Construction industry economist forecasts Irish house price falls in 2007 and 2008; House completions to fall by 30% in coming years from 2006 peak

Irish
Construction industry economist forecasts Irish house price falls in 2007 and 2008; House completions to fall by 30% in coming years from 2006 peak
By Finfacts Team
May 21, 2007, 08:40

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Source: NTC Economics

There will be a sharp fall in Irish housing completions over the next two years, with house prices also set to fall, according to construction industry economist Jerome Casey.

Completions hit a record 93,000 plus last year, but Casey predicted they would drop to 80,000 this year and fall back to 62,000 per annum over the subsequent five years, 30 per cent below the peak level.

A 10,000 fall in annual output is equivalent to 1 percent annual economic growth. The Government collects about €100,000 in taxes and charges from each new housing unit sold. In 2006, 17 percent of total tax revenue were directly property related.

Construction employment in the Irish economy has risen from 126,100 in early 1998 to 282,000 in 2007.

House prices are forecast to fall this year by up to 5 per cent and by 5-10 per cent next year, according to the latest Building Industry Bulletin, which is edited by Jerome Casey. He said that holiday homes and houses with ‘‘commuting to work times’’ of more than an hour would probably suffer the largest falls. City centre and inner suburban homes, period houses and houses on rail routes within a 60-minute commute time to cities and towns were likely to depreciate less than other properties.

While saying that predictions of major collapse in house prices were overdone, Casey said that the housing market was now clearly heading into a cyclical downturn. This would have significant implications for exchequer revenue, as the property market has been a key source of tax buoyancy.

Casey said that ‘‘bottom-feeders’’ will stabilise prices after 2008 and that if government policy has improved economic competitiveness, ‘‘a house price bust should be avoided’’. Casey warned that, unless competitiveness in the economy was improved, the current adjustment in house prices could become a more serious decline.

The Bulletin says that much of the demand in recent years was driven by investors and those buying second properties, rather than first-time buyers.

The level of vacant housing stock unearthed by the current census showed that one-fifth of all housing stock in the Western seaboard counties and in Wexford, Roscommon, Longford and Cavan were currently empty. These were the counties that benefited most from tax-based holiday homes, Casey pointed out.

He said that the number of vacant houses and flats in Dublin, Cork, Limerick and Galway was running at between 11.5 and 13 per cent of total housing stock and this number was ‘‘too large to be accounted for by casual vacancies in the letting market’’.

Casey said that first-time buyers only accounted for 27 per cent of new housing demand from 2002-2006, and that new housing demand was not supported by immigration. He pointed out that non-nationals accounted for 10 per cent of the population, but just over 1 per cent of the stock of mortgages.