of increase in property prices will fall to 7-8 per cent by mid-2018. We further predict that house prices will rise 5-7 per cent for the year. This would be good news for the market as continued double digit price growth is not sustainable.
Last year 50,000 house sales were recorded on the Property Price Register, which included 7,000 new homes. Based on the first nine months’ data, DNG Research predict that the total number of sales this year will be similar but will include 8,000 new homes. This means the numbers of second-hand sales in Ireland will be about 1,000 less for 2017.
Sales of new homes have been strong across 100 sites in Dublin so far this year. Construction recovery in the capital is set to continue with the supply of available homes to purchase increasing. The help-to-buy scheme has proved to be an important incentive for first-time buyers and has sped up their ability to buy by one year for more than 40 per cent of buyers, according to a recent survey conducted by DNG.
Bridging finance is still not available and this is a barrier to many homeowners who wish to move to a more suitable-sized home. Many owners living in large homes cannot move as they are scared to sell their own home without somewhere to move to. New homes are currently filling this gap as they allow sellers to place down a holding deposit while they sell their own home. This is a new and positive trend.
DNG predicted here this time last year that Dublin property prices would rise 7.5-10 per cent in 2017, and 10 per cent nationwide. Current figures indicate that the annual rate at the end of 2017 will be 10-11 per cent in Dublin and 10 per cent nationwide.
Chief economist, Sherry Fitzgerald
Perhaps the best way to describe the residential market in 2017 is disappointing. As we approach the end of the year, we are arguably no closer to a resolution of the housing crisis than we were 12 months ago. Given the negative impact this is having, this is not acceptable.
Supply constraints persist across all market sectors. The latest estimates on stock for sale reveal that only 1.3 per cent of our private housing is available for sale. Construction activity has improved, supported by the help-to-buy scheme. However, we are still delivering less than half the new units the market requires. As such it cannot be a surprise that prices are rising. Our current forecasts suggest prices in the country overall will have increased by about 10 per cent in 2017.
The other particularly disappointing aspect to the year was the performance of the rental market, which is arguably the most challenged sector of the market. Rents in all our urban centres are higher than they were at the height of the Celtic Tiger. The stock of property available to rent is now less than 1 per cent of the rental stock in all regional centres. This situation is being exacerbated by an exodus of private investors from the market, a trend that may even be accelerated due to the 2011 Capital Gains Tax Initiative. Without some significant intervention, we are at risk of damaging the foreign direct investment flows into Ireland because we simply don’t have the rental stock available to new entrants to the country.
That said, there has been some progress. Notably, the retention of the help-to-buy scheme and stability around the macroprudential rules have facilitated a moderate uplift in transaction activity. However, such measures are not enough – we need to start implementing more radical measures now if we are to resolve a very damaging crisis.
Looking to the year ahead, there is every reason to expect both price and rent inflation to remain elevated. Notably, price inflation will be in the high single digits in most locations with the potential for 10 per cent plus inflation in key locations.
Director of research, Savills
Last December I predicted house prices would rise by 8-12 per cent in 2017, and currently price inflation is running just north of 12 per cent per annum. It didn’t take a genius to foresee this. If there are too few properties to meet demand, people will bid competitively against each other and prices will rise.
It will be more of the same in 2018. Admittedly, the trickle of new homes is becoming a flow; ESB connections are up 26 per cent and commencement notices are up nearly 50 per cent year on year. But we will deliver only about 19,000 new dwellings this year and possibly 21,000 in 2018. Analysts can’t agree on how many additional units we need, but everybody accepts that these build-rates won’t cover population growth, let alone restore the buffer of vacant units needed for fluid movement within the market.
This point seems to be understood by policy-makers and, leaving aside the politically motivated help-to-buy, their focus is rightly on facilitating supply. But with so much effort going into this, we must be careful not to sow the seeds of a housing oversupply five or 10 years down the road. Housing demand ultimately comes from population growth, which depends heavily on birth rates and net migration – both notoriously unpredictable factors.
The market is becoming a little more liquid as new builds start to flow – transactions were up nearly 10 per cent in the first nine months. First-time buyers have contributed significantly here with sales in this bracket rising by 16 per cent – perhaps one positive effect of help-to-buy. Small investors continue to be active, but increasingly they are cash- rather than mortgage-financed, and are targeting second-hand properties as competition from grant-aided first-time buyers has heated up.
Managing director, Hooke & McDonald
A part of the new homes market that achieved a good recovery in 2017 – albeit still short of demand – was the supply of three- and four-bed suburban houses for first-time buyers. This was facilitated in large measure by the easing of Central Bank mortgage restrictions and the continuance of the help-to-buy scheme.
The rest of the new homes market, comprising mainly the apartment sector, is dysfunctional, which is contributing to the crisis in the rental sector and the spread of homelessness. There is very strong demand in the sale and rental markets for new apartments but there is a failure at Government level to address the reasons for their nonviability and to introduce radical rather than patchwork measures to increase supply.
In 2018 the new homes landscape will show a raft of launches of new two-, three- and four-bed houses in north and south Dublin as well as in Meath, Kildare, Wicklow and Louth. Hot spots will include Santry, Swords, Malahide, the coastline from Donabate to Drogheda, Maynooth, Kilcock, Naas, Cherrywood and Greystones.
Some of the recent predictions for double-digit residential price rises will prove to be incorrect, certainly so in the new homes market, due mainly to affordability constraints.
The new year will tee up a new era in the development of Dublin docklands and other city centre locations. The pity is that most of the dockland buildings will be offices rather than apartments, due to their continuing nonviability and the lack of adequate fiscal measures to address the issues.
In 2018 the new homes market will again be dominated by first-time buyers but there will also be good activity from people trading up and trading down attracted by high-quality residential developments in areas such as Rathgar, Donnybrook, Ballsbridge and Dún Laoghaire.
Head of residential, Knight Frank
There were 12,349 transactions listed on the Property Price Register in 2016. This means that just 2.2 per cent of the total housing stock changed hands. In a normal functioning market, 3-4 per cent of the stock transacts annually, which in Dublin’s case should equate to almost 22,500 units.
This imbalance is currently resulting in significant increases in house prices and rents in Dublin. Much of this price growth was weighted in the sub-€500,000 category with a knock-on effect to sub-€1 million homes.
This growth was triggered by Government initiatives taken at the end of 2016 to aid and encourage first-time buyers and has resulted in this end of the market transacting well. The first-time buyers and core market buyers are savvy, with mortgage approval in place and deposits ready to go; and for those trading up, many have sold previously and are in rented accommodation.
They know it is a two-step process involving selling first, then renting (owing to the lack of stock to buy) before finding their home of choice. Many have already experienced the disappointment of being trumped by a mortgage-ready purchaser with no house to sell and are resolved not to let this happen again.
In contrast, a large number of instructions above €2 million came to the market in 2017. Fuelled by vendors encouraged by widely reported strong growth in house price appreciation, they hadn’t noted that this growth was unevenly distributed. Furthermore, demand at the upper end of the market, which was previously driven by sterling-funded expats, has slowed as this cohort of buyers has been hit by a less favourable exchange rate. Meanwhile the domestic buyer is actively re-engaging in the Dublin market and many are prepared to pay a premium for the design-led, turnkey product.
The net result is that although prime property is selling well, it is a very price-sensitive market and sellers need to be mindful that would-be buyers are taking their time in making purchase decisions. Unlike the lower end of the market, where properties are going sale agreed within a matter of weeks, properties in the prime market are taking much longer to move.
Another feature of the market is foreign investment by funds with hundreds of millions to spend that are buying residential investment properties, proving there is further growth in the Dublin market. Next year we hope to see a greater stabilisation of the market as a result of aligned vendor and purchaser expectations and a greater supply of new homes. We believe this will result in more evenly distributed high single-digit appreciation.
2017 was another strong year in the residential market with noticeable price inflation particularly evident during the first six months of the year. As the year progressed, price affordability again became an issue and buyers began to stand back from some of the heady asking prices sought in the autumn selling season.
Those wishing to trade up or down in most cases faced the dilemma of having to sell their existing property before purchasing their next property. Without the availability of bridging finance – credit for those wishing to bridge the financial gap between buying and selling a property – these markets became increasingly complex.
Would-be buyers were, therefore, reluctant to sell their existing home without having a home to go to and given the well-documented lack of supply and strong rental prices, many were unwilling to contemplate renting in the interim. This brought about an increase in the frequency of “chain” sales, more commonly associated with the UK market. A lack of bridging finance just compounds the supply problem in the family home market in Dublin as many potential sellers defer placing their home on the market without the confidence of being able to secure a property to move to when they sell. This is a feature of the market that we believe will continue into 2018.
This year we also saw buyers pay a strong premium for houses that were refurbished to a high standard, preferring the security of the financial foresight and convenience of the walk-in product. Conversely, buyers often attributed a higher cost of refurbishment when assessing properties requiring work, reflecting a general increase in the cost of construction. This is likely to remain the case into 2018.
Affordability and therefore price sensitivity will remain a fundamental theme of the market in 2018. We expect price inflation to continue, however at a more sustainable single-digit pace.
Managing director, MyHome.ie
In 2017 we saw increased first-time buyer activity driven by the relaxation of the Central Bank rules. Lowering the deposit requirement from 20 per cent to 10 per cent in tandem with the introduction of the help-to-buy scheme has had a strong impact, especially on the new homes market.
Many commentators have pointed out that the moves led to a rise in prices, and this was reflected in an increase in the size of mortgages with the average loan drawdown for first-time buyers increasing by almost 10 per cent in the first half of the year, from €183,000 to €200,000.
The help-to-buy scheme is a supply-side initiative to encourage developers to build more starter homes, and while we are definitely seeing more new developments aimed at first-time buyers come to the market, it’s coming from a very low base.
One trend our research picked up on during the year was the notable rise in prices in the commuter belt, especially in counties Meath and Wicklow. First-time buyers who are increasingly desperate to buy their own homes are being pushed out further and further, but one downside is an alarming increase in commuting times.
The shortage of second-hand stock is still the biggest concern in the market, with little more than 1 per cent of the State’s housing stock listed for sale. This figure should be closer to 4 per cent. Currently we have about 20,000 second-hand properties on our site, a drop of 6.5 per cent on this time last year.
At the start of 2017 we predicted double-digit growth in house prices for the year. We don’t see a whole lot changing in the short term and we think that double-digit house price inflation is likely to persist in 2018.
Director general, Society of Chartered Surveyors Ireland
Clearly the changes made to the Central Bank lending rules and the introduction of the help-to-buy scheme increased buyer activity for limited supply and drove prices higher. Similarly, rents are rising, despite the introduction of rent pressure zones, so affordability is a major issue for both buyers and renters.
What role could apartments play in the solution to our housing crisis? Recently the society published a report, The Real Cost of New Apartment Delivery, to inform public debate and examine potential solutions, with the emphasis on affordability. The report found that the delivery of affordable medium-rise apartments in Dublin is not commercially viable at present. It also found that the higher the build, the greater the costs. Worryingly, increased material and labour costs, coupled with capacity issues, may combine to further drive up costs next year.
Apartments comprise just 12 per cent of our housing stock. If we want to get closer to the EU average of 50 per cent and provide affordable accommodation in our cities, we will have to find a way to reduce delivery costs. Land is a significant part of the equation, and the vacant site levy increase announced in the budget will hopefully boost the supply of development land.
We also need better real-time data on actual supply. One of the most frustrating aspects is our inability to accurately count the number of new units we build each year.
Looking ahead, pent-up demand will likely cause prices and rents to continue to rise, but hopefully at more sustainable rates. A recent sentiment survey of our members in conjunction with the Central Bank suggests property prices will rise 8 per cent for the coming year and up to 15 per cent over the next three years.
The growing number of buyers are pursuing an all-time low pool of homes listed for sale but stock levels on the market appear to be improving.
The new homes sector has seen a reasonable increase in the number of developments coming to the market, but there is also the prospect of many more over the next few years as a considerable number of planning permissions were lodged. Currently many discussions are taking place with the planning authorities relating to further schemes for 18-24 months’ time in the greater Dublin area. In the first quarter of 2017, planning permission was granted for 4,650 dwelling units, compared with 3,091 units for the same period in 2016, an increase of 50.4 per cent.
The help-to-buy incentive is certainly assisting first-time buyers in putting together their deposit (5 per cent of the price of a new home) and this has also given the residential building industry assurance that purchasers will buy in volume in the correct locations, allowing delivery of much-needed new homes.
In relation to the purchaser profile, we refer to the BPFI Mortgage Market Profile on new lending. The latest figures, which relate to all new lending secured by residential property shows the first-time buyer accounts for almost 49 per cent of drawdowns and mover/purchasers (generally families) accounted for just over 32 per cent in the third quarter of 2017. This gives a good indication of the purchaser profile typical in the greater Dublin area, with the balance comprising investors and downsizers.
Following austerity measures, the typical (private) investor has been taxed out of the market and this is having a knock-on effect and pushing up rents.