Hooke & MacDonald forecast the number of new home completions will continue to increase, with 85,000 new homes to be built across the country this year, rising to 90,000 units by 2008.  However, this is still short of the required demand for new homes, which is currently estimated at 92,000 and is set to rise to 101,000 by 2008.

The biggest supply shortfall is in Dublin, where there is currently demand for 26,000 new homes, yet only 18,000 completions are forecast for the City and County this year.  This situation is set to worsen in the next two years as demand is expected to rise to 31,000 homes by 2008, yet supply is only expected to improve marginally and increase to 21,000 units.  The dearth of activity in the Capital is highlighted by the fact that housing output in Dublin only accounts for 21% of the national total, despite the fact that almost 30% of the population resides in the Capital.

The report shows that the mounting supply difficulties being encountered will lead to price growth averaging 13% nationally and 14% in Dublin during 2006, with price increases remaining strong for at least the next two years.

According to Geoff Tucker, Economist with Hooke & MacDonald, there is no sign of any let-up in demand in the residential property market.  “Demand is set to intensify over the next two years, as the population continues to increase and the economic environment remains very supportive.  Even though interest rates are on the way up, the scale and timing of the increases means they are unlikely to lead to any slowdown in the market.  The Irish residential property market is on course for a period of sustained growth that will last for the foreseeable future.”

Hooke & MacDonald forecast that the population will rise to 4.5 million by 2010 and 5 million by 2015, an increase of one million people during the next decade.

Planning Difficulties Limiting Supply

The report is highly critical of the planning authorities and shows that a serious supply crisis is developing in Dublin caused by planning difficulties at both local authority and An Bord Pleanála levels.  It states that the level of inconsistency between the local authorities and An Bord Pleanála is a cause of serious concern, which needs to be addressed immediately.  An average of one-in-three recent decisions by the Board overturned the decision of the local authority.

Ken MacDonald, Managing Director of Hooke & MacDonald, believes a full review of the Guidelines on Residential Density should be carried out immediately by the Department of Environment, Heritage & Local Government to properly address the challenges facing the future development of Ireland’s cities and towns.  “Present planning policies regarding density and height, particularly in Dublin, are conducive to promoting urban sprawl and are inhibiting the long-term development potential of the city.  There is an urgent need to intensify use of land in key urban areas, which can be best achieved by relaxing restrictions on building height and being more receptive to higher residential densities in well designed buildings”.

Earlier research by Hooke & MacDonald estimates there is only enough land in Dublin City Centre, between the canals, for another six years housing supply based on current planning policies.

The report also advocates the immediate preparation of an integrated plan for infrastructural projects, covering transport and housing solutions in the Greater Dublin Area, to meet projected population rises over the next 25 years.  “A pro-development approach that at the same time promotes sustainable living is an essential ingredient for meeting the housing requirements of our expanding population,” said Geoff Tucker.  “The planning system is failing first-time buyers, in particular with its inefficiencies and lack of responsiveness to the demands of an expanding population”.

Residential Construction to Increase in Cork, Galway and Limerick

Even though the planning difficulties being experienced are giving rise to supply shortages, they are not affecting development land values, with record prices being achieved as competition strengthens for the limited supply of available sites.

Hooke & MacDonald highlight a number of areas of Dublin set to experience exceptionally strong demand and activity in the immediate future, including the Docklands, Heuston/South Circular Road, Belcamp, Baldoyle, Portmarnock, Castleknock, Adamstown, Citywest, Rathfarnham, Sandyford and Cherrywood.

The report also tips Cork for a period of rapid expansion, with a record 10,000 new homes to be built in the City and County this year, while completions will reach 5,000 in Galway and 3,000 in Limerick.

More Apartments Needed in Dublin

A key feature of the growth in new home construction in recent times has been the increase in the number of apartments being built in urban areas throughout the country.  Hooke & MacDonald state that apartment living is now an accepted part of the Irish property market and over the last five years apartments have accounted for approximately one in every five new homes built nationally and around half of all completions in Dublin.  The increase in apartment construction in Dublin is helping to redress the existing imbalance in the City’s housing stock, which is dominated by low density semi-detached and detached housing and mainly caters for those requiring family type homes, especially in many suburban areas.

Despite the increase in the number of new apartments built since 2002, the number of semi-detached, detached and terraced homes constructed has more than matched this and as a result, the composition of the residential stock remains largely unchanged.  There is a clear need for more apartments in Dublin.

Hooke & MacDonald say that the increase in supply of new homes is matched by improvements in both exterior and interior design standards, which now compare more than favourably with most European countries. It says that apartment sizes in Ireland today are typically larger and incorporate more practical designs than previously existed.

First-time Buyers Lead Demand

First-time buyers are the main drivers of demand in the new homes market, accounting for 48% of purchasers, followed by other owner-occupiers at 24% and investors at 28%.  Homeownership still remains within reach for the vast majority of young people, even though the ECB repo rate will rise to at least 3.00% by the end of 2006.  Affordability for new entrants into the market will tighten as rates and prices increase, though this is not expected to significantly impact on overall demand in the market.  Thirty percent of first-time buyers receive parental assistance, whether by way of a direct financial contribution or a guarantee on part of the mortgage.

Despite the growth in prices caused by supply difficulties, there is still a good selection of new homes available at affordable prices.  The report shows that over half of all new homes purchased in Dublin during 2005 were under €350,000 and approximately 30% were less than €300,000.

Investor demand will continue to remain strongest for good quality apartments in central locations, buoyed on by the growth in property values and the availability of the SSIA monies during 2006/2007.  Tenant demand will also remain exceptionally strong as the number of migrant workers coming into the country continues to increase.  Hooke & MacDonald believe there is considerable scope for rental values to increase in Dublin in the coming years, with average annual growth of 5% forecast for 2006 and 6% in 2007.

Buoyant Growth in the Commercial Property Market

The report also highlights the strong performance of the commercial property market, particularly in the offices and retail sectors.  Outside the prime city centre locations, the secondary retail market and local neighbourhood shopping is thriving and has seen the majority of new development and activity in recent years, with a very strong demand for both small and large-scale local convenience shopping and retail services.  The growth in population coupled with the high level of development activity will continue to present opportunities for new retail destinations and local neighbourhood shopping.

Meanwhile, the Dublin office market is experiencing a period of very healthy growth, buoyed on by strong demand, falling vacancy levels and renewed confidence amongst prospective occupiers.  Construction of new office space across the City is leading to a significant improvement in the stock of accommodation.  With many companies relocating to new office accommodation, this is presenting opportunities to refurbish, upgrade and extend offices in established locations.

Download report.

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