The chief executive of Cairn Homes, the country’s largest housebuilder, said annual peak new supply will reach only 25,000 in the coming years, meaning too few homes will be built to keep the housing crisis and runaway rents under control.
Michael Stanley said the booming economy will ensure that demand remains keen but that supply will still be hobbled by a building industry that was still damaged from the banking and property crash.
He said he believed some forecasts projecting a continuing large pick-up in the supply of new homes were “unsustainable” and that the pace of growth in new home builds that has seen 18,000 new homes built last year and projections for 22,000 this year will likely slow.
“I think probably what we are going to see toward the back end of the year is a levelling off in that growth in supply,” he told reporters at the company’s AGM.
“I can’t see [the industry] building more than 20,000 to 25,000 homes for the next few years in the current circumstances.”
His comments suggest the industry will never meet the 35,000 annual units economists project are needed to tackle pent-up demand, population growth, and rising incomes in an expanding economy.
Mr Stanley suggested that while house prices will be kept in check by the Central Bank’s mortgage income and lending rules, rents could still climb.
Citing this week’s CSO employment figures which showed a record number of people at work, he said the economic ingredients were in place for demand to persist for housing and starter homes, in particular.
He predicted that the house price controls and affordability would help cap house price inflation at the level of the annual increase in average earnings — currently at 3%. However, the gap between rental costs and house prices had opened up substantially.
“House price inflation will likely be linked to wage inflation which will be modest. There is no restraint to rental inflation. We are now seeing that gap widening all the time,” he said.
In the past, the State had built a lot of homes but increases in the levels of public housing would take time because, said Mr Stanley, social housing supply faces the same constraints with a building industry which is still not back to full health.
He said building homes on State-owned lands doesn’t automatically mean huge dividends because the Government is still dependant on the industry that is struggling to meet demand.
He said the Government is still getting value for money by buying homes, citing the 73 homes Cairn sold to the State last year at an average price of €205,000.
Asked to explain the poor performance of housing shares, Irish company Reits stocks, and other property-related stocks like the Irish bank shares, Mr Stanley said the housing market had “absolutely” not reached its peak. He said some factors, such as Brexit, that are weighing on perceived company valuations are outside the control of Ireland.
He said Cairn is building on 14 sites and that building in Cork, Galway, and Kilkenny could start in 12 to 18 months.