Regional house prices see fastest growth since boom

A slowdown in the explosive rate of house price increases in Dublin shows a tough Central Bank regime on mortgage lending is biting, but comes too late to have any effect in lessening the huge hikes looming in household property tax bills.

Residential price figures showed that all properties in Dublin on average eased lower by 0.1% in May, but they are still over 15% higher than a year earlier.

And, while the rate of house price increases may have moderated in the capital, prices outside Dublin increased in May at their fastest annual rate since the boom.

The Central Bank earlier this year introduced tough lending terms for mortgage lenders that effectively rationed the amount of home loans available to first-time and second-time home buyers.

Alan McQuaid, chief economist at Merrion Capital, said that a mix of restrictions and incentives, including the ending of tax incentives for long-term property investors, had contributed to the slowdown in prices in Dublin.

He predicts the rate of house price inflation will have slowed to a single-digit number by the end of the year.

However, the CSO figures also contain other warnings. Outside Dublin, prices rose in the month by 1.1% — the fastest pace of growth since late last year, and posted an annual rise of 11.9%, the largest since before the property crash seven years ago. Outside Dublin, properties have now risen 2% in the last three months alone.

The figures for outside the capital suggest that properties in regional centres are playing catch up with Dublin prices, despite the new Central Bank loan controls. Figures from Eurostat, the EU’s statistics office, show Irish house prices have risen the fastest here than anywhere else in Europe since 2013.

Certain types of properties in Dublin are also continuing to rise sharply. In May, prices of Dublin apartments rose 0.4% in the month after posting zero growth in April and are now more costly than in May 2014, by 24.6%, according to the CSO figures. The figures will bring little comfort to the Government as it struggles to find ways to reform the local property tax before the election.

Finance Minister Michael Noonan confirmed last week that policy guru Don Thornhill has been tasked to deliver his report on possible changes to the property tax this summer. The Irish Examiner reported earlier this week that home owners face enormous hikes in their bills when they are next assessed in 2016. The property tax was first assessed in May 2013, but home prices have since shot up.

Average house prices have risen about 24.5% since 2013, driven by demand in Dublin. When Dublin is taken out of the equation, the growth figure for the rest of the country is approaching 13%.

Yesterday’s figures confirm that prices of Dublin apartments have soared over 48% since May 2013.

It was once thought of a Dublin problem only. However, the latest CSO figures showing prices continue to rise at a fast rate outside Dublin means the Government faces a bigger headache in reforming the property tax, if it is to lessen the size of property tax bills from 2016.