House price rise set to halt

THE rapid rise in house prices is set to stop or even decline, according to a report from NCB stockbrokers.

However, they warn that a house price crash similar to that in Britain of the late 1980s and early 1990s is not on the cards.

In a detailed study, The Irish Housing Market & Credit Growth in Ireland, NCB economists Eunan King and Dermot O’Brien said that a softening in the rental sector could help stabilise or push house prices down.

“The relationship between current prices and rents implies that significant expected capital appreciation is built into prices for investment property, which may not be realised. This suggests we will see a period of stabilisation or decline in house prices,” the NCB economists state.

They also believe there is a further risk that house prices will fall as lenders at some point move to curb the rise in loan to value ratios. These have crept up from the 60%-65% in the 1980s to 71% in the latter half of 2002.

“For most of the recent boom in Irish house prices the question on the minds of many was: ‘if it would end in the mess that followed the UK house price boom in the late 1980s and early 1990s?’ We believe not,” the NCB duo state.

King and O’Brien believe the main area at risk is the buy-to-let market. “Rents are already 3% below a year ago, based on the Consumer Price Index measure. Investors have now returned to the market following the reversal of the penal tax on residential investing in December, 2001, so supply of rented accommodation is rising.” The two believe the underlying demand for houses based on population and net migration indicates there is a demand for anything up to 500,000 houses to be constructed between now and 2011.

“The demographic profile in Ireland, combined with continued immigration, provides a still healthy support for demand for housing. There are 1.3 million aged between 15 and 34 years of age. This is a huge structural underpinning for the housing market.

“Underlying demand for housing is estimated to be about 55,000 houses per annum to 2006 and about 50,000 per annum in the five years to 2011,” NCB believe.

This demand is set to be augmented by immigration which, if sustained, will require house building at a 60,000 per year in the 2006-2011 period.