Ireland's Housing Market Review 2019

As the suns sets on another year, and decade to boot, 2019 was a broadly solid year for Ireland’s housing market (although it didn’t always feel like that). There was 50,534 property transactions have been registered in 2019 to date, which is slightly below the figure for 2018 (57,189) but this shall slightly change when December’s transactions are factored in, however December is notoriously a slow month for property sales. These figures are an important starting point for analysing the market performance over the past 12 months. 

Residential Property

The pace of house price growth flattened, particularly for properties in excess of €500,000. This was blamed on a whole range of issues, from the prevailing Central Bank macro-prudential policy rules and a decline in net inward migration, right through to Brexit uncertainty. Newly-built and second-hand properties below €275,000 attracted the most consistent demand nationally.

The decision not to relax the Central Bank’s restrictive mortgage rules has undoubtedly tempered house price growth in the cities. This decision was heavily criticised, yet objectively, it is likely the right policy (arguably at the wrong time). First-time buyers still make up more than 50 per cent of all mortgage draw downs. 

Property prices are now rising by just 0.9 per cent, the lowest level of increase in almost 12 years. The latest official figures from the Central Statistics Office (CSO) show prices in Dublin, which has seen the largest increase in residential construction, actually dropped 1.5 per cent over the 12 months to October.

New Homes

The extension of the Help-to-Buy (HTB) scheme in Budget 2020 was a welcome and important move by the Government for the sector, but frankly, it wasn’t enough. Construction activity continued to grow, with a 22 per cent increase in residential completions over the past year (not including student accommodation). 

The Irish Times, last week referenced a Construction Industry Federation report that demonstrates 41 per cent of the cost of delivering an apartment is related to taxes, levies, the cost of finance and land costs. It stated that “unless some of these costs are reduced, development finance is more accessible and the delivery schedule of utilities are aligned with house building, the industry will continue to struggle to increase output to 34,000 per annum”. 

Rental Market 

Half a million households across Ireland are now in rented accommodation (private and social). Despite appearances, this is bad news for both tenants and private landlords, with an increasing number of landlords opting to leave the market altogether. The average monthly price of rent is at an all time high of €1,403. The most expensive rental prices are being recorded in South Dublin at €2,224 and the lowest prices are observed in Leitrim at €616 per month according to the Q3 Rental Report by daft.ie. In the same report, it is stated that national inflation of the private rental market has fallen from over 12 per cent in mid-2018 to 5.2 per cent in the third quarter of 2019.

Private landlords were offered little relief by Budget 2020, with circa. €2 million being allocated for additional funding to the Private Residential Tenancies Board to investigate non-compliance within the 44 rent pressure zones currently in place. 

Private Rented Sector (PRS) 

Unsurprisingly, the private rented sector (PRS) outperformed all other sectors in 2019 and it is dominating it too. According to the Irish Times it has grown from just 6 per cent of the Dublin market in 2016 to 55 per cent in the first nine months of 2019. This puts it on track to finish the year with close to €2 billion worth of transactions. It also raises the question of sustainability of such an unbalanced tax system that allows institutional investors benefit from significantly preferential tax treatment 

Commercial Property 

Budget 2020 saw an increase in the rate of commercial stamp duty from 6 per cent to 7.5 per cent, which was heavily criticised by the biggest players in the commercial property sector. The increased rate will not only apply to transfers of land and commercial property, but also to contracts for the sale of other types of assets, such as debtors, goodwill or the benefit of contracts, and to certain lease premiums.

The Housing Crisis

The decade started in the aftermath of a massive bubble bursting and a property market grinding to a halt for many years, and now ends in the throws of an equally challenging housing crisis with backed up demand, home ownership rates dropping, with affordability of a home in the capital for a single professional on the average industrial wage no more than a pipe dream currently. Also homelessness from evictions on a sharp upward curve, and thousands of families calling budget hotels and emergency accommodation home for Christmas in Ireland. All this, and rents and cost of living in Dublin rising to the very top of the charts for the worlds most expensive cities to live in - a moniker we could certainly do without going forward.

Things need to change, but what?

There is no one thing to do to fix all the issues with the property market, as it is a massive balancing act and always will be. With any one new legislation, as with the one proposed by Sinn Fein last month, about freezing rents for three years would be popular in the short term especially with tenants who are in situ, but the knock on effect of such a move would almost certainly do at least two things in the mid to longer term. It would cause more rental stock to go on the sales market in 2020 and beyond, as small squeezed landlords call it a day putting hundreds if not thousands of tenants out of their homes as a by product, and fighting to secure a new home in an ever decreasing rental market. And secondly, it would most definitely deter new buy to let landlords coming into the market as the residential property market in Ireland starts to be seen as "even more" of a poor investment in relation to return on investment. This would be on top of an overly aggressive tax regime on rental income currently in place by the government. The market is all about swings and roundabout and needs careful planning and management by the state over the coming years.

One change at a time

One thing that can help the market immediately though, is a real 180 degree shift in thinking on height and density in all of the major cities and towns in Ireland for a start. Our cities need to get away from the blinkered thinking in relation to buying "three bed semi living in the suburbs" and go more towards a more continental long term city "apartment living" mindset as our urban sprawl is simply unsustainable as our ever increasing commutes and grind lock suggests daily. In the EU, apartments, and high density living is much more accepted as the norm. The trade off being, less of no outdoor space, less public spaces, more noise and air pollution, but plentiful amenities and minimizing commutes are a big draw for many on the continent.

Planning for the future

Planning is a major issue in this country, and so many times property developers and investors height and density ambitions are rail roaded by the council largely due to objecting neighbours, easements, and traffic concerns among others. An impeded view however, is simple not a good enough reason to halt progress and new higher density developments in modern cities such as Dublin, Cork, Limerick and Galway. The planning bodies need to have a good look at their situation, and understand that the needs of the many "must" outweigh the needs of the few nimbyism enthusiasts in any one area. When you buy a property, you should not be buying the right to a view, or even a certain level of natural light etc, in large towns and cities. Easing the property crisis with more supply via density and height should supersede all else within reason, in the coming year and decade going forward.

Property 2020-2030?

So, what will the Irish property market bring in 2020, and onward for the next decade for that matter? Where will we be in 2030? A perfect balance of equilibrium between supply and demand, and a harmonious ideal property market. Knowing the property market in Ireland, probably not, as equilibrium is an elusive state. However, we can certainly start doing the next right steps today to improve our lot, and "lots" for tomorrow....

Happy Xmas and a prosperous new year to you in 2020 !

Best Wishes,

Laurence Hickey (New Loans Manager)

Lotus Investment Group

A Market Leader for Fast, Flexible, Property, Land & Construction Private Equity Finance in Ireland