Warnings as house prices surge 13%

Soaring house costs that push people further away from their places of work due to unaffordable property prices are causing a form of “involuntary social engineering”, according to a brokers’ body.

Brokers Ireland made the claim following the release of the latest figures from the Central Statistics Office, which revealed that residential property prices across the country increased by 13% in the 12 months to February.

The Midland region showed the greatest price growth, with house prices increasing 14.8%.

Dublin prices have increased 90.6% from their February 2012 low, and prices in the rest of the country are 66.7% higher than when they bottomed out in May 2013.

Rachel McGovern, director of financial services at Brokers Ireland, described the effects of increasing house prices as “effectively a type of involuntary social engineering”.

“With rapid house price inflation, particularly in Dublin, many seeking homes are being pushed further and further away from their places of work and, in many cases, families too, with long and expensive commutes,” she said.

“Home-ownership achieved at affordable prices is critical to growth in personal wealth over time.

“Many in their 20s and 30s are being deprived of this opportunity, previously considered the norm. This in time is going to have a huge cost personally, economically and socially.”

The rising prices could, in turn, lead to greater pay demands according to Austin Hughes, chief economist, at KBC Bank Ireland, who noted that the gap in housing price and wage growth levels is getting larger.

“It is unlikely that the pace of growth in Irish wages and house prices could diverge indefinitely,” said Mr Hughes.

The strength of house prices could generate demand for compensating wage increases in the future, particularly as the recovery in the jobs market brings us closer towards full employment.

“However, the lessons of the recent crisis should still be reasonably fresh in the minds of domestic wage bargainers and evidence from abroad suggests pay growth has remained notably weaker than expected even at a historically low level of unemployment, suggesting some structural constraints on pay growth.

“In such circumstances, it might also be expected that subdued wage growth will eventually act as a limiting force on Irish house price inflation.”

The latest CSO figures coincided with the release of three Government reports on the delivery of more houses.

The Housing Agency’s Comparison of Residential Construction Costs in Ireland to other European Countries shows that while Ireland has comparable construction costs for residential buildings with Britain, Germany, and France, costs are 18% less in the Netherlands.

A second report showed that the new 2018 apartment planning guidelines will reduce construction costs on a like-for-like basis versus the 2015 apartment planning guidelines by 3% to 15%, depending on the nature of the apartment development.

The lengthiest report, Review of Delivery Costs and Viability for Affordable Residential Developments, highlighted a string of issues, from basement car parking adding cost to urban apartment developments, to high rise development costing more to deliver.

It also said that there is a dramatic gap between supply and demand for land, but that Vat reductions would only increase land prices.

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