End in sight for house price inflation’

HOUSE price inflation is coming to an end and house completions are expected to fall from a high of 67,000 this year to 45,000 in coming years, a major report by Davy Stockbrokers predicts.

The Davy report concludes that current housing supply is unsustainable and adds overall employment remains vulnerable to any reduction in house-building, unless the non-residential sector recovers. “Our forecast is for an early end to the recent house price inflation, and for a reduction in the volume of new housing output,” the report’s authors, Colm McCarthy, Annette Hughes and Ernestine Woelger.

They say further rapid increases in house prices are most unlikely. “The risk of a price correction has increased. Locally, any relaxation of restrictive zoning policies, especially around Dublin, should see price pressures reduced sharply,” they add.

The trio forecast the demand for housing will fall to around 45,000 per annum over the next number of years.

“This, in turn, implies a significant downward adjustment in the level of activity in the housing market from the 67,000 completions that are now forecast for the current year,” they said.

Davy found as much as 40% of housing output recently has been going to satisfy demand from a category dominated by second homes. “The data suggests this segment of demand

has recently been running at levels approaching 20,000 per annum. We agree with the suggestion in the recent ESRI mid-term review of the National Development Plan that the policy treatment of second- home demand should be reviewed, given the pressure on house-building resources,” they say.

The report states that over the most recent six-year period new household formation accounted for only 61% of new house completions.

“This year it is likely to account for less than 50% of house completions. Replacement of obsolescent stock, any increase in the number of vacant houses and acquisition of second homes account for the remainder. This year these three categories will account for almost 32,000 of the expected 67,000 completions,” they add.

Davy say it is clear that overall construction employment is being held up by the buoyant house-building sector. “Total construction employment has soared over the last eight years, from around 94,000 at the start of the boom period to around 193,400 in April this year.

Using data from the latest census Davy concluded that the number of ‘children’ in their 20s living at home with both parents has increased by 14%. For ‘children’ in their 30s, the increase is much more marked: 39% more lived with both parents than at the previous census. “Dublin estate agents (and parents) have coined the term boomerang to describe 30-something returnees to the parental nests ,” Davy said in the report.