New homes trickle starts to flow

As the property market kicks back into gear for the autumn selling season, what’s coming down the tracks in terms of new homes will be of particular interest to first-time buyers.

The CSO's "new dwelling completion" index shows 53,578 homes were completed between 2011 and the end of last year. Previous government estimates, based on ESB connections, had tallied the figure at 84,500. The new figures indicate fewer than 10,000 new homes were built annually over the past seven years, compounding the growing housing crisis.

For house hunters the only good news is that supply is genuinely improving, at last. Last year saw 14,446 new homes completed, up almost 50 per cent on the previous year.

The positive trend continued into this year, with 3,526 new homes completed in Q1 and 4,419 in Q2 2018, up 34 per cent on the same period last year though still far below the estimated 35,000 required to meet demand.

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The bulk of new homes built last year were in Dublin and the commuter counties of Kildare and Meath, which, between them, saw seven times as many new homes built as Cork, for example. More than half of these were part of housing schemes, just over one quarter were single units and 14 per cent were apartments.

More are coming on stream, with planning permissions granted for 20,776 units last year, up a quarter on 2016.

Revised

Central Bank projections, which have been revised in light of the faulty ESB-connection assumption, show housing completions will hit 17,500 this year and 22,000 next.

Second and third phase launches of new developments provide the easiest comparator for price inflation in the new homes sector, and these are up roughly 5 per cent, says Gina Kennedy, DNG's new homes director.

A three-bedroom semi-detached house in a new development in Ballycullen sold last year for €380,000. The same property will cost you €400,000 now.

Central bank lending rules have helped keep a measure of prudence in the market. “We are also seeing a lot more supply come on to the market, so people have more choice,” says Kennedy.

Marian Finnegan, economist with Sherry Fitzgerald, agrees. "It's a different year compared to last. Mortgage lending rules were loosened a little at the end of 2016, so 2017 saw a bounce, with growth of 8.8 per cent. But at the end of last year the rules were tightened again and I can see the impact again. Even though the overall volume of mortgage lending is good, it is mainly mortgage switching as borrowers seek out better value. It's not reflecting actual moves."

"The first thing a buyer will be confronted with is the average price of product, which is pretty high in relation to income," says John McCartney, director of Savills Ireland research. "It's a result of prices having been rising for quite a period."

Nationally house prices are up 76 per cent since they bottomed out in the second quarter of 2012, but income is up just 7.3 per cent in the same period, putting pressure on buyers.

“New homes are also more expensive on average than they were,” McCartney says, “Because they are a better product, typically A-rated for energy and meeting new building regulations. As a result, they tend to be more expensive (than they were) by comparison with resales.”

Distortions

Arguably government incentives such as the Help to Buy scheme are pushing prices up too, leading to distortions further up the market. “Once you get to the €500,000 market, it becomes an impediment for further price growth,” McCartney says.

Choice is increasing too, according to Finnegan. “A lot more new homes are coming on stream. It’s not as many as needed, of course, but twice a year we look at stock, taking a snapshot at January 1st and July 1st. From that we see a good uplift in stock at July 1st, so buyers’ choice of all houses is up and very little choice can feel like a lot when you have had nothing.”

Dublin property prices are up 3.3 per cent in the year to date, she says, compared with 4.7 per cent over the same period in 2017. The capital’s prices will finish the year up 6-7 per cent by year’s end, she anticipates, compared to last year’s 8.8 per cent.

Dublin rents were up too, by 7.8 per cent to Q1 of 2018. A rise of just 0.4 per cent from Q4 2017 to Q1 2018 suggests a tempering of that market too.

For buyers “It’s a cooler market thanks to changes in mortgage rules and a bit more choice,” says Finnegan. “People recognise there is, potentially, more choice coming too so that sense of urgency is easing.”

That’s just what the market needs right now, says Ken MacDonald of Hooke & MacDonald: “We needed a bit of moderation so it’s very welcome. It’s a nice steady market but it’s just unfortunate that supply isn’t keeping up with demand quickly enough. There are so many first-time buyers out there looking to buy. Very many of them are renting. If they could buy, they could free up the rental market too.”

RENT OR BUY?

“An average three-bedroom semi-detached new home worth €400,000 in Ballycullen will cost €2000-€2100 a month to rent. A first time buyer taking out a 90per cent mortgage over 30 years, could expect to pay €1,500 a month for their mortgage on the same home, a saving of €500 to €600 a month,” says Gina Kennedy, director of new homes at DNG.

Even once you factor in the cost of house and mortgage protection insurances, it’s a significant saving. For many the Help to Buy Scheme has given a leg up, providing a refund of income tax and deposit interest retention tax (DIRT) paid by applicants over the past four years.

It applies to properties worth €500,000 or less. Of the 1,100 new homes Sherry Fitzgerald sold in the first six months of this year, the vast majority fell into this bracket.

"Help to Buy has been a massive motivator and very effective in Dublin in particular but it hasn't yet translated into developments in places like Cork and Galway because development takes time," says Ivan Gaine, head of Sherry Fitzgerald New Homes.

The problem is, HTB was only introduced by the Government as an initial three-year measure. “A three-year scheme is very short in terms of development cycles, and fast-track planning was only landed halfway through the HTB. The rest of the country is only getting started but the initiative is due to run out at the end of next year. It needs to be extended,” Gaine says.