Broker warns on policies driving house prices

The Government should focus on solving “structural” issues holding back home building rather than on policies that may lead to higher house prices, according to a major report by Davy.

The Davy report by economists Conall MacCoille and David McNamara predicts large price increases will last longer than previously thought, as a “dwindling” number of homes for sale drive prices higher.

House prices will rise 10% this year and by 8% in 2018, they predict.

Davy becomes the second leading broker to assess revised census population figures and to conclude that demand for housing will climb further.

The broker predicts that demand to 2021 will require at least 35,000 new homes and, possibly, as many as 50,000 homes to be built each year.

The report comes as the Irish Congress of Trade Unions (Ictu) said that Finance Minister Paschal Donohoe should promote measures to help local authorities build social housing.

In a pre-budget submission, Ictu also called for the ending of the reduced 9% Vat rate for tourism and hospitality firms.

The Davy report says official figures showing new house completions running at 14,900 a year were likely overstating the true picture and as few as 7,500 new homes may currently be delivered.

“This means the housing demand-supply imbalance in Ireland is even more severe than we had thought,” states the Davy report, called ‘Gauging Ireland’s housing-demand supply imbalance’.

Mr MacCoille said Government policies are seeking to boost profits in the building industry as a way to build more houses.

“The structural issues are in long-term planning and supply. And those are difficult to alleviate,” he said.

The report predicts Mr Donohoe will keep in place the Help-to-Buy incentives for first-time buyers in his budget next month.

“In the absence of meaningful structural reform on planning and land supply, Government policy is reverting to inflationary policies that will boost profit margins in the homebuilding sector,” it states.

It predicts the Central Bank will face calls to loosen its mortgage rules further under its review later this year. Wage increases of up to 3% a year will help boost the demand for mortgages.

It says Revenue figures show that new jobs have helped boost the number of taxpayers earning between €50,000 and €75,000.

“In short, because jobs growth is concentrated in full-time work, there is a sharper rise in the number of households with incomes in the higher income brackets who will naturally demand housing,” it states.

The report says there was a lack of evidence that private equity investors were sitting on land to tap higher house prices in the future. But access to finance was restricting firms from building houses.

Large builders are able to tap bank debt at reasonable terms but smaller firms may still be struggling.

“Many smaller builders may still not have sufficient equity capital or the scale to make development projects viable or may have unrealis-tic expectations of returns,” states the Davy report.

“That said, activity in home building is clearly accelerating, albeit off a low base...For now, however, the Irish home building sector clearly favours larger home builders with equity capital.”