Property market defies undersupply ‘groupthink’

“What degree of #groupthink is needed to believe that this is consistent with a chronically undersupplied market,” John McCartney, director of research at estate agents Savills, tweeted last week. He was talking about slowing house prices – the latest official figures suggest they are now rising by just 0.9 per cent on an annual basis, the lowest level in 12 years – and slowing rents.

Figures this week show Dublin rent inflation has slowed from 9.6 per cent a year ago to 6.6 per cent. McCartney’s point is that inflation is slowing in both channels of the property market because supply is catching up with demand despite endless suggestions that we’re way off ever meeting the level of demand required.

McCartney is a bit of a maverick in the estate agents sector and regularly gets hauled over the coals for not talking up the market from an investors’ perspective, which many in his bailiwick seem constitutionally obliged to do.

That said, a question remains over whether supply is driving the slowdown in inflation or whether prices simply can’t go any higher. The Economic and Social Research Institute said last week that “prices are as high as they can possibly go, given affordability in the domestic economy”. There’s a ring of truth to this.

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Figures this week from the Residential Tenancies Board suggest average monthly rents in Dublin are now €1,762, well above the highs reached before the housing bubble burst a decade ago. They are also still up 6.6 per cent year on year, well above the Government’s rent cap of 4 per cent, which supposedly applies to most parts of the city.

Either way, economists like to tag these growth numbers to earnings. In other words, if earnings are rising by 3 per cent and rents are rising by 3 per cent then we’re on some sort of sustainable trajectory. We should hit that pretty soon. But who believes it will deliver stability or affordability?