The housing market is back in the headlines, with prices in Dublin now slightly lower than one year earlier. Trends are a bit up and down across the country – including in Dublin. But, overall, more expensive properties, including much of the Dublin market, are static or falling in value – and many are hard to sell. Prices in Dún Laoghaire/Rathdown, one of the more prosperous areas, have fallen by more than 6 per cent on average in the last year, and the drop at the top of market in the more leafier parts of this area will have been greater.
If this continues, there will soon be wails of anguish that it will affect the supply of housing by lowering the return to developers. But we should welcome lower prices, certainly in Dublin.There isn’t a lot of point building houses at prices people cannot afford. New home transactions by housebuyers – as opposed to funds or investors – are down sharply in Dublin. And the squeeze at the top end of the market is affecting those looking to move, as well as first-time buyers. The market is getting stuck and needs to be freed up.
Government policy is to increase housing supply to make property more affordable. And right now, given the relationship between prices and salaries in Dublin in particular, that means prices have to drop, or stay static for a prolonged period to allow affordability to catch up. Prices for new homes are out of reach of single buyers even on good incomes, and are a stretch for couples.
Falling or static prices may discommode the older generation of homebuyers raised on the “my-house-needs-to-keep-increasing-in-value” mentality. My generation typically bought our houses in the late-1980s or 1990s and are fond of telling stories of penury and of the brief period when mortgage interest rates went into the mid-teens. And yes, it was always tough buying a house.
Rent levels
But it is different now. The younger generation are often caught with record high rental levels – stymying the ability to save – and then, if they do succeed in buying, with mortgages where the real burden remains very onerous. The current low inflation environment does keep interest rates down, but it also means rising prices and wages are much slower to ease the repayment burden.
Since the recovery started, house prices have increased much faster than earnings, which have only started to rise in the last few years. House prices are up more than 90 per cent in Dublin since the bottom of the market, while average earnings are up about 11 per cent. Of course, 2012 was not the norm for house prices or their relationship to earnings. But neither is now.
And it strikes me as strange that so many resources are going into building things other than new, affordable homes – bigger houses, top-end student properties, yet more offices and so on. We see the high crane count in Dublin as a “good thing” because it will lead to more jobs – but perhaps more houses should be the priority in an economy approaching full employment. And when even those who will get jobs in the shiny new offices can’t afford the local rents, you know you have a problem.
What we might call "ordinary" housebuilding seems to have been squeezed out or at least restricted. This is due, at least in part, to the incentives and tax-breaks given to developers, which encourage them to build in other areas. And there is more here too, which seems to block housing development – how planning is organised, the structure of the rental sector, the supply of serviced land, the general high cost base in Ireland and so on. But the route to increasing supply is to attack some of these roadblocks and incentives. It is not to push house prices ever higher.
Lending rules
There will be pressure on the Central Bank to loosen the lending rules in its annual review which will be completed over the next couple of months. They can always be tweaked. But overall, they have stopped us going back to the madness of the mid-2000s when mortgage lending exploded, leaving many in dire trouble when the market collapsed.
The mortgage rules are making it harder for some people to get into the market. They are pushing more and more people into the commuter counties of Meath, Wicklow and Kildare, where new home sales continue to soar. But the answer comes through higher supply and lower prices – not massive, 30-year mortgages leaving the borrower hopelessly exposed.
Fairness between generations is a complex area – and countries in southern Europe such as Italy have lost large chunks of their younger, talented generation by having a system fixed for many years for insiders and those heading towards retirement. But here the housing market remains stacked against the younger generation. And there are wider political issues here too. Why would you – as a younger person – support a traditional politics where local councillors rush to cut the property tax for those who have homes, but often block the building of new developments because those already there feel it does not " fit in with the area"?
We are hard-wired in this country to see rising house prices as normal and a sign of economic progress. Falling prices – particularly if the trend takes hold due to Brexit – may have a wider impact on confidence. But we just have to get used to the fact that, as they say on the investment ads on the radio, prices may fall as well as rise. And when housing is unaffordable, falling prices are just what is needed.