Ireland's new homes market shows robust nature and beats expectations

A positive outcome from the pandemic was buyers are thinking about the functionality of their homes differently, given the extra time they are spending in them.

Notional target of national housing needs by type/tenure

2020 was a rollercoaster year with challenges for every industry,  but back in March if you had have told me that our annual sales would be 30% higher than last year I would have struggled to believe it.

There has been a very robust rebound in the Cork new homes market over the last number of months.

Inquiry levels have been extremely high, and we have had a record year of new home sales in Munster.

Pricing levels have remained the same and, in most cases, increased marginally for the autumn/winter phase launches.

Despite the pandemic, there has been a limited number of sales cancelling. Our analysis of our buyer profile in Cork is generally people employed in IT, ICT, pharma FDI companies and/or civil servant -type jobs who have been relatively unaffected by the economic issues arising from the pandemic. Consumer confidence remains relatively high for housing and buyers have in fact saved money over the last number of months.

When the sites closed in March there was a concern that the housing crisis we had been  experiencing, would get worse with estimates of completions falling to 14,000 homes by year's  end.

The building industry are a resilient bunch and it now looks like they will deliver 18,000 homes in 2020 which is remarkable given the time lost. Unfortunately, the challenge ahead relates to a lower number of commencements and the uncertainty around policy, planning, viability and affordability which will restrict our ability to deliver double the current output required for our population growth.

The enhancement of the Help To Buy scheme which occurred in July 2020 from 5% to 10% and now runs to the end of 2021 has mobilized and motivated another group of first-time buyers who account for 70%+ of the market.

First-time buyers will be very active in 2021, and we could end up with a "race to buy". The HTB scheme has assisted certain buyers and should be extended with long term certainty. It is worth noting it is a tax rebate and as such is restricted to buyers who have paid substantial tax over the proceeding period.

Nationally,  we have agreed sales of 8,000 homes of which 1,450 (87% of 2019’s total) were new homes within Dublin, Cork, Galway and Limerick.

However, when we analyse the mix of homes sold 55% were semi-detached; 30% terraced; 11% detached and only 4% apartments.

The percentages of the home types sales in Cork are consistent, with the exception of apartments which is closer to zero. As it stands apartment development will only take place in Cork for either institutional or Approved Housing Body (AHB) buyers. Any opportunity for a viable apartment scheme to the private market needs to be supported by shared equity.

We would encourage the Government to implement other policies to address the national housing crisis. On the demand side,  we advise a review of the Central Bank macro-prudential rules and tax treatment of private landlords.

On the supply side the Government should set clear annual targets for housing plans, refine/extend the “fast track” planning process and make the necessary investment in utility, transport and infrastructure.

There are enormous challenges within the planning system with the fast track planning process due to expire in just one year. The tight rope of ‘use it or lose it’ threatened could be counterproductive if viability is not central.

National minimum density requirements are creating big challenges in viability particularly in our large county towns.

On the liquidity side,  a functional housing system will require serious funding. In a scenario where 50,000 secondhand homes transact annually, and 40,000 new homes completed (of all tenures: public, private, self-build, shared equity, rental, cost rental etc.) liquidity of minimum €30bn will be required. The mortgage market in 2020 is approximately €7bn. For a functional market, this needs to at least double, with cash buyers, institutional capital and the state making up the balance of the other €15bn or so.

The Central Bank macro-prudential rules have insulated the system for the last five years, but with no variation they are locking buyers out and forcing them to remain in rental accommodation or in unsuitable housing.

The very onerous 20% deposit requirement for second-time buyers is not allowing people to trade up and down. Trading is normal in a housing market where there is a churn to be expected as families grow, buyers' salaries increase, etc. A change in the LTI to 4 or 4.5 would assist so many.

The announcement by Government around a shared equity scheme is hugely welcomed but the industry needs to know the details of the scheme. Estimates are that it can potentially assist in the delivery of 3,000 to  5,000 additional new homes annually. It is critical the price caps reflect viability relating to density, differing house typographies and the localities.

So, what lies ahead for 2021? 

One positive outcome from the pandemic has been buyers are thinking about the functionality of their homes differently, given the extra time they are spending in them.

The garden pod ‘home office’ is the obvious one to mention but innovations in design have become even more important. Our clients are looking to international examples for inspiration.

Existing major schemes of note in Cork that have sold extremely well for us are O'Flynn Group's Ballinglanna in Glanmire and Drakes Point in Crosshaven. Mount Woods in Douglas being developed by Glenveagh is likely to release the next phase in Spring 2021 as is Vicars Glebe in Coachford.

This year  saw the final homes being sold in the very successful developments of Clonlara, Kerry Pike; Coopers Grange, Ballincollg; Kinsale Manor, Kinsale; Blackrock Villas and Martello, Rushbrooke. While the market will miss these quality homes, a sample of other schemes that will see brand new releases or further phase launches include Cluain Ard, Abbey Fort, Heathfield, Janeville, Reldare, Carraig Tur, Gleann Fia, Elmbury, Earls Well, Harpers Creek, Harbour Heights and Castle Heights.

We expect 2021 to be busy, fueled by the expiring Help to Buy scheme. A large cohort of purchasers are solely focusing on new homes: apart from the HTB scheme this is due to many factors such as the running cost savings based around the A energy rating, higher specifications, structural guarantee and being able to put their own stamp on the home.

Fixing the housing market is extremely challenging but through the collaboration of all stakeholders, public and private, new inclusive communities can be created. We need to embrace the diversity of the requirements and work towards delivering quality homes for all our population.

• Paul Hannon is director and head of Sherry FitzGerald New Homes Munster