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Thursday, 25th April 2024 |
| Twenty years of tremendous growth - but where to next for Ireland's residential property market? |
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| In the past 20 years the average price of a house in Dublin has increased from under €50,000 to over €500,000 and the average price in Ireland has increased from approximately €45,000 to almost €400,000. However, at the start of 2007 the remarkable growth story of the Irish residential property began to falter, with the average price of a second hand home declining in the first quarter of the year. But, with demand remaining strong and the overall Irish economy in good health, Marian Finnegan believes that there is further growth to come. |
The past 20 years has been a phenomenal period for the Irish property market, perhaps particularly so in the past decade which has been nothing short of a roller coaster ride for the industry. In the past 20 years the average price of a house in Dublin has increased from under €50,000 to over €500,000 and the average price in Ireland has increased from approximately €45,000 to almost €400,000. It was also a period in which we built over 800,000 residential units, notably 70 per cent of which were built in the past decade alone. To put it mildly it has been an extraordinary period.
As such, it would be fair to say that when the Irish history books are written, the story of the last decade of the twentieth century and the first decade of the twenty first will be a property one. | | Marian Finnegan |
This trend continued right up to present day. Despite 10 years of phenomenal growth and six consecutive interest rate increases, 2006 was one of the most remarkable years for the Irish property market. The year opened with a notable shortage of second hand properties available throughout the country. The combination of this and a very high level of consumer confidence led to a period of exceptional price growth, with price inflation in the first half of the year well above expectations. The shortage of properties on the market began to ease during the second quarter of the year with a significant increase in available properties by the end of June. The combination of this flood of supply and perhaps some consumer lethargy as a result of a long hot summer led to a slowing of the sales process during the summer months. As a direct result the pace of house price inflation moderated considerably in the latter months of 2006.
Figures from the Sherry FitzGerald barometer of second-hand house prices reveal that the average price of a second-hand property in Ireland rose by 18.1 per cent during the twelve month period. The comparable figure for the Dublin market stood at 22.2 per cent for the year, making 2006 one of the most robust periods for price inflation. Bearing in mind that the Celtic Tiger and its close relation the Irish property boom supposedly went into retirement after 2001 such growth rates are phenomenal.
A location analysis shows that while Dublin was the clear winner in terms of price growth, it was closely followed by the other regional centres of Galway and Cork and counties surrounding Dublin, particularly Louth, Meath and Kildare. Within the capital it is clear that time travelling to and from the workplace is not surprisingly an important factor in location choice - which is why Clontarf, Drumcondra and Glasnevin on the northside and Sandymount, Ranelagh and the South Circular Road on the southside have performed so well.
The Luas and Dart lines continue to add value to homes with evidence that locations such as Dundrum and Sandyford have continued to benefit from the improved infrastructure and reduced commute times brought about by the addition of the Luas.
Following the exceptional growth recorded during 2006, the established homes market witnessed a slowdown in the first few months of 2007 as price levels eased back moderately. This reflected a reduction in consumer confidence in the performance of the market. In particular, the latest figures from the Sherry FitzGerald barometer reveal that the average price a second-hand property in Ireland declined by 1.1 per cent during quarter one. However, if the Dublin market is excluded from the analysis, the figures show a very modest growth of 0.2 per cent during the first quarter.
This can be largely attributable to a number of factors including the anticipation of a change to stamp duty in Budget 2007, coupled with the rising interest rate environment and a larger than normal supply of second hand properties on the market. However, the fundamentals underpinning the market remain with continued strong growth in the economy, robust employment growth and very high levels of net inward migration, all of which suggest that this moderation will be a short term phenomenon.
The past 20 years has equally been an exceptional period for the residential construction industry peaking with a record high of 93,419 residential units been completed in 2006. This is particularly notable as it is more than double the level witnessed a decade ago and compares to output levels of about 18,500 units in 1987. The latest results correspond to approximately 22 units per thousand of the population, significantly greater than corresponding level in the UK at 3.5 units. It is largely anticipated that output levels will ease in 2007 as the market adjusts to a more mature housing stock.
The strength of activity and in particular price inflation is probably music to the ears of existing property owners however such activity in itself does beg the question, how much longer can this last?
And the answer is that all indicators point to it being sustained for a very long time indeed.
At a national level economic growth is projected to be a very healthy 5.4 per cent this year and approximately 4 per cent next year - well ahead of the EU average. Unemployment is still at near all time lows standing at just over 4 per cent. This is down from 14 per cent just 10 years ago. Again, this is far better than the European average.
Even more interesting is the age profile of our population. At present about 35 per cent of our population is under the age of 25 and the projection is for this figure to be about 33 per cent in 2020. These are the homebuyers of the future and we have a very good supply of them.
These indigenous home buyers will also be enhanced by vast numbers of migrants who are choosing to come and live in Ireland in their thousands. Last year alone just less than 87,000 such immigrants came to live in Ireland, fuelling demand for almost 30,000 residential units.
In short, we have a young and growing population in a strong economy with more people at work than ever before.
Coupled with this, we now have a mature housing supply, with the latest estimates suggesting that we have approximately 425 units per thousand of the population, a factor which will help to underwrite the long term stability of the market.
All in all the evidence appears to point in one direction - strong steady demand for the foreseeable future. Our young population, overall population growth, and strong economic performance will mean that demand for homes and the value of those homes will be sustained for many years to come.
That said, the combination of a reduction in the gap between demand and supply and the recent upward movement in interest rates will facilitate a moderation of house price growth in the year ahead with current estimates suggesting price inflation will slow to single digit figures in 2007 and into 2008. Such growth rates may be far from the giddy days of the late 1990s when price growth of 10 per cent was achieved in a quarter but they still underwrite a view that residential property offers investors of all types a safe and stable vehicle to invest a relatively small quantity of money and enjoy a very satisfying rate of return. |
Marian Finnegan is chief economist with the Sherry FitzGerald Group.
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| Article appeared in the July 2007 issue.
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