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Housing Market Bulletin Dec 2016

AIB Treasury Economic Research Unit

Housing MarketPlenty of demand side initiatives, but supply still key issue

Recent initiatives will provide boost to already strong demand

The Irish residential property market continues to dominate public and political discourse. Recently, a lot of attention has centred on issues such as the help-to-buy scheme, the altering of the Central Bank mortgage regulations and rent control. In Budget 2017, the Government outlined a scheme that will provide %rst-time buyers with a rebate of income tax paid over the previous four years of up to 5% of the purchase price of a new home, up to a maximum value of €400,000. The Government hopes that this measure can provide some level of certainty to developers regarding housing demand, thereby boosting new supply.

The much debated Central Bank regulations that were introduced back in early 2015 have also been amended. First time buyers will now be able to avail of a 90% loan-to-value limit regardless of price (was previously up to €220,000 and thereafter subject to 80% LTV). However, the 3.5 times loan-to-income ratio remains in place. Meanwhile, in recent days, the Government has introduced a 4% annual cap on rents in Dublin and Cork City, with the potential for it to apply to other areas as well.

However, supply is still the main issue…

The broad scope of the measures discussed above, mainly a7ect the demand side of the housing market. However, the key issue remains the on-going shortfall in supply. There are signs of a pick-up in supply, albeit it still remains at low levels. Housing completions are up over 17% year-to-date in October compared to the same period in 2015. Based on their current run rate, completions are on course for a full year total in the region of 15,000 units for 2016. In terms of forward looking supply indicators, both housing registrations and commencements data have continued on their upward trend, but in absolute level terms still remain
Crucially, while the projected 15,000 completions for this year compares favourably to last year’s 12,660 total, it is still some way short of the estimated 25,000-30,000 units required per annum to meet housing demand. This shortfall in supply has been an ever present feature of the housing market in recent years, and based on current supply dynamics it could be 2019 at the earliest before new house building is anywhere near the required level.

...which continues to impact houses prices, rents, stock and the size of mortgage market

The mismatch between supply and demand is evident across a broad range of indicators for the sector. The new CSO residential property price index (now includes cash purchases as well as mortgage transactions) shows house prices rising by 7% in year-on-year terms in October. The data in recent months indicate a renewed strengthening of prices. House price inflation outside of Dublin remains higher than in the capital (10% vs. 5.5%, October 2016). At the same time, the rate of rent inflation remains very high, at nearly 10%, although there are tentative signs that the pace of increase may be slowing somewhat.

The level of stock available to rent or buy continues to fall. According to the latest data, the number of properties available to rent in October was down 12% versus the same period in 2015. Likewise, the sales stock also continues to decline on a yearly basis, falling by 14% in September compared to year earlier levels. This equates to roughly 1% of the total housing stock. However, in a properly functioning market, the level of stock for sale should be somewhere in the region of 3-4%.   

The lack of supply of residential properties is also acting as a headwind to growth in the mortgage market. New mortgage lending for 2016 is likely to be in the region of €5.5bn. While this would represent a good increase on the €4.8bn total for 2015, it is still below what would deemed to be a ‘normal’ market size of €8-10bn. Mortgage lending should see further solid growth in the next couple of years as the housing market continues to recover.

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The above if for information purposes only and does not constitute financial advice in any way, we recommend that you speck with us before making any financial decisions. We recommend a holistic approach to financial planning and we can help you put your plans in place.


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