Irish house prices set to rise by 2% amid lack of supply, say estate agents

Estate agents and valuers expect housing completions to stall in 2023 amid labour shortages and construction cost inflation, despite a sharp uptick in commencements in the first half of the year.

Department of Housing data published on Thursday indicated that building controls authorities received some 2,574 commencement notices for new homes in June, a 25 per cent increase on the same month last year. It brings to 15,561 the number of new units commenced in the Republic so far this year, up 10 per cent on the same period in 2022.

But lingering inflation and labour constraints are expected to contribute to a decline in the number of projects brought to completion this year, according to the Society of Chartered Surveyors Ireland (SCSI). In its midyear housing monitor report the professional body said its estate agent members expect that roughly 27,000 units will be finished in 2023, down from about 29,000 in 2022.

“Despite stronger than anticipated output for 2022, forward looking indicators imply that completions in 2023 are going to be lower,” the report said. “The completion of new housing units is expected to face constraints due to shortages in labour and materials, along with ongoing rises in construction input costs.”

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“The rise in material prices is affecting the supply of new homes, leading to concerns regarding the feasibility of certain projects,” it said. The body said inflation remains “prevalent in various construction sector”, as evidenced by a “significant 11.5 per cent increase in tender prices throughout 2022″.

Overall, the body said it is projecting about 27,000 completions this year, followed by increases to 29,500 in 2024 and 32,500 in 2025. The Central Bank said last month it expects roughly 27,500, short of the Government’s revised target of 29,000 new units. Under its Housing for All strategy, the Coalition had set a target of 33,000 new units each year up to 2025.

Against this backdrop, estate agents surveyed by SCSI said they expect house prices to increase by an average of 2 per cent over the next 12 months, mostly fuelled by lack of supply.

However, about half (47 per cent) said they believe the market has reached “a mid-upturn phase”, meaning that house prices are still increasing but the rate of growth may be expected to level off soon.

“The vast majority of SCSI agents and valuers expect property prices to rise by an average of 2 per cent over the next year for three main reasons; the continuing shortage of supply, interest rate increases and changes in the wider economy,” said John O’Sullivan, chairman of SCSI practice and policy committee. “While the supply situation has shown a modest improvement – 71 per cent of agents reporting low stock levels compared to 81 per cent a year ago – the number of properties available for sale is still far below pre pandemic levels. Currently property website MyHome.ie has around 14,000 listings for sale. Pre-covid this figure was 20,000.”

The SCSI report also includes affordability data across five scenarios involving couples earning average salaries of €89,000.

The analysis shows that a couple who want to buy a new home and have their 10 per cent deposit after availing of the Help to Buy scheme, can afford a property in Meath, Cork and Galway. However prospective buyers will face a shortfall of over €83,000 in Wicklow and of almost €32,000 in Kildare.

“These figures show that while it is undoubtedly a challenge, it is possible for couples on average salaries to buy a new home in various parts of the country,” said Mr O’Sullivan. “However, the scenarios show that new homes remain totally out of reach of people on average salaries in the commuter belt counties of Wicklow and Kildare – where prices can be similar to Dublin – and this is no doubt a huge issue for young people looking to purchase a home in those counties.”

Rising construction costs, meanwhile, will continue to put pressure on the viability of new projects, he said, making it unlikely that the situation will change across the country in the short term.