Property year in review: freefall continues with soaring prices and too few houses

Despite all the bluster and hype around addressing the "property crisis" double-digit property price growth remains on the cards for 2018, though the flow of new homes will increase from a trickle

The number of homes available to buy remains critically low, and this continues to exert upward price pressure in particular at the lower end of the market, where first-time buyers are desperate to move on from paying  rent.

The number of homes available to buy remains critically low, and this continues to exert upward price pressure in particular at the lower end of the market, where first-time buyers are desperate to move on from paying rent.


A year further along in our so-called “economic recovery” and the property market remains dysfunctional. It’s an indictment of measures taken – or not taken – that homeless people are living in hotels and tourists are taking up badly needed apartment accommodation for short-term stays.

Set this against a backdrop where one in four people in the capital now rent – the highest figure since quarterly records began – and average rents are soaring by between 5per cent and 6 per cent, mainly driven by an extreme shortage of available rental accommodation.

Low stock

Meanwhile the number of homes available to buy remains critically low, and this continues to exert upward price pressure in particular at the lower end of the market where first-time buyers are desperate to move on from paying extortionate rent. There is a generation of homeowners who paid above the odds for their first houses and apartments in the boom and now need to move on as families expand and they emerge from negative equity.

Meanwhile population growth is at its highest since 2008, adding further demand side pressure.

Property prices in the capital have increased by almost 12 per cent, ahead of expert predictions for the year of around 10 per cent. The level of second-hand stock available to buy is only around 1 per cent, a figure which in a normal functioning market should be closer to 4 per cent.

MyHome figures show it currently has 20,000 second hand properties available to buy, which represents a drop of 6.5per cent on December last year. It’s estimated 1,000 fewer second-hand homes will be sold in Ireland in 2017. This in a market experiencing unprecedented demand for housing stock.

Budget measures

Budget measures taken towards the end of 2016 were broadly designed to incentivise builders on the supply side and these would appear to have worked. The continuance of the Help-to-Buy scheme and easing of Central Bank mortgage requirements have ensured strong demand for suburban new homes built on around 100 sites this year. The flow of new homes to market is expected to further improve next year, so much so that some analysts anticipate a slowdown in current galloping price rises as the additional stock feeds pent up demand.

However, many of the new homes schemes are still of the more expensive variety where builders are certain they can sell and fall short of the “starter home” profile required to address the needs of this cohort. Next year will see a major push into the greater Dublin area as first-time buyers compromise commute times for more affordable new homes in these areas. Sound familiar?

Mortgage activity

According to figures from the Banking & Payments Federation Ireland (BPFI), for the third quarter of the year 9,506 mortgages were drawn down to a value of €2 billion. This represents a 16.9 per cent increase in loan volumes on the year, and an increase of 18.9 per cent on Q2. Loan values are up by 29.4 per cent on the year.

While mortgage drawdowns continue to rise, the number of buyers seeking mortgage approval also continues to rise. However, a mismatch is emerging between those looking to buy and those able to find a property and secure a purchase given the scarcity of property available for sale.

Bridging finance

The absence of bridging finance is also a major issue for homeowners seeking to trade up to bigger homes. Despite knowing they will find a buyer, people are reluctant to sell when they don’t know where they are going to next. With so much competition for the limited stock that’s out there buyers don’t want to run the risk of selling their own home only to struggle to secure a new home, while in the meantime being forced to pay exorbitant rents in substandard accommodation. Bridging finance would take these buyers through this process but lenders are still not prepared to take the risk in the current market.

Cash buyers

Cash buyers remain a major force and exert a disruptive influence on any macroprudential efforts to control the market. In September, Central Bank governor Philip Lane said cash buyers were limiting the regulator’s ability to control house prices because they comprise more than half the purchases in the residential property market. According to figures compiled by Savills, investors account for a little more than a third of all cash sales and it’s no surprise when they can achieve gross yields of 6-7 per cent. It’s a bit of a no-brainer when set against the negligible returns for money sitting on deposit.

Contrary to the popular narrative that residential property investors are quitting the market in their droves due to the onerous costs of retaining a rental property, the yields speak for themselves and the rental market is growing all the time.

Parents also continue to dig deep for kids struggling to buy a first home and meet the 3.5 times income multiple for properties in Dublin. An average second-hand home for €400,000 in Dublin is way beyond the reach of many would-be buyers and parents are stepping in to get them over the line. In the second quarter 11 per cent of cash buyers were first-time purchasers. When it comes to a sale it’s an unfair reality that the cash buyer will trump the young mortgage-funded buyer every time.

Upper-end sales

At the upper end of the market some vendors may have fallen foul of soaring prices in the crowded lower end. The reality is that where sub-€600,000 properties are achieving strong sales within weeks, the same is not true of the €1million-plus market. Vendors launch their properties with high expectations, or even worse, are delaying selling their homes in anticipation of a huge payola further down the line. The reality is that these properties are proving sticky to sell and don’t always sell or achieve the asking price. Agents will say it’s down to unrealistic vendor expectations; we would argue that sellers need agents to manage their expectations, while also achieving the best price possible for them.

Build costs

Despite the apparent market demand, builders and developers continue to argue that build costs remain too high to make economic sense. And a recent report from the Society of Chartered Surveyors Ireland found that it remains unviable to deliver affordable medium-rise apartments in Dublin – a much needed product in the current market. Meanwhile any dreams of building high like many of our European counterparts were dashed when it emerged that the higher the build the greater the costs. The vacant site levy introduced in the budget may do something to release attractive development sites to the market and in turn drive down some of the build costs.

Looking ahead to 2018 there is little indication that price growth will slow unless sufficient stock is made available to meet market demand, and in fact double-digit price growth remains on the cards for next year. However, increases in mortgage drawdowns, a healthy pipeline of new homes schemes and transaction growth are all vital signs of a healthy functioning market and a small step closer to normality.