Housing market: bits done, lots more to do

Property editor Tommy Barker examines the "dysfunctional" Irish housing market

Pick-up has been underway in Ireland’s housing supply sector in 2022, but worries persist about the pace of delivery coming into 2023.

Housing. Housing, Housing.

Get used to it as a repetitive theme: it’s a subject that isn’t going to go off the country’s finely-tuned political and societal radar any time soon.

Ireland’s housing market is in a state of evolution, yet remains dysfunctional as ever, buffeted by international events, and garroted by a planning system that has just turned in on itself.

Build costs and prices have gone too high for many to consider a purchase; interest rates have hiked up; there’s a market which is consistently short on delivery, despite a marked pick up in construction in 2022, and in the mortgage sector where first-time buyers (FTBs) were particularly strong, making up 46% of the year’s €14.1 billion in mortgage drawdowns, which at 52,700 mortgages in the year now well behind us was the strongest on record since 2008.

Last year was a good one, heading in the right direction in terms of supply at least, with output approaching 30,000 units.

Conversely, it appears that ‘recovery’ which rose to that rounded 30,000 units in ’22 may not be matched in the recent trajectory in 2023, given official figures on a dip since mid-2022 in site construction commencements (down about 13% on 2021 figures, but by only 3% in the south-west, according to Sherry FitzGerald research) and a drop in planning permission grants nationally (down 41% yoy by Q3 2022) which will impact on supply from mid-2023.

And, that’s allied to a worrying slowdown in development lands sales, and nervousness amongst builders about the market which may further constrict supply in the next several years.

But, as is increasingly being reported, we as a nation already need way more delivery than that 2022 30k unit output, which was pretty much on a par with the targets set out the Government’s own Housing for All strategy and which included over 6,500 social housing units, below a target of 8-9,000 pa.

Estimates of real needs are now more widely acknowledged to be in the realm of 50,000 to over 60,000 units across all tenure types per annum for the next decade, as outlined by the likes of the Government’s own Housing Commission which has been doing a deeper dive in demography and other elements since it was set up just over a year ago.

The political consensus is coming around to the fact Housing for All targets need drastic overhaul, and as welcome initiatives include in it such as Project Tosaigh via the Land Development Agency and Croí Conaithe (see following pages) have yet to find real purchase.

That Housing for All plan was laid out less than two years ago (Sept 2021) but its targets are already acknowledged to be out of line with real needs, as now exemplified by new figures on demographic growth, net inward migration, the influx of asylum seekers and refugees from the war against Ukraine, now gone into its second year.

So, we have supply likely to dip under 30,000 units by the end of this year, while we need twice that amount, and it should be doable.

At the last market peak, precrash in the late 2000s, house and apartment delivery came to as much as 90,000 units in a single year.

Yes, it was frenzied, driven by greed and reckless lending and a buyer herd mentality and yes, there were more houses than were needed at that time (many of them badly constructed), and often built in places where people didn’t want to live too.

The 15 years since of dip and recovery has seen virtually all the surplus and the myriad ‘ghost estates’ finally soaked up and occupied, save for a handful of problematic cases.

Latest population studies indicate Ireland’s population is forecast to rise to 6.5 or even 7 million by 2050, having breached the 5 million mark for the first time since the 1851 Census, according to the Central Statistics Office (CSO). 

Apart from the natural obsolescence of older and energy inefficient housing stock, there’s considerable net migration, longer life spans leading to a natural increase in population, smaller household formation sizes, and additional demand from trends like marital separation/divorce, with divorce numbers here heading up to 6,000 a year, with a consequent impact on housing demand.

Demand consistently surpassing supply has been the main factor holding up house prices, with inflation having continued in 2022 at up to double-digit growth having appeared to have peaked before the distorting impact of the Covid years and this is expected to drop to low single digit inflation of c 3% by the end of this year.