Housing supply key to taming price growth and boosting affordability, says banking group

Housing supply needs “to continue to grow” to moderate the current price increases and boost affordability, Banking and Payments Federation Ireland (BPFI) has said.

In its latest assessment of the Republic’s housing market, the banking lobby group said the main driver of the significant increase in average residential property prices – currently rising at an annual rate of 14 per cent – was the lack of supply as opposed to lending growth.

However, it welcomed the recent pickup in housing output. There were 7,654 housing completions in the second quarter, bringing the total number of completions to 13,316 units in the first half of 2022.

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“While the construction sector has been experiencing significant challenges in recent years due to the impact of the pandemic, labour shortages and inflation pressures, supply in the residential construction sector has improved significantly during 2022,” said BPFI chief executive Brian Hayes.

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“The latest data from the Central Statistics Office (CSO) shows the level of housing output in Q2 2022 is nearly 48 per cent higher than the number of completions in the first half of 2021 and 46 per cent higher than total completions in the same period in 2019, prior to the pandemic,” he said

“If the sector continues to build at a rate similar to second half of 2021, the expected increase in supply levels over the next two years should help to meet the demand we are seeing as a result of the strong employment levels and income increases and the Irish banking sector has the capacity to provide further sustainable mortgage lending,” he said.

“Taking all factors into account however, it is critical that housing supply needs to continue to increase in order to moderate house price increases and enhance affordability in the market,” he concluded.

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In its report, the BPFI also noted that recent employment and income trends had supported healthy demand reflected in mortgage activity

Economic fundamentals in the economy such an employment and average incomes are the key factors supporting solid demand for mortgages right now, it said.

Recent CSO figures show employment reached a record level of almost 2.6 million in Q2 2022, with average weekly earnings of about €872 – some 21 per cent or €151 more than five years earlier. These factors have supported mortgage activity.

BPFI figures showed that for the first half of 2022 mortgage drawdown values have increased by around 37 per cent compared to the levels observed in the first half of 2019, prior to the pandemic, while volume of activity has increased by around 16 per cent during the same period.