Cork and Kerry need 7,670 homes each year to meet demand

Ann O'Mahony: There were only 1,630 second-hand homes available for sale in Cork City and County

The Irish residential market is characterised by supply-side challenges and ever-increasing demand. This has led to an uptick in the pace of price inflation in the first nine months of the year.

Interest rates, which peaked in September 2023, remained elevated for much of 2024. However, the European Central Bank has begun to cut rates in recent months, reflecting more favourable consumer price data. Further cuts are expected, which are likely to put more upward pressure on residential prices in the year ahead, as rate cuts are passed onto mortgage applicants.

Cork property prices grew by 4.7% during the first nine months of the year, according to the Sherry FitzGerald, second-hand house-price barometer, significantly greater than the 2.9% increase recorded for the same period of 2023. This brings the annual growth to 5.4% at the end of September, a noticeable jump from the 3.2% seen a year earlier.

The surge in property prices in Cork is largely due to the persistent shortage of homes on the market. Supply levels in Cork and nationwide have reached historic lows, according to Sherry FitzGerald’s latest supply analysis. As of July 2024, there were only 1,630 second-hand homes available for sale in Cork City and County, accounting for just 0.7% of the total housing stock. This represents a 2% decrease compared to the same period of 2023.

Ann O’Mahony, Regional Director, Sherry FitzGerald Cork: 'We anticipate continued robust price inflation in the year ahead.'

On a positive note, new-home completions in Cork, totaling 2,530 for the first nine months of 2024, were up 12% on a year earlier. The national picture is less positive, however, with completions nationwide dipping by 3% to 21,650 units. However, despite the improvement in Cork, completions remain significantly below requirements.

Sherry FitzGerald estimate that a minimum of 56,200 units per annum needs to be delivered, out to 2036, to meet demand in the market, with this heavily weighted to the start of the period, with 62,000 units required each year in the short term.

In the South-West region, which includes Cork and Kerry, approximately 7,670 units need to be built each year to meet demand. Less than half of this quantity was delivered in the region last year, highlighting that output levels need to increase significantly to help alleviate shortages.

Transaction levels by household purchasers in the Cork market were down during the year, with approximately 2,350 residential sales during the first six months. This is down 8% compared to the same period last year, with decreases seen in the sale of both new and existing homes. This decline is unsurprising, given the supply side shortages and high-interest rate environment. An analysis of second-hand homes sold in Cork, through Sherry FitzGerald, reveals that owner-occupiers made up the majority of purchasers, at 77%, with first-time buyers accounting for 59% of these. Additionally, 11% of all buyers were purchasing for investment purposes.

Rental inflation also remains robust, with latest results from the Residential Tenancies Board (RTB) revealing that rents for new tenancies in Cork City grew by an annual rate of 9.9% in quarter one, to reach €1,578, while existing tenancies grew by 3.1%, to reach €1,316.

In Cork County, new-tenancy rents were up 14.8% in the year to quarter one to reach €1,218, while existing tenancies grew by 5.4% to €991.

Sherry FitzGerald data shows that investors are exiting the rental market at an unsustainable pace.

In the nine months to the end of September, approximately 34% of vendors in Cork were investors selling their properties. The introduction of rental caps in 2016 has had a negative impact on the market, which, coupled with the unfavourable tax treatment of small landlords, has led to the mass exodus of landlords from the market. A functioning rental market is a fundamental part of a functioning housing market.

Despite the increased interventions undertaken by the Government in recent years to address shortages in the market, significantly more needs to be done.

In the year ahead, demand is expected to stay strong, facilitated by lower interest rates, and while we hope to see an increase in completions next year, it will likely take some time to reach the levels needed to alleviate the housing shortage. As a result, we anticipate continued robust price inflation in the year ahead.

Ann O’Mahony is Regional Director, Sherry FitzGerald Cork