New housing supply, as measured by the CSO’s completions data, held up much better than expected last year, despite the building industry being shut down from late March through to the second half of May.
For the full year, 20,676 new housing and apartment units came on stream in 2020, representing a fall of less than 2% when compared to the 2019 total of 21,087 units.
It should be pointed out, though, that before the pandemic hit, the expectation was for at least 24,000 units to be built in 2020.
However, the supply backdrop is much more challenging this year.
Much of the sector has been shut down for longer than in 2020.
The current level 5 restrictions have been in place since the start of the year, with the full reopening of residential construction planned for April 12.
Meanwhile, whereas the performance in 2020 benefitted from a strong pipeline of activity coming through from 2019, this is not the case this year.
Indeed, the 12-month cumulative total of commencement notices, a measure of new housing starts, fell below 21,000 units in January this year.
This is down 23% on the 12-month period to January 2020.
In terms of other leading indicators, not surprisingly, the housing component of the construction purchasing managers' index, or PMI, has been very weak in the early months of 2021, reflecting the fact that much of the sector has been closed.
Industry sources suggest that new supply this year could be down by between 15% to 20% on 2020 levels.
Indeed, the Economic and Social Research Institute, in its latest quarterly economic commentary, is forecasting that only 15,000 new units will be completed this year.
This is far below annual demand, estimated to be around 30,000 units.
The supply deficit is now putting upward pressure on property prices.
The most recent CSO figures on house prices show a 0.5% monthly rise in January, which followed 0.7% increase in December.
Looking back over the past 12 months, prices were relatively stable through the first three quarters of last year, before accelerating sharply towards the end of 2020.
This has seen prices increase by 2.6% year-on-year in January, the fastest pace since the first half of 2019.
Indeed, on an annualised basis, CSO house price inflation has been running at a steady 7% rate since the autumn.
Meanwhile, Daft.ie data, which are based on asking prices and therefore more indicative of current market conditions, show prices up 7.6% year-on-year in the first quarter of 2021.
Aside from the aforementioned supply constraints, the enhancement last year to the Help-to-Buy Scheme and possible changes brought about by Covid, such as remote working, has also been acting as a tailwind to property prices.
On top of this, the big increase in household savings may also be helping to underpin housing demand.
At the same time, there is strong demand from institutional investors and public authorities.
It will also delay by a number of years, the timing whereby supply and demand become more closely aligned.
Overall then, against this backdrop, the upward pressure on residential property prices that started to develop towards the end of 2020 is likely to remain in place over the course of this year with the economy starting to fully reopen.
It is crucial, then, that new supply is ramped up quickly over the next couple of years to meet the growing pent-up demand in the market.
• Oliver Mangan is chief economist at AIB