House prices in Ireland are surging again, rising by 13 per cent year on year, according to property websites MyHome and Daft, while the Central Bank warns that 25,000 fewer homes will be built over the 2020-2023 period relative to pre-pandemic projections. The shortage of new housing units is compounded by an acute deficit in second-hand stock which, the Central Bank says, will keep house prices and, to a lesser extent rents, high relative to incomes.
Double-digit inflation has a corrosive effect on the purchasing power of would-be buyers. One indicator – compiled by estate agents – suggested Dublin house prices rose by an average of €1,500 per week in the second quarter of 2021. Combined with a scarcity of properties, this can lead to panic buying in the market. “The average time to sale agreed has fallen back to a record low of 3.8 months, indicating that whatever stock is available is being purchased ever more quickly,” said Davy chief economist and author of a MyHome report Conall Mac Coille.
The pandemic has triggered a surge in demand for property globally. Prices are being fuelled by pandemic-related factors – remote working and increased savings – and local factors. In the case of the US, a massive fiscal stimulus; in the case of the UK, stamp duty cuts; in the case of New Zealand, the temporary suspension of macro-prudential rules.
The key local ingredient here is supply, or the lack of it. The hiatus in construction in the first four months of 2021 as a result of public health restrictions has stymied housing ouput, which is expected to be in the region of 20,000 units this year, instead of more than 26,000. Estimates of the number of new dwellings needed to tackle the housing crisis run to more than 30,000.
The uncertain outlook and the restrictions around viewings has also limited the number of second-hand homes coming to the market as prospective sellers hold off. Estate agent Sherry FitzGerald estimates that the number of second-hand or existing homes for sale in the Republic has fallen by 70 per cent over the past decade.
Property has become the great delineator of wealth and a major demographic faultline. Those who own their homes are typically older and better off. According to the 2016 population census, 85 per cent of 65-year-olds own their own homes, while just 14 per cent rented. Contrast that with the fact that an estimated 12 per cent of 25-39-year-olds – those of a prime working age – own their own homes. This dynamic has all sorts of consequences, not least relating to the pension implications of having a whole generation shut out of the property market. The traditional model of buying a home and paying off the loan as you work towards retirement is broken. The wider social and political implications could be profound.