An estimated 35,000 homes need to be built every year for the next decade to bridge the gap between supply and demand, according to a report on the Irish property market.
Current projections estimate that just 20,000 homes will be built this year, far short of what is needed to meet demand.
The Consumer Market Monitor (CMM), published by the Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School, states that the average sale price for houses here is now five times the average salary as demand continues to grow.
This means that most properties exceed the borrowing limit of 3.5 times income imposed by the Central Bank, leaving many would-be purchasers unable to qualify for a mortgage. These rules are credited with preventing “excessive borrowing that would drive up prices even more”.
The CMM report shows that 55,000 homes were purchased last year, an increase of 8% on the previous year.
Some 25,000 of these — 45% of the total sold — were bought with cash.
The average price for a three-bed semi is currently estimated at €236,287.
However, while the residential property market is growing, the number of homes purchased last year was about half the amount bought during the height of the boom in 2005, when 105,000 homes were sold. There was also a 12% increase in the number of mortgages issued during 2018, with 30,629 drawn down. This is also considerably lower than the boom when, in 2005, 85,000 mortgages were issued.
While market growth was sluggish, demand remains high for housing. There has been a rapid expansion in the workforce, with 430,000 jobs created nationally since 2012. However, despite the surge of new jobs and new demand, construction is simply not keeping pace.
CMM noted that 15,000 units were built in 2017, 18,000 last year and this year 20,000 homes will be constructed. That will increase to 23,000 in 2020.
Based on these trends, construction levels are falling far short of the number required to bring housing demand and supply into balance. The CMM states there is a need for 350,000 extra housing units to meet demand over the next 10 years.
Mary Lambkin, professor of marketing in the UCD School of Business, said: “The consumer economy is performing well in most areas, but the residential property market is still lagging behind.
“There were 55,000 homes sold in 2018, an increase of just 8% year-on-year, a rate of growth that has remained consistently low over the past five years. This compares to the boom years of 2005-2007 when over 100,000 homes were sold each year.
“The property market’s sluggish growth does not reflect the large increase in the working population and the rate of new household formation that has occurred over the past five years. While the number of homes for sale has increased to about 23,500, the level of property sales should be about double the current level, approaching the level that the market experienced during the early 2000s, when the workforce was about the same level as it is today.”
Since 2014, sales have increased by 8% per year, with first-time buyers accounting for 60% of all sales during this period. Forecasts suggest that sales will increase by a further 5% this year, a modest rate of growth that is described as “at odds with the high level of demand that is driving up rents and purchases prices nationally”.