Irish House Prices: The average asking price for a house in Ireland has risen by 14% over the past year, led by an average rise of 25% in Dublin, according to the 2014 Q3 House Price Report released today by Ireland’s biggest property website Daft.ie. The average asking price nationwide is now €195,000, compared to €170,000 a year ago and €380,000 at the peak.
Prices in Dublin have experienced annual rises of between 18% in North County Dublin and 29% in Dublin’s city centre. There were also significant double digit increases recorded in all of Dublin’s surrounding counties; Louth 14%, Meath 15%, Kildare 19% and Wicklow 20%.
Cork and Galway cities saw prices rise 11% and 13% respectively over the course of a year, while Waterford city centre experienced a 3% climb. Limerick city asking prices continued to fall over the same period by 4%.
The report also surveys the sentiment and expectation of over 1,000 potential home buyers across the country, with respondents in Dublin stating that they expected prices to continue rising over the next twelve months by an average of 12%. This is the largest expected price rise recorded since the survey began in 2011. Outside of Dublin, respondents’ expectations have also heated up; they expect prices to rise by an average of 6%.
Commenting on the report, Ronan Lyons, economist with Daft.ie, said: “The total number of properties on the market on October 1st was just over 30,000, the lowest figure since March 2007. Across Leinster, and in Dublin in particular, supply shortages remain and this has helped push up values by a third in Dublin in just two years. The concern is that this supply shortage is now feeding into expectations. While price rises driven by shortages can be stopped by increasing supply, tackling price rises driven by expectations is significantly trickier.”
Dublin prime office rents set to return to most expensive in Europe ranks
Irish House Prices: National prices up 14.9% in year to August; Dublin prices surge 25.1%
Rising rents pushing startups out of tech hubs
Irish commercial property sales set to top 2006 bubble peak
Ronan Lyons added: "Setting the maximum loan-to-value, and potentially also the maximum loan-to-income, is one step in ensuring a healthy housing sector. But the Central Bank’s work is not done there. It needs to address the preponderance of variable rate mortgages in Ireland. Ireland is more heavily reliant that any other development country on mortgages whose repayment could increase dramatically in the space of a year. Such mortgages are viewed as Weapons of Financial Destruction in the US, where increasing mortgage repayments played such a crucial role in igniting the housing market downturn that turned
into the Great Depression from which Europe in particular is still trying to escape.
Prudential regulation of the mortgage market is about protecting borrowers, banks and taxpayers. This could be achieved by switching to a Danish-style covered bond system. This can be summed up as follows: for a bank to issue 30-year mortgages worth €100m next year, they have to go off to the international capital markets and raise a 30-year bond worth €100m. This tells everyone the real cost of finance and, perhaps more importantly from the Government’s point of view, means that the taxpayer need not worry about having to bail out banks.
If credit is one side of the housing market coin, supply is the other. Rationing credit, however sensibly, puts a limit on house prices: indeed, that is the point. To put some (round) numbers on it, suppose the average household has a total income of €50,000 and, when the Central Bank has done its job, can borrow no more than €200,000 with a €50,000 deposit. This sets a cap on the average house price of €250,000.
Clearly, if the average home costs €300,000 to build, nothing will be built. Even if the average home costs €200,000 to build, this is probably at the limit of acceptable profit margins. If the average home costs just €150,000 to build, this should encourage building. And while many view construction with suspicion given the legacy of the last housing bubble, this was the product of tax breaks and easy credit, not a healthy construction sector."