Life in the property market spells good news

The collapse in all aspects of the housing market since 2007 has really been the big story of the Irish economic crash.

The Irish economy had become so hopelessly over-dependent on housing activity that its crash had devastating impacts that are still being felt in many aspects of Irish business and social life. Policy makers are still struggling to cope with the fallout.

The collapse in the market led to massive job losses in the construction sector, in the retail sector and in all aspects of the mortgage business; the banks were effectively brought to their knees; the public finances were devastated; massive personal wealth was destroyed and, of course, thousands of homeowners were pushed into negative equity. I could go on, but the message is clear and very stark.

Just as so much damage was done on the way down, the hope is that some of the damage might be undone on the way up. Some would argue that at this juncture the last thing in the world we need is an increase in house prices. However, given the collapse that we have experienced, it is clear that, on balance, a healthier market would be good for the overall economy. Increased sales activity and rising prices would generate employment, tax revenues, increased retail sales, help lift those in negative equity to a better place, and generally give a feel-good factor in the economy.

A healthy and properly functioning market on all levels would be beneficial. In this context, it is positive that we are starting to see improved levels of activity seeping into the market. Earlier this week, the CSO showed that residential planning permissions were granted for 1,926 dwelling units in the second quarter of this year, 37% up on the second quarter of last year. In the first half of the year, 4,234 residential planning permissions were granted, 53.4% up on last year.

Something is starting to stir on the building front, but these increases are coming from an extremely low base, but one has to start somewhere. Residential property price data released yesterday by the CSO show that during August, national average house prices rose by 0.9% and were 2.8% higher than a year ago.

Average property prices nationally have risen every month since April, which does represent a significant change in trend. The main growth is in Dublin, where prices rose by a further 1.9% in August, and were 10.6% higher than a year ago. House prices in Dublin have increased by 7.8% since March. Outside of Dublin, the story is not as strong. Prices rose by just 0.1% in August, and are still 2.6% lower than a year ago.

It is important to recognise that the number of market transactions is still very low and in such a thin and illiquid market, price movements can be exaggerated, but there are clear signs of life and scarcity of property in the Dublin market in particular.

In addition to property prices, the rental market is also showing distinct signs of life. The latest rent index from the Private Residential Tenancies Board (PRTB) shows that national rents increased by 1.3% during the second quarter of 2013 and by 0.7% compared to the second quarter of 2012. In Dublin, rents increased by 3.5% during the quarter and by 4.7% compared to the second quarter of last year. Outside of Dublin, rents declined by 0.3%, and by 1.3% on an annual basis. It is clear from this index that rents in Dublin are starting to grow strongly, mainly reflecting a lack of suitable rental properties. This is a cause of concern and should become a key focus of policy towards the overall housing market, in Dublin in particular.

All available evidence suggests the overall residential property market has turned the corner, but Dublin is leading the way and this trend looks set to continue. Galway and Cork could start to experience similar issues, but the rest of the country still has some distance to go.