The Cork market has stabilised in many ways, but remains dysfunctional, writes Ann O’Mahony.
Overall, 2018 was a strong, stable year for the housing market in Cork. After a buoyant year in 2017, the market opened in January with an expectation of another 12 months of feverish activity. However, less liquidity in the mortgage market, due to a tightening of lending towards the end of 2017, combined with an improved offering in the new homes market collectively resulted in a slowdown in both the pace of activity and price inflation.
While the overall volume of sales compares favourably to 2017, each one felt that bit harder to achieve.
A total of 1,396 housing units were completed in Cork during 2017, with 1,244 following in the first nine months of 2018. While such figures are well below market requirements, they do represent a notable uplift on construction activity in recent years. After a dearth of stock on the market, potential purchasers began to see a rise in choice, and they responded favourably.
New homes offer many advantages to would-be purchasers, particularly with the added benefit of the help-to-buy scheme, and this was reflected in market activity. With the increased interest in new homes, it is not surprising that sales in the second market were somewhat more challenging than previous years.
The Sherry FitzGerald bi-annual analysis of supply revealed a modest uplift in the stock of property available for sale in Cork during the summer months, up 5% year on year. However, after many years of contracting supply, this surprised most market participants, as reflected in the pace of price inflation. Average values in Cork rose by 1.9% in the opening nine months of the year, compared to 5.8% in the same period in 2017.
One of the biggest challenges for the Cork market was the lack of divergent purchaser types. In a normally functioning market, first-time buyers live beside investors and other buyer groups.
However, while the Cork market has stabilised in many ways in recent years, it still remains very dysfunctional. This is manifest in many ways, not least a dearth of investor appetite for property.
Our latest in-house analysis of vendor and purchaser profiles in 2018 reveals a continued outflow of investors from the buy-to-let market in Cork. Reflecting the trends of recent years, 34% of vendors in Cork in the year to date were selling their investment properties, while investors entering the second-hand market represented only 16% of purchasers. The volume of investors in the new homes sector is negligible, outside of the relatively small multi-family sector.
The Cork lettings market has effectively lost thousands of units in recent years. This trend is also evidenced in the reduction in the number of tenancies recorded by the RTB. Average rental levels in Cork are largely in line with previous peak levels achieved at the height of the Celtic Tiger.
Current market conditions are clearly a direct response to inadequate supply levels with rental vacancy rates currently standing at less than 1%. Yet, there is a notable reluctance to introduce any policy which would incentivise or encourage new private investor activity. The reintroduction of 100% MIR in the recent budget is a baby step in the right direction. However, the market needs further initiatives to encourage increased investor appetite.
Looking to the year ahead, I would expect a year which will be in many ways similar to 2018. Led by a further uplift in new homes, activity levels will improve, most notably in the starter home section of the market. Prices will rise; current indications suggest inflation will remain in low single digits. Rental levels will continue to increase with current indicators that rental inflation will exceed 4%.
All in all, there is no doubt that the Cork market is moving towards greater stability, however we do need more positive policy to fast track this progress.
The Help-to-Buy scheme has been a very positive measure for the market, but it only began to benefit Cork in 2018 and it is due to cease at the end of 2019. It is crucial that this is extended if we are to continue to see year-on-year growth in supply.
The private rental sector is perhaps one of the most challenging areas of the Cork market. We need to reduce the tax burden for private investors, in order to encourage more investors to remain in the market and also attract new investors into the property sector. Increasing supply of rental properties is essential if we are to remain a competitive attractive city for migrants.
All in all, we need to increase supply of all types of properties, properties to rent, properties to get us started on the ladder, properties to trade up to and equally important properties to trade down to.
By increasing supply, we will stabilise price and rental inflation and allow Cork to remain the attractive, competitive city we all desire to live and work in.