Why are there so few second-hand properties to buy in Ireland?

Demand for houses continues to exceed available supply. So if there are a lot of willing buyers, why are so few second-hand houses coming on to the market? Ireland’s biggest estate agent Sherry FitzGerald reported this week on a “critical shortage” in available housing stock, with just 13,750 second-hand properties for sale in July, representing 0.7 per cent of the private housing stock. A figure of around 3 per cent would be common in a properly functioning market.

The stock of properties for sale is down by over 10 per cent over the past year and is 24 per cent lower than summer 2020, during the Covid pandemic, when sales were hit by viewing restrictions. According to Marian Finnegan, managing director of Sherry FitzGerald, the scarcity in the second-hand market is worsening the ongoing balance between demand and supply and increasing the challenge faced by those seeking suitable housing, with a particular issue being the shortage of housing in lower price categories suitable for many first-time buyers.

So what are the factors driving this lack of second-hand supply?

1. Is it that demand is falling?

The short answer here is no, this is not a big factor. Higher interest rates are, of course, having an impact on the market, particularly in Dublin. They are affecting prices. Second-hand house prices in Dublin in the second quarter of this year were just 0.6 per cent up on the same period last year – essentially flat – and they have fallen in recent months. And higher interest rates will be limiting the ability of some householders to move to a bigger property and put their own on the market, so they may in this way have some impact on supply.

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But demand is still there in the market. Houses that come up for sale are generally selling quickly. Mortgage broker Michael Dowling of Dowling Financial says that around 20 to 25 per cent of his clients who get mortgage approval are not able to find a property within the six-month span covered by the approval and many thus seek to renew it. Such is the shortage of supply, he says, that many buyers are prepared to compromise on some of their wish list just to secure a property.

2. What about inadequate supply of new homes?

This is an important factor. Finnegan of Sherry FitzGerald points out that while new construction is rising – reaching some 30,000 last year – there is a limited supply of these homes coming on to the private market, with many being one-off new builds or bought for social housing by local authorities.

The lack of new private supply in turn reduces options for those who would otherwise move, either to trade up to a bigger new home, or trade down later in life to somewhere smaller. This is particularly a factor in rural markets, where there is little new building and second-hand stock on the market has fallen in some cases by more than 40 per cent since 2020, or up to 20 per cent year on year. Lower priced housing is typically available in rural areas but the availability of sub-€200,000 properties has dropped by 55 per cent since 2020 to just 2,900 homes across the State. Carlow, Donegal, Mayo, and Westmeath, for example, have had very low levels of new house supply and are among the countries with particularly low stock of second-hand properties on the market.

[ Dublin house prices now falling at sharpest rate in almost three years ]

Many of the housing markets across the State appear to be effectively stuck, with very low supply and falling transaction levels. There is more activity in big markets such as Dublin, where there has been a somewhat higher level of new supply, but even here second-hand supply on the market is down 3 per cent year-on-year to 3,542 units, just 0.7 per cent of the entire private housing stock.

Longer term trends are also an issue, according to Karl Deeter financial adviser and founder of onlineapplications.com. People are living longer, he points out and often do not have the option of downsizing to a smaller home or apartment in their own locality. Also, the Irish tax system, with a relatively low local property tax by international standards, does not give them any incentive to downsize.

3. The barriers to moving

Financially and logistically, moving can also now be difficult, another factor slowing the pace of homes coming on to the second-hand market. It can be very hard – often impossible – to exactly co-ordinate the sale of one home and the purchase of another. The gummed up rental market means that it can be very difficult to get a short-term rental property to bridge this gap. Also, since the financial crash, Irish banks have pretty much stopped extending what were called bridging loans, which allowed borrowers to finance this gap between buying and selling, to be replaced in time by a new mortgage. This could be particularly useful for those seeking to downsize. For these reason, according to Finnegan, people are very slow to put their existing home on the market until they have fully tied down a new purchase. And in turn this cuts supply of second-hand homes for sale.

4. No flood of landlord sales

We know that smaller private landlords have been selling up in recent years. Many were effectively constrained from doing so by the evictions ban, now ended. But while a trickle of private landlord sales continues, there has not yet been a flood after the ending of the ban. Some of this may be down to timing and the need to give notice to tenants – so trends in the months ahead will be interesting. Karl Deeter speculates that many of the smaller landlords who wanted to sell had already done so over recent years, Some who are still in the market may be waiting to see whether they get some financial help in the forthcoming budget. And some who are selling may do so under schemes available to sell to existing tenants or the local authority.

5. The post-Covid renovation blitz

Many households are choosing to renovate rather than move. The Banking and Payments Federation has reported a 29 per cent annual jump in home improvement loans in the first quarter, with €147 million borrowed for almost 14,000 loans. Suburban Ireland is awash with white vans. Credit unions are also doing a lot of business in this area. With a lack of other supply on the market, and many people wanting to stay in their existing locality, the renovations business is booming. Dowling points out that State grants for upgrading energy ratings provide a further incentive to households to renovate their existing property.