House price growth will slow across European cities, including in Ireland, while Brexit and the supply of affordable homes will play a big role here in the coming years, according to a major report from Fitch Ratings.
In its 2019 European City Housing Outlook, the credit ratings firm said home price growth is slowing but that demand continues to outpace supply.
“After several years of rapid growth across Europe, home price growth in Amsterdam, Berlin, Dublin, and Madrid is expected to cool this year and next,” the report said. “Price drops are expected in London and Stockholm while prices in Paris will be in line with 2018 growth,” it said.
In Dublin, it forecasts residential house prices will rise by about 3% this year and in 2020, “but much slower than the average 9% year-on-year growth from mid-2016 to mid-2018”.
“Other factors such as restrictions on short-term lets in Amsterdam and Madrid will reduce demand from investors. Meanwhile, Brexit will be a key driver of London and Dublin home prices. Brexit uncertainty is already weighing on prices in both cities, but Dublin could ultimately gain from financial services sector relocations,” Fitch said.
The outcome of Brexit will likely play a complex role in determining future home price increases in Dublin. Fitch said that the Central Bank’s mortgage lending rules will continue to weigh on the ability of borrowers to afford to buy a home, while “Brexit uncertainty will continue to weigh on Dublin price growth while a no-deal Brexit would lead to both risks and opportunities for the capital’s home prices”.
Fitch analyst Sanja Paic said that Irish supply is increasing but the difficulties of saving for a deposit for an affordable home persist. “However, just over half of newly constructed homes sold for more than €350,000 in the first 10 months of 2018, suggesting that new-builds are targeted at high earners. Demand for higher-end properties may be insufficient to avoid a price correction in this part of the market,” Ms Paic said.
“Government initiatives to increase construction, such as the Help-to-Buy scheme, will not be effective quickly enough to meet demand. We expect the scheme to be extended, but it will only help Dublin residents who are able to save up for a deposit,” she said. Fitch said that oversupply of luxury housing in many European cities “and we expect prices of these properties to continue falling in Stockholm and London through 2020”.