Residential property data shows a slowdown in the level of house-price increases, particularly in the Dublin region. Alan Healy examines the figures and speaks to industry experts about the impact on Munster.
Just a year ago, a clear trend was visible when examining house prices in Ireland. They were going up — and rapidly. In the summer of 2018, house prices were up almost 9% on average year-on-year, with some parts of the country experiencing double-digit increases.
Fast-forward to the third quarter of 2019 and it is a different picture. Prices are still increasing, but at a much more moderate rate and are likely to flatten out by the end of the year. According to the Central Statistics Office (CSO) residential property prices increased by 2% nationally in the 12 months to August 2019.
This is expected to slow further and is likely to be flat by December. In Dublin, residential property prices decreased by 0.3% in the year to August — house prices decreased by 0.6%, but apartments rose by 0.7%.
When Dublin is excluded, property prices across Ireland were 4.4% higher in the year to August, with house prices up by 4.1% and apartments by 5.3%. With prices clearly softening in the capital, the question is whether this slowdown is extending to the rest of the country.
Data from the CSO’s Residential Property Price Index indicates the price chill is already being factored into the Munster market. For the 12 months to the end of August 2018, house prices in Cork and Kerry increased by almost 11%.
The same figure for the 12 months up to August this year show price growth has slowed to 3.4%.
It was a similar scenario for the Mid-West region of Limerick, Clare and Tipperary. A year ago, the CSO says the three counties saw the biggest jump in house prices in the country, rising more than 21% up to the end of August 2018.
A year later this increase has fallen back to just 4%. The slowdown is also evident in figures from housing website MyHome.ie, which has data showing asking-price inflation slowing to just 0.3% in Q3 2019. Author of the MyHome report, Conall MacCoille, chief economist at Davy, says the most striking feature is that the slowdown is also extending to the rest of Ireland.
“We believe it primarily reflects constraints on home buyers’ leverage from the Central Bank of Ireland’s mortgage lending rules, now accompanied by the uncertainty of Brexit,” he says.
However, he argues that the slowdown does not imply that housing supply has caught up with demand.
Analysis by MyHome.ie shows there were 2,828 transactions recorded in Cork in the first half of 2019. This compares with 2,581 sales for the period from January 1 to June 30, 2018.
The value of those transactions in the first half of 2019 was up 0.9%. Around €746m was spent on property in the first six months of this year, compared to €739.2m in the same period of 2018.
Angela Keegan, managing director of MyHome.ie, noted that while asking-price growth is softening, other key indicators are increasing: “The volume of recorded house price sales continues to grow, rents continue to rise, mortgage lending is up and there was an increase of some 6% in the number of new properties on the market.”
In Munster, sales were up 0.2% in the first six months of the year from 6,284 to 6,297 while the amount spent on property increased by 1.6% from €1.346bn to €1.367bn. There may be a softening in prices, but it would seem to be only impacting certain sectors and price ranges.
“It appears that the mortgage rules, combined with the uncertainty of Brexit, have caused the slowdown in price growth,” says Sheila O’Flynn, managing director of Sherry FitzGerald in Cork.
“Brexit means that people are looking but could be nervous, particularly if their work or business has a link with the UK,” she says.
However, Ms O’Flynn says that while there is a softening in the market, it is most acute in the upper end of the market.
She pointed to the Sherry FitzGerald Index, which shows prices for properties valued above €800,000 and between €400,000 and €800,000 fell by 1.3% and 0.2% respectively in the 12 months to September 2019. Prices are continuing to increase in the mid-level market, however.
“In comparison, properties valued between €200,00 and €400,000 and properties below €200,000 increased by 1% and 3.5% respectively over the same period.”
Paul Hannon, new homes director at Sherry FitzGerald says they have 15 new housing development schemes on their books in Cork and Limerick.
He says that while price inflation in the past year has been moderate, they have seen increases in single-figure percentages, but it can depend on the scheme and at which the phase the development is at.
“However, we have seen sales volumes up 30% so far in 2019, year on year. The market at the moment is very much benefiting from first-time buyers assisted by the Help to Buy scheme, so it was encouraging to see this extended in the Budget.
“The prices are still being achieved,” he says. “The headline on reductions are more about Dublin rather than regional Ireland. There is still an active market and we should be careful we don’t talk it down, because demand does outstrip supply.”
Looking to the future, the question remains if a softening of house price increases will have an impact on construction. Director of the Irish Homebuilders Association, James Benson, says it was important to look at the scale of recovery in new residential building activity levels since 2011.
He pointed to the fewer than 5,000 units completed in 2012 and 2013, compared to just over 18,000 units last year and a target of more than 21,000 this year.
He provided figures for the Mid-West showing completed housing units in Limerick in 2018 totalled 516 units — an 8% increase on 2017. This was more than Clare and Tipperary combined. Up to June, completions in Limerick are down slightly year-on-year, with just 246 units completed this year.
Asked whether a softening in house prices would have an impact on future developments, Mr Benson says the question for any developer when it comes to new homes was simply viability.
“An average semi-detached house, nationally, now costs between €235-€240k [to build]. Broken down between land costs, construction, materials, consultancy fees, finance costs, sales and marketing etc.,” he says. “Simply put, the total take, both directly and indirectly by the State can be in the region of 30%.
“Excluding urban centres, when this percentage is taken from a house price, it becomes extremely difficult to viably produce units and in fact it is only commercially viable in several pockets around regional Ireland.”
“The requirements for a functioning market cannot be ignored. A functioning market needs willing purchasers with capacity to purchase; builders with capacity to build; pricing structure whereby builders can recover all-in costs and meet the viability criteria as set by funders; and access to funding for builders at levels that are commercially competitive.”
To meet the demographic need, Mr Benson says either construction costs need to fall, prices increase, purchasers be incentivised or that a combination of all three options may be warranted.
National: Price: €269,000; change in quarter-on-quarter:-2.8%; Change year-on-year: 0.3%
Dublin: Price: €376,000; change in quarter-on-quarter:-1.4%; Change year-on-year: 0.4%
Ex-Dublin: Price: €223,000; change in quarter-on-quarter:-3.3%; Change year-on-year: 0.6%