In a review of the Irish house property market, the European Housing Review 2005, which has been published by the Royal Institute of Chartered Surveyors (RICS) says that house price rises were still in double figures in 2004, according to the permanent tsb price index, with a 12% rise on an annualised basis in September, although they had moderated slightly since 2003. They were forecast to rise by around 10% for the year as a whole. Commentators were indicating that price rises were moderating, but the slowdown in the growth rate was actually quite small, and within the margins of error of an index that is not quality-adjusted.
Government data, based on all mortgage lending, consistently show a slower rise in prices. Overall, however, the available price information indicates that the great Irish housing boom has still not run out of steam, with the slowdown in 2001 so far a one-off event. In fact, price rises in 2004 significantly exceeded earlier expectations of a ‘soft landing’ and limited price growth during the year.
Transactions were also at a much higher level than in 2003, and there was still a great deal of interest from investors in rental property, despite significant falls in rent levels in recent years, with 32% of all new homes built in the Greater Dublin area sold to investors in the first half of the year. Demographic factors and earnings growth, plus favourable tax breaks and interest rates, have all stimulated housing demand for a number of years now, particularly as the country had the smallest housing stock relative to its population in the EU in the early 1990s and still has the highest average household size – a good indicator of housing shortages.
The country had a major economic boom lasting for many years and weathered the world slowdown better than the rest of the Euro Zone, with significantly faster growth than the Euro Zone average. The Central Bank was forecasting 5% GDP growth for 2004 (4.5% GNP). Industry commentators are again suggesting that prices will gradually level off and consumers, when surveyed, mainly expect a soft landing for the housing market.2 The Central Bank has undertaken a number of studies of the housing market, and its evidence does not suggest a significant bubble exists; yet it still has concerns about the risk of a sharp correction, especially if price rises do not moderate soon.3 The new financial services regulator, IFRSA, has been talking to mortgage lenders about tightening up their lending criteria.
The Irish housing market
Ireland has one of the highest home ownership rates in the EU, with 78% of households living in the tenure. A further 9% live in social rented housing, consisting of local authority housing and various forms of voluntary and co-operative housing, and another 9% are in the private rented sector.5 The country had the lowest number of dwellings per thousand inhabitants in the EU in 1980 and, despite the huge recent building boom, is still at the bottom of the housing availability league. This is reflected in the relatively high average household size (3 persons in 2001), though this was far less than the 4 persons per dwelling in 1971.6 This historic lack of dwellings is a root cause of current shortages and rising house prices.
The strength and extent of the property boom can be seen in the fact that over a third of the current housing stock has been built in the past decade. Annual completions are 3.5 times what they were a decade ago, and the country has the highest per capita building rate in Europe (Figure 13.2). Residential investment grew by an incredible 20% in 2003, according to the OECD, though the rate of increase in 2004 is forecast to be far more moderate.
This continued growth has, so far, confounded the arguments of construction industry representatives, who have argued that private house construction would decline significantly with the introduction of the requirement that developers set aside land for social and affordable housing, under the provisions of the Housing Planning and Development Acts 2000-2002. Continued rises in house prices and the minimal impact of the scheme have both contributed to this result.
New Dwelling Completions 1992-2003 Private and Social
No data exists on second homes, so it is not clear how much of new building relates to them. Yet, completions data do suggest an important effect. For example, Kerry in the West, an important location for second homes, saw in one year a 45% rise in its housing output between 2002 and 2003; whereas in Dublin during that apparently boom housebuilding year, completions actually fell by 18%. Put another way, Kerry’s housing output was only 44% of that of Dublin in 2002, yet it was 80% of it in 2003! Such developments, moreover, were not freak events, but illustrate underlying trends, and suggest that the apparent commendable elasticity of supply in relation to house prices is actually far worse than national data would indicate in the areas of strong primary residence housing demand, and far larger in areas where second homes are desirable consumption items. Housing shortages in such areas as Dublin, therefore, may well be fuelling the second home demand of the fortunate in other parts of the country via equity withdrawal.
Extra public money has been allocated to social housebuilding programmes, which now represent around 10% of all output. Social completions have risen by 75% in the five years since 1999, albeit from a low base, and there are long waiting lists to enter this type of accommodation as the subsidised rents are far lower than in the private sector.
The sustained level of new housing supply may help to moderate future price pressures. The costs of private housebuilding have been raised both by a rapid escalation in construction costs – though these have recently ameliorated – and by planning-induced higher land development costs, which may dampen supply responses in the future when the era of rapid house price rises finally ends.
The structure of dwelling types is unusual for the EU, in that there are very few flats and multi-occupancy structures. A large number of dwellings (45%) are detached houses (frequently single storey); a further 29% are semi-detached and 23% terraced. Only around 3% of dwellings, consequently, are flats. However, in Dublin a far higher ratio of 14% of dwellings are bedsits or flats. The general type of housing built, therefore, is highly land-intensive and leads to spread-out suburbs, both in the Greater Dublin area and other growth areas further afield, which have often come to act as dormitory settlements for local agglomerations.
This urban form also gives rise to long commuting journeys on a frequently overstretched infrastructure network. Residential densities may well increase in the future in response to rising land prices, infrastructure costs, congestion and planning constraints. The impact can already be seen in the smaller share of detached houses in new build – 23% in 2002 – and the higher share of flats at 20%.
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