Price/Earnings multiple for Dublin houses is double 1993 level
By Michael Hennigan, Finfacts founder and editor
Dec 12, 2014 - 7:08 AM

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The Price/Earnings multiple for Dublin houses is double the 1993 level, at the dawn of the Celtic Tiger period.

We don't have median price data for house prices - with half a sample population above the mid-point level and half below - and based on average prices of second hand house in Dublin related to average industrial earnings, we get a multiple of 8.3.

In the ten months to October 2014, the CSO residential price index has risen by 22% and taking the same level of industrial earnings as in 2013 we get a price multiple of 10.2.

We can see from the chart above that in the period 1973-1993 that a typical multiple was about 5 and we can seen from the 1993-2013 experience that the level of 5 is unlikely to be seen again despite rises in supply.

Of course there are a lot more two-income families since 1973 but even so, average annual earnings fell to €35,830 in 2013 compared with our industry income of €42,600.

In Q4 2013 average weakly earnings in industry was at €832; €533 in wholesale/retail trade; €316 in accommodation/food services; €487 in administration/support and €671in human health/social work.

It's easy to understand the basis of the recent National Economic and Social Council's warning (see below) that several income groups face never having a chance of owning their own property while being exposed to Ireland's unpredictable rental market.

The Government showed this week that it's housing policy is a short-term band-aid fix when it was revealed that it had made common cause with the property vested interests' submissions to the Central Bank, opposing proposed restrictions on mortgage lending.

  • It's too afraid of the farming lobby to address the stupidity that land is apparently scarce in a country with the lowest population density in Western Europe;
  • The crisis is in Dublin and until the mid-1990's site costs were typically about 15% of the cost of an apartment - that jumped to over 40% during the bubble;
  • Aversion to high rise and surrender to Nimbies (not in my backyard syndrome) comes at a cost;
  • The windfall tax on rezoned land was abolished this year but reverting again to giving property interests tax breaks is not a solution;
  • The assumption that the rental market will provide 75,000 social housing units by 2020 is based more on prayer than evidence - over 38,000 buy-to-let mortgages or 26% are in arrears and much of the sector had been fuelled by 10-year interest only loans. It's a different credit market now;
  • In bubble times VAT and other public charges accounted for almost 30% of the price of a new house;
  • Currently without CB restrictions mortgage drawdowns are at the 1974/75 level when the population was a third smaller.

Bubble Ireland 2006- Global Survey 2006: Cost of comparable house in Dublin, Ireland, could buy 9 in Houston, Texas, 3 in Amsterdam, 2 in Sydney and Tokyo

Property links

Number of Irish mortgages paid in 2014 at 1974/75 level - a 40 year-low

Ireland tops global property price rankings six years after bust

Irish mortgage arrears decline; 38,463 BTL accounts in arrears

Irish Housing: Renting provides less security than ownership, unpredictable rents - National Economic and Social Council.

Ireland: 35,000 social housing units by 2020 achievable; Rental market possibly not

Dublin house prices up 24.1% in year to October 2014

Irish home ownership to fall due to affordability

Irish Housing Rents 2014: Dublin just 10% short of 2007 bubble peak

Irish construction PMI survey confidence measure highest since 2000

Irish Economy: Residential mortgage approvals in 2014 as low as in 1977

Irish commercial property annual return to September 2014 at 36.6% - income at global high

NAMA expects surplus of less than €500m - it's not a profit; 88.5% sales to US investors

Dysfunctional development land systems in UK and Ireland - Part 1

Dysfunctional development land systems in UK and Ireland - Part 2

Dublin prime office rents set to return to most expensive in Europe ranks

Rising rents pushing startups out of tech hubs

Irish commercial property sales set to top 2006 bubble peak

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