House prices rise 270% in ten years - report

The housing market is on course for a soft landing despite an extraordinary 10-year boom that has seen house prices rise by an…

The housing market is on course for a soft landing despite an extraordinary 10-year boom that has seen house prices rise by an average of 270 per cent, according to a leading mortgage lender.

A special report to mark the tenth anniversary of the Permanent/tsb house price index shows that prices have risen at an annual rate of 15 per cent since 1996.

The study showed that house price growth was not even over that period with 1998 showing the largest single increase of 30 per cent in one year and just 2.5 per cent in 2001.

Niall O'Grady, head of marketing at Permanent/tsb remains confident that the housing market will remain buoyant though not over-inflated due to the presence of favourable demographics, strong employment growth and low interest rates.


"Looking forward, these different elements remain in place in the Irish market and while the era of successive years of double digit price growth are unlikely to be repeated, we strongly concur with the view that we are entering the phase of the so-called soft landing where the gains in house prices which have already been made will be consolidated," he said. Mr O'Grady added there was great confidence in the economy and that this was driving prices.

Mr O'Grady predicted a "soft landing" of house price growth  moderation to an average of 5 per cent per annum over the decade. Permanent/tsb forecasts that house price growth in 2006 will average out at 10 per cent and will remain strong until 2008 when it is then expected to moderate to about 5 per cent per annum.

The report illustrates how the Celtic Tiger has transformed the housing market. The average cost of a house in 1996 was just €75,000. Ten years later (2005), the average cost had increased to €280,000, the survey showed. Over the same period wages have risen by just 70 per cent. The consumer price is up just 30 per cent. The price of a pint increased by 60 per cent over the same period.

Mr O'Grady said over the same ten-year period affordability had not become a serious issue for borrowers although the proportion of income required to pay a mortgage was increasing. The percentage of disposable income required to service a 25 year mortgage required 27 per cent in 1996 and this had risen to 38 per cent by this year.

He noted that two-thirds of first-time buyers were using two incomes to service a mortgage this year.

Mr O'Grady also noted that the Irish housing market had negotiated a series of external shocks which had slowed house price growth but not caused a collapse in the market. The incidents looked at was the foot and mouth epidemic, the collapse of the technology bubble, 9/11 and the US invasion of Iraq.

David Duffy, ESRI economist said that even if the demand for residential housing moderates from its current output of more than 80,000 units per year, demand for large scale infrastructure projects would "take up some of the slack" meaning employment in the sector was unlikely to suffer a sharp decline.

Ten years ago the average difference between buying a house in Dublin or outside of Dublin was just €10,000. Today that figure has grown to some €130,000.

In 1996 just 1.5 per cent of properties were over €200,000 whereas by 2006 this was 78 per cent.

Over the same ten-year period significant regional differences have arise. In 1996 there was a difference of less than £20,000 (punts) between the cost of a house in the capital and a property outside Dublin. In 2006 this difference was nearly €130,000 with the average cost of a house in Dublin estimated at €368,576.