House prices are unlikely to fall unless supply increases substantially even with a cost of living crisis a new banking report shows.
Population growth and considerable pent-up demand exacerbated by the significant gap between average rent and mortgage payments means house price pressures are set to remain according to an analysis by the Banking and Payment Federation of Ireland (BPFI).
The report notes that average rents have increased by over 82% in Ireland compared to an EU average of 18% since 2010. Most recent figures from the first half of 2021 show the average first-time buyer monthly mortgage payment was just over €1,000 compared with the average monthly rent of over €1,400 at the national level, with the gap being significantly higher in Dublin.
"We know that in the short term the fall in the purchasing power of households, caused by higher housing and general living costs as well as the future uncertainty in the wider economy, are likely to affect mortgage demand," BPFI Chief Executive Brian Hayes said.
"However, as our latest Monitor shows today, looking to the medium and longer term, the significant gap which now exists between average rents and mortgage payments, coupled with significant latent demand, are likely to balance any negative impact on demand for mortgage lending in the short term which will likely continue to impact house prices unless we see a substantial increase in supply.
The report also notes the decline in new housing construction commencements across the country which comes at the same time as the country's population increases.
According to the Central Statistics Office, Ireland's housing stock increased by over 120,000 units since 2016. However, over the same period, the country's population increased by more than 360,000.
“While in the short-term mortgage demand may be impacted by the cost-of-living crisis and general economic uncertainly, this may well be offset by factors such as pent-up demand and high rental costs which will sustain home buying demand into the future resulting in price pressures, albeit at a lower level, unless supply increases substantially.”