Lots of rhetoric but house prices untamed

Some people might not regard spiralling house prices as a negative development on the basis that higher prices could elicit more second-hand supply from people who have been sitting on properties since the crash and have been waiting for a recovery in prices to sell.

Indeed, anecdotally, we are seeing quite a number of ‘For Sale’ signs going up around the country, and particularly in Dublin.

The other positive from rising prices is that the economics of house building improves and this could elicit more new housing supply from developers.

On the other side of the coin, spiralling prices push aspiring homeowners out of the market into an already dysfunctional rental market or forces them to take on bigger mortgages.

This all logically leads to pressure on wages as those burdened with bigger mortgages seek to maintain their real standard of living.

Ultimately, this leads to a deterioration in the overall competitiveness of the economy. On balance, spiralling house prices are not a good thing.

The scarcity of housing for owner-occupier and rental purposes results in rapidly rising house prices and private rents.

As well as exerting pressure on wage demands, scarcity of housing makes the country a less attractive location for overseas workers to locate to.

In the context of Brexit opportunities, this may be an issue, and unfortunately, it is getting progressively worse.

House price data from the Central Statistics Office (CSO) this week demonstrate clearly that pressures continue to build in the residential market. National average house prices declined by almost 54.5% between the peak of the market in April 2007 and the low point of the market in March 2013.

Between March 2013 and May 2017, prices have increased by almost 55% and prices in May were a little shy of 12% higher than a year earlier and increased by a strong 2.2% during the one month.

In the rest of Ireland, that is excluding Dublin, average house prices declined by 56.5% between the peak of the market in May 2007 and the low point of the market in May 2013.

Between May 2013 and May 2017, prices have increased by more than 50%.

Prices in May were 12.8% higher than a year earlier and increased by 1.2% in the month.

In Dublin, average house prices declined by just over 59% between the peak of the market in February 2007 and the low point of the market in May 2012.

Between May 2012 and May 2017, prices have increased by 72.5%.

Prices in May were 11.2% higher than a year earlier and increased by a massive 3.6% in the month.

These are dangerously strong growth numbers.

They demonstrate clearly the serious issues in the owner-occupier segment of the market.

However, other data released this week also demonstrate the serious issues in the rental sector. In the year to June, private rents increased by almost 8% and are now 54.7% higher than at the end of 2010.

All of these numbers relating to the housing market clearly demonstrate the still-dysfunctional nature of the housing market, not to mention the growing problem of homelessness around the country.

Official policy towards the market has got to bear the brunt of responsibility for these serious problems.

Government agency Nama’s role in flogging development land and apartment blocks to vulture funds has got to be acknowledged.

Likewise, its failure to discriminate between good developers and bad developers has been instrumental in undermining the capacity of the developer sector to deliver what is required.

This is thrown into sharp relief given the much more attractive economics of delivering commercial product.

The planning process has also got to be looked at.

It is clear that much greater flexibility and speed is required from our planning authorities to ensure that the market reacts much more quickly to demand forces.

Vat on housing and developer levies also need to be evaluated to gauge if reductions would bring forth extra housing supply.

I fear that this time next year we will be experiencing the same narrative following the release of the May 2018 residential house price release from the CSO as we have seen this week.

A lot of rhetoric has been spoken and a lot of reports have been written.

But we still seem no closer to arresting the alarming and dangerous trends in house prices.