Household incomes average €45k as homes sell for €350k-plus pushing purchasing ‘beyond reach of most’

The Government must play a much bigger role in providing new homes because elevated land and construction costs mean the private market cannot build at prices the vast majority of potential buyers can afford.

Household incomes average €45k as homes sell for €350k-plus pushing purchasing ‘beyond reach of most’

The Government must play a much bigger role in providing new homes because elevated land and construction costs mean the private market cannot build at prices the vast majority of potential buyers can afford.

In a new assessment, one of the country’s leading housing economists, Dermot O’Leary of Goodbody, has suggested acute housing shortages would prevail for most income earners even if annual output were to climb by more than 50% from its current levels.

The Government and others have hailed house building activity, which has rocketed from a standing start to around 18,000 new homes this year following the devastation of the crisis years. Most experts say that more than 30,000 homes a year will be required to start to catch up with pent-up demand and a rising population.

However, Mr O’Leary’s analysis detects a huge mismatch between the high prices of new homes, which are “outside the reach of most of the Irish income-earning population”.

He also questions whether the private sector can sell houses that most buyers can afford.

That is because, despite Government measures, building costs have spiralled and land prices “have boomed, with foreign capital or foreign-backed Irish buyers competing aggressively for sites”, Mr O’Leary writes in today’s Irish Examiner.

Across the State, almost a third of all new homes sold in the past year cost more than €350,000.

In Dublin, more than half of new homes were sold for more than that figure. One in five of new homes in the capital were sold at over €500,000.

Such prices compare starkly with the large number of joint income earners on household income of less than €45,000 a year.

“Assuming these couples can raise a 10% deposit, the maximum they can afford for a home is €175,000,” writes Mr O’Leary. “The private market cannot deliver homes at this price point.

“In 2018, there has been a growing number of new homes on the market that are outside the reach of most of the income-earning cohort of the Irish population.

“If housing is to be provided for everyone — and there is movement advocating that it should be a basic human right — the public sector will have to play a substantially larger role in providing it directly.”

Mr O’Leary was one of the first economists in the past to question housing statistics for new builds based on electricity connections. The old figures were widely used by the Government for planning purposes. However, the figures were shown to overstate the number of new home completions and a new set of official statistics was devised last year.

The chief economist has now opened the debate over whether house prices will automatically be affordable as long as new housing output expands to 30,000 units a year.

Mr O’Leary says “it is overly simplistic to only compare the current levels of supply and demand without considering the price of the new stock and the income levels of potential home-owners”.

He says that the Central Bank will rightly reject any new calls from business groups to relax its mortgage lending rules that among other things limit the amount couples can borrow based on their income.

Instead, Mr O’Leary believes the Government and the industry will have to look again at ways to build new homes costing between €275,000 and €375,000.

Separately, GeoView, which complies directories of new dwellings for An Post and Ordnance Survey Ireland, said there were 1.99m residential addresses on its GeoDirectory list in the Republic this year, an increase of 21,207 from last year.

It estimates that 10,836 homes were under construction this month, “concentrated heavily” in the Dublin area. Vacancy rates were at the highest levels in the North West, and at the lowest levels in Dublin.

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