Clearly 2020 will be remembered as a year like no other and Covid-19 will leave an indelible mark. What is most surprising is that there have been some positives for the residential property sector in all of this, and at worst the challenges facing the industry are largely the same as the ones that were there at the start of the year.
A positive takeaway will be a streamlining of the way property is transacted. Overnight the industry was forced to drive much of its business online. While some early structures were in place to facilitate remote viewing of properties nothing could prepare the industry for an entire shift overnight to online viewing appointments via Zoom, Facebook etc.
Before viewing a property in earnest now buyers typically need to demonstrate proof of funds – time wasters and nosy neighbours need not apply. The online experience has also thrown open the available market of buyers. The post lockdown surge in buyer interest was not just driven by pent up demand within the State but also by a substantial number of Irish overseas planning a return home. Latest CSO figures show numbers of Irish nationals returning to live and work at an all time high. This newfound ability to transact remotely saw a surprising number of homes sold to buyers who never actually set foot inside the property.
Many are motivated home by geopolitical factors in their host countries, eg Brexit, Trump’s America, and they are typically cash buyers with substantial savings who want to move quickly into ready to go homes. This has driven a small and most unexpected boom in premium homes and country piles.
Then there was the Working From Home (WFH) revolution as potential buyers realised they didn’t have to live within easy commute of their workplace and could instead live and work outside the main urban centres in better, more affordable homes with good gardens and cleaner air. With a vaccine about to roll out time will tell to what extent employers have truly bought into the WFH mindset, and whether remote working will continue to be embraced. From a property perspective at least it has been a shot in the arm for the regions taking disproportionate focus away from the capital, and in some areas it has begun to invigorate dwindling local communities.
But this boon of returning emigrants and a migration to regional centres is putting additional pressure on an already limited availability of quality homes to buy. Housing stock levels were on the floor coming into 2020 – 25per cent fewer houses will be sold this year than last. This prompted calls early in the year from many quarters for a more cohesive Government approach to affordable housing provision but in an election year no clear strategy was forthcoming.
When Covid-19 struck initial predictions were that the demand for homes would decline dramatically but this turned out to be overly pessimistic. Prices fell initially by around 3 per cent during Lockdown One, but buoyed by a post-lockdown surge in pent up buyer and overseas demand they regained ground with marginal monthly price improvements. By September house prices nationally had fallen by almost 1 per cent in the year, and a post lockdown pick up in transactions that month pointed to further recovery. Prices in Dublin declined by 1.8 per cent in annual terms according to the CSO. Homes in reasonable shape and properly priced appear to be selling within the average 12 week period, and very often sooner.
The pandemic has not generally affected homeowners, instead it is the lower paid who are experiencing the fallout
The market resilience is not unique to Ireland and has been replicated in international markets. The UK is looking at 7.5per cent year on year growth (fuelled somewhat by a stamp duty change) while the G7 region saw a 5 per cent increase in Q2.
“It stems from the pandemic’s impact on different parts of the labour market. Homeowners have generally not been affected, instead it is the lower paid who are experiencing the fallout,” says Dermot O’Leary chief economist at Goodbody.
Having initially envisaged a 10per cent decline in prices early in the pandemic, Goodbody tempered this back to 5 per cent in the last month. “Looking ahead to 2021 an expected uplift in the second half of the year should bring this back to an overall fall of 2 per cent next year, though a strengthening demand environment could drive further upward pressure on prices,” O’Leary says.
Demand certainly seems to be increasing – mortgage approvals hit a record high in October – and many observers anticipate a strong start to the new year as lockdown savers look to purchase. Improved consumer sentiment on foot of a vaccine should also encourage sellers and this may improve supply in the latter half of the year.
New homes launches this year have been thin on the ground as developers - and their funders - put plans on ice. The move by State-owned development lender Home Builders Finance Ireland to provide funding for building completions helped projects already under way to complete and in some cases to mitigate any fall off in funding from banks. HBFI trebled its loan approvals to €340 million from €114 million in the six months to the end of June. Many projects that had started will now complete and it looks like 19,000 to 20,000 homes will be built this year a far better outcome than anticipated at the start of Covid-19.
The wider concern is for projects that have yet to start and this will affect the supply of new homes to buy next year. A cautious lending environment remains a significant stymying factor.
The Banking and Payments Federation Ireland (BPFI), the umbrella group for the banking industry this week said new homes commencement activity during 2020, which is an indicator of future supply, is down by 24 per cent compared with the same period in 2019 and the decline is particularly acute for Dublin and commuter belt areas. Forecasts vary but based on current figures the estimated 35,000 new homes required to meet annual demand will not be reached for at least three years and even then the accumulated demand is likely to require even more homes.
Square this off against recent sentiment surveys from both MyHome.ie and KBC Bank Ireland signalling a clear desire among respondents to purchase a property in the near term. The demand to buy is there but the luxury of buying will only be for those who can afford it or have access to funding. While rental costs have slowed they still remain prohibitive and it is frequently cheaper to service a mortgage on a property than to rent. With the post-pandemic fortunes of so many still in the balance there is a growing divide between the property haves and have nots. The financially secure have managed to boost their savings through lockdowns and may be looking to invest, while those on lower pay struggle with income supports and unaffordable rents.
The Government’s €110 million affordable housing scheme announced in Budget 2021 will go some way towards the construction of desperately needed new homes. But with so much pent up demand there remains a further need for the State and the building sector to put their heads together and explore creative ways of delivering decent affordable homes to the people that need them.