|House prices in Ireland, adjusted for inflation, 1975-2011 Source: http://www.ronanlyons.com|
Irish Residential Property Prices: This week Michael Noonan,
finance minister, said that he wants to see house prices to rise
further while downplaying fears of another property bubble in Dublin.
In another April in 2006, the craziest year of the property boom,
Bertie Ahern, then taoiseach, also discussed
house prices, saying that had listened for seven years to warnings and arguments
about difficulties in the construction sector. "I think you have to look at the
asset. This is the question: if you are borrowing 'x', if you sell the asset, if
there's a bit of a downturn, will you get 'x' back in return? That's the issue.
At the moment, there doesn't seem to be an indication [of difficulties].
"I mean quite frankly, if you had taken the advice a year ago you would have
lost a lot of money. Everybody said we're going to see a huge downturn in 2005
linking into 2006 - they were entirely wrong.
"Really we should have an examination into why so many people got it so wrong.
My view is there's not a great problem. Really, the bad advice of last year
given by so many has maybe made some people make mistakes, that they should have
bought last year."
Speaking at the 'Sunday Independent Business Evening ' on Tuesday, Noonan
said the Government will use NAMA, the state toxic property loans agency, to tackle the
housing shortage. "We need to get property prices up another bit," he told the
The minister said NAMA would join forces with
developers to build more than 22,000 homes over the next five years.
"I'm worried about the lack of availability of family homes in the greater
Dublin area in particular," he said.
Noonan wants higher prices to help banks pass the European Central Bank's
stress tests, thereby avoiding the need to raise fresh capital.
Nevertheless, it's odd that
the Irish Government would be eager to see rising
house prices while the wreckage of the bust in mortgage arrears and so on
remains to be cleared up.
CSO data shows that national home prices rose by over 6.4% last year with
Dublin prices up 15.3%.
House prices in Dublin were off 47.4% from their 2007
peak while the price of apartments in the capital were down 54.5% since their
peak in February 2007.
National prices were down by 46.4% since 2007.
Ronan Lyons said
the Daft.ie Q1 2014 [pdf] report: "There
are currently fewer than 2,300 properties listed in the capital, the lowest
since June 2006. Currently, less than 800 Dublin houses are coming on the market
each month on average or 10,000 homes over the course of a year. In a city of
roughly half a million households, this translates to just 2% for sale - - a
healthy market would see at least three times this amount coming on to the
market each year and perhaps as much as six times. Unsurprisingly, the market in
the capital is incredibly tight, with roughly 1,000 transactions a month in the
second half of 2013 - - well above new supply."
CSO data shows that the average price of a new
house/ apartment in Dublin in Q4 2006 and Q4 2013 was €419,330 and €304,275
while the price of a second hand houses was €517,865 and €354,866.
Median prices would be more useful as in 2006,
price inflation in the expensive market would have skewed the average.
In 2004, Brian Cowen, then finance minister, said
that tax and public charges accounted for 28% of the average cost of a new
has shown in the chart above that the real or inflation adjusted house price
is flat in the long term but in recent decades relative to income, the
two-person earning household has become more common.
Affordability has improved because of the fall in
interest rates but looking at the multiple for the average wage of an industrial
manual worker of €31,000 in 2006 and €32,000 in 2013, the multiple for a
new home in Dublin was 13.5 in 2006 and 9.5 in 2013.
On the demand side, we
reported last month that mortgage approvals in February 2014 were at a 42-year
Irish home mortgage approvals in 2014 at 42-year low
Real price of Amsterdam house only doubled in more than 350 years
Dysfunctional land development market
In 2006 the European Environment Agency cited
as a "worst case scenario" of urban sprawl.
Since the economic crash in 2008, while
there have been a number of planning reforms, the land rezoning system that
makes development land scare in a country that is estimated to be 4% urbanised,
remains a taboo area.
Farmers during the boom got huge windfalls
including almost a quarter of the national roadbuilding budget of €18bn and even
though accounting for 4.5% of the workforce, politicians are scared of the Irish
Jerome Casey, in 2003 as editor of the 'Building
Industry Bulletin' newsletter, said that site costs accounted for 42.5% of a
house nationwide. Casey said that typically in the mid 1990s, Durkan Brothers
sold apartments off O'Connell Street for £35,000 to £40,000 (€44,440 to €50,790)
for which the site cost was £5,000. "Currently, both the Irish Council for
Social Housing and private house builders are reporting city house site costs at
up to 50% of the house price. Outside the cities, site costs can represent up to
40% of the house price. For the country as a whole, site costs may now
constitute 42.5% of the house price, an increase of almost 30 percentage points
on the pre-boom position. In Dublin that increases to 50%. Overall the Irish
figures are grossly out of line with the rest of the developed world."
In the US land accounted for 20% of the total cost
of a house. In Denmark the figure is similar while in Portugal the land factor
drops to 15%.
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