Dublin’s housing market is now cooling, <br>but rest of Ireland remains very strong
Last Updated: November 01, 2016
Ireland’s house prices continue to rise, albeit at a slower pace, despite the country’s strong economic growth last year. The national residential property price index rose by 6.92% (6.41% inflation-adjusted) during the year to July 2016, a slowdown from annual rises of 10.7% in July 2015 and 13.4% two years ago, according to the Central Statistics Office (CSO) Ireland.
On the other hand, a recent report released by Ireland’s largest property website Daft.ie showed that nationwide average house prices rose by 7.6% y-o-y in Q3 2016, a slight slowdown from an annual growth of 8.4% in a year earlier.
In Dublin, Ireland´s capital city, house prices slowed even more. Dublin´s residential property price index rose by 3.8% (3.3% inflation-adjusted) during the year to July 2016, according to the CSO.
House prices were pushed in 2013-4 by Ireland’s strong economic growth. The housing market then slowed, especially in Dublin, largely because of central bank measures in January 2015 which limited loan-to-value ratios on houses priced over €220,000 and on 2nd purchases to 80%, and 70% on buy-to-let purchases. Loans for private dwelling homes were also limited to 3.5 times gross income.
- In Dublin City Centre, the average asking price rose by 5.4% to €261,206 (US$287,536), during the year to Q3 2016.
- North County Dublin´s average asking price rose by 6.3% y-o-y to €276,814 (US$304,717).
- West County Dublin´s average asking price rose by 4.4% y-o-y to €276,497 (US$304,368).
- South County Dublin´s average asking price rose by 1.3% y-o-y to €527,058 (US$580,185).
Local housing markets outside Dublin remain very strong, with double-digit annual house price rises. Outside Dublin, average residential prices rose by 11.3% (10.8% inflation-adjusted) during the year to July 2016, according to the CSO Ireland. Based on Daft.ie´s figures:
- In Carlow (located in Leinster, eastern Ireland), the average residential asking price was €156,677 (US$172,470), a 8.8% y-o-y increase to Q3 2016.
- In Cork County (located in Munster, in Ireland’s south), the average asking price was €192,598 (US$212,012), up by 10.1% y-o-y to Q3 2016.
- In Galway County (located in Connacht, Ireland’s western region), the average asking price was €172,057 (US$189,400), a 13% rise during the year to Q3 2016.
- In Waterford City, the average asking price was €147,498 (US$162,366), up by 16.4% y-o-y to Q3 2016.
- In Limerick City, the average asking price was €163,692 (US$180,192), a 13.7% y-o-y increase to Q3 2016.
- In Monaghan (located in Ulster, in the Republic of Ireland´s north), the average asking price was €145,657 (US$160,339), a 7.5% y-o-y increase to Q3 2016.
Apartment prices in Ireland rose by 7.4% during the year to July 2016 (6.9% inflation-adjusted); house prices rose by 6.8% y-o-y (6.3% inflation-adjusted) over the same period.
ANNUAL HOUSE PRICE CHANGE, JULY 2016
|Rest of Ireland||11.2||10.7||13.0||12.4||11.3||10.8|
|Source: Central Statistics Office Ireland|
Nationwide residential property prices are expected to increase by about 5% this year, according to Daft.ie.
In Q2 2016, the country´s economy posted 4.1% annual growth, slightly up from 3.9% in the previous quarter, supported by an increase in fixed investment associated with intellectual property assets abroad. Growth is expected at 4.9% this year and 3.2% in 2017, from a massive 26.3% last year (largely a fictitious figure), based on latest projections released by the International Monetary Fund (IMF).
Ireland’s big boom was followed by Europe’s biggest price declines
From 1997 to 2007 Ireland experienced a massive house price boom, with average used home prices up 268%, and new house prices up 216%. Ireland’s decade-long house price boom was one of the longest and biggest in Europe.
HOUSE PRICE CHANGE, 1996-2006
The Irish housing boom was fuelled by strong economic growth, immigration, and generous tax incentives and grants from the government, creating a virtuous cycle of economic growth and house price increases. Low interest rates and loose credit conditions provided financing.
When the bubble burst in 2008, it was Europe’s biggest property bust. The downturn began in 2006 and 2007, when interest rate hikes left many borrowers in difficulty, causing a housing market crash. The 2006-2007 U.S. subprime mortgage crisis added to the downturn.
Ireland’s house prices fell by an average of 53% from the peak, compared to the typical OECD fall of 23%:
- In 2008, the residential property price index fell 12.4% (-13.4% inflation-adjusted) from a year earlier.
- In 2009, house prices fell 18.6% (-14.3% inflation-adjusted) from a year earlier.
- In 2010, house prices fell 10.5% (-11.6% inflation-adjusted) from a year earlier.
- In 2011, house prices plunged 16.7% (-18.7% inflation-adjusted) from a year earlier.
- In 2012, house prices dropped 4.5% (-5.7% inflation-adjusted) from a year earlier.
The Irish housing market started to recover in 2013, with house prices rising by 6.4% (6.2% inflation-adjusted). The dramatic house price surge in 2014 of 16.3% (16.6% inflation-adjusted) was mainly due to the recovery of the Irish economy, which expanded by 5.2% in 2014, up from growth of only 1.4% in 2013 and 0.2% in 2012. In 2015, house prices increased 6.6% (6.6% inflation-adjusted), supported by rising demand and strong economic fundamentals.
In an attempt to prevent another housing bubble from happening, the central bank implemented new rules January 2015.
The new measures were effective in toning down the property price hikes, particularly in Dublin. “This is confirmed by the slowdown in price dynamics and evidence from the Central Bank survey of the house price expectations of property market professionals,” wrote Gabriel Fagan, an economist at the Central Bank of Ireland.
Daft’s in-house economist Ronan Lyons also agreed: “The introduction of the central bank rules has nipped a new housing bubble in the bud and since then prices in Dublin have barely budged.”
“What the Central Bank effectively did was freeze credit conditions the way they were in late 2014 and thus prices are now being driven not by bank lending practices or by expectations, but rather by the more fundamental forces of supply and demand,” Lyons added.
Interest rates remain very low
The European Central Bank (ECB)’s refinancing rate remained at zero in September 2016, after being cut by 5 basis points in March 2016.
Mortgage rates in July 2016:
- The average interest rate for housing loans with maturity of up to 1 year was 3.33%, slightly up from 3.26% in the same period last year.
- The average interest rate for housing loans with maturity of between 1 and 5 years was 3.36%, up from 3.13% a year ago.
- The average interest rate for housing loans with maturity of over 5 years was 2.58%, down from 2.66% a year ago.
Interest rates on outstanding mortgages in Ireland have typically reflected movements in the ECB rate. However, during the past three years these rates have diverged, especially for housing loans with shorter maturity.
Mortgage market shrinking, amidst central bank’s new lending cap
On January 27, 2015, the central bank introduced new regulations further limited mortgage lending in order to “increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future”. Some of the new measures include:
- Loan to Value (LTV) limits for principal dwelling houses (PDH):
- 80% LTV limit on PDH mortgages of non-first time buyers
- Maximum LTV of 90% on properties worth up to €220,000 (US$242,176) for first time buyers. If the value exceeds €220,000, the 90% LTV applies only to the first €220,000 value of the property, and the exceeding amount will have an 80% LTV limit.
- The cumulative monetary value of PDH mortgages that violate these limits should not go beyond 15% of the euro value of all PDH loans on an annual basis
- LTV for Buy to Let mortgages (BLTs):
- 70% LTV limit on BTL mortgages
- The limit can go beyond by only up to 10% of the euro value of all non PDH mortgages on an annual basis
- Loan to Income (LTI) for PDH mortgages:
- A limit of 3.5 times loan to gross income on PDH mortgage loans
- The limit should not extend by over 20% of the euro value of all PDH mortgage loans during an annual period
“We have carefully considered all feedback received through the consultation process. As far as the LTV limits are concerned, we are retaining the basic 80 per cent LTV limit for owner-occupier loans and 70 per cent for buy-to-lets with the proportionate allowances already announced,” said Central Bank of Ireland Governor Patrick Honohan. “At the cost of some additional complexity, but without compromising the overall effectiveness of the measures, we are increasing the limit for first-time buyers of lower-cost houses.”
Result? Ireland´s mortgage market is still shrinking. Residential mortgage lending fell to just 30% of GDP in 2015, from 40.4% in 2014 and 46% in 2013 and way below the peak of 64.6% of GDP in 2009.
Loans outstanding for house purchase fell by 4.3% y-o-y to €73.38 billion (US$80.78 billion) in July 2016, according to the Central Bank of Ireland.
Rents rising fast, fewer rental properties on the market
The housing crash initially resulted in a huge expansion of the number of rental properties on the market, which rose dramatically to more than 23,400 in August 2009, from only 6,200 units in August 2007. By August 2016 there were just 3,600 homes to rent nationwide, down by 22% from the same period last year, according to Daft.ie. In Dublin, only 1,400 properties were available for rent, down 20% a year ago.
Ireland’s rent index surged 11% during the year to Q2 2016 to an average monthly rent of €1,037 (US$1,142), according to Daft.ie. Rents rose by 3.9% q-o-q in Q2 2016, matching the biggest three-month jump in rents since 2007. The average nationwide rent has now risen by 39.7% since bottoming out in late 2011.
In the country´s capital Dublin, rents rose by more than 10% y-o-y in Q2 2016. Rents in Dublin have risen by 51.3% from its lowest level in late 2010.
- In Dublin City Centre, the average rent was €1,505 (US$1,657), up by 10% during the year to Q2 2016.
- In South County Dublin, the average rent increased by 10.8% y-o-y to €1,735 (US$1,910).
- In South Dublin City, the average rent rose by 11.3% y-o-y to €1,642 (US$1,808).
- In West County Dublin, the average rent was up by 12.5% y-o-y to €1,351 (US$1,487).
- In North County Dublin, the average rent rose by 11.7% y-o-y to €1,272 (US$1,400).
- In North Dublin City, the average rent increased by 11.5% y-o-y to €1,419 (US$1,562).
Rent increases also rose rapidly outside Dublin, according to Daft.ie. In Q2 2016:
- In Carlow, average rents were up by 7.3% y-o-y to €713 (US$785).
- In Cork City, average rents were up by 18.2% y-o-y to €1,051 (US$1,157).
- In Galway City, average rents rose by 13.9% y-o-y to €932 (US$1,026).
- In Limerick City, average rents increased by 15.5% y-o-y to €829 (US$913).
- In Waterford City, average rents rose by 13.3% y-o-y to €712 (US$784).
- In Monaghan, average rents rose by 8.2% y-o-y to €609 (US$670).
Rental yields have risen across the country. According to Daft.ie, in Q2 2016:
- Dublin centre gross rental yields range from 2.6% to 10.9% depending on area and property type. Dublin 10 has the highest rental yields nationwide, followed by Dublin 22 and 24.
- West County Dublin gross rental yields range from 4.2% to 8.9%.
- North County Dublin yields range from 4% to 8.5%.
- South County Dublin yields range from 3% to 6.4%.
- Cork City yields range from 3.8% to 9.9%.
- Galway City yields range from 3.5% to 9.1%.
- Limerick City gross rental yields range from 4.2% to 11.1%.
- Waterford City gross rental yields range from 4.2% to 11.1%.
House building is now recuperating
Dwelling completions rose by 19.1% to 9,167 units during the first eight months of 2016, from the same period last year, according to the Environment, Community and Local Government. Dwelling permits also increased 11.5% to 3,669 units over the same period.
During the boom, completions tripled to 93,000 units in 2006, up from 30,000 units in 1995. However, by 2011 completions had fallen to only 10,480 units. The decline continued for two more years, with only 8,488 dwelling completions in 2012, and 8,301 units in 2013.
Completions rose by 32.7% to 11,016 units in 2014 and by another 15% to 12,666 units in 2015. The country´s total housing stock was more than 2 million units last year.
Tax inversions artificially inflate Ireland’s economic growth
Ireland stunned the world with a GDP growth rate of 26.3% last year,based on figures from the Central Statistics Office (CSO) Ireland. This was mainly driven by companies nominally relocating in the country, such as Perrigo Co. and Jazz Pharmaceuticals Plc. They are attracted by the country’s very open economy and by its relatively low tax inversion rate of 12.5%. These corporate inversions result in little real change in output, just a change in where the legal ownership of the output is located.
“We are a very small economy, and if we get a big increase in assets, this is what happens,” said Michael Connolly of CSO.
However, these growth numbers have downside risks. First, tax inversions only artificially inflate the size of Ireland’s economy. When a corporation’s headquarters become resident in Ireland, all of its profits (including profits generated abroad) are counted as part of the country’s gross national income – which dramatically increases the country’s economic growth without corresponding increases in employment. Also, this increases Ireland’s contribution to the EU budget, which is based on the size of a member’s economy. The growth figures are also misleading and will create confusion on the real condition of the Irish economy. In fact, this will worsen people’s skepticism with regards to the reliability of economic figures.
“To me, it looks like Ireland is growing at a reasonable, not dramatic rate,” said economist Jim Power. “There are so many transactions going on that nobody understands.” Ireland’s underlying economic growth last year was 5.5%, rather than the massive 26.3%, according to Power. Nobel Prize award-winning economist Paul Krugman described the phenomenon as “Leprechaun economics”.
In Q2 2016, the country´s economy posted 4.1% annual growth, slightly up from 3.9% in the previous quarter, supported by an increase in fixed investment associated with intellectual property assets abroad. Growth is expected at 4.9% this year and 3.2% in 2017, based on latest projections released by the International Monetary Fund (IMF).
In August 2016, consumer prices dropped 0.1% from a year earlier, after rising by 0.5% in July 2016 and 0.4% in June 2016, according to CSO. Nationwide inflation rate is expected at 0.3% this year, from -0.03% in 2015, 0.3% in 2014, 0.5% in 2013, 1.9% in 2012, and 1.2% in 2011, according to the IMF.
Unemployment dropped to 7.9% in September 2016, down from 8.2% in August 2016 and 9.1% in September 2015, according to CSO. This is also substantially lower than the 13.6% average from 2009 to 2013. Ireland´s average unemployment rate was 4.4% between 2000 and 2007.
Budget deficit falling continuously
Ireland´s economy has been on an unusual journey over the past 5 years.
Ireland had the euro zone’s highest budget deficit in 2010, at 31.2% of GDP. In November 2010 it had no choice but to seek a €67.5 billion ($82 billion) bailout from the European Union (EU) and the International Monetary Fund (IMF). In exchange, Ireland committed to a harsh austerity program.
The country spent around €80 billion to establish the National Asset Management Agency (NAMA) to buy toxic loans, primarily to improve the availability of credit to the Irish economy, and to remove non-performing loans from bank balance sheets.
In June 2012, 60.29% of Irish voters agreed to the European fiscal compact of May 31, 2012, allowing Ireland to access to the European Stability Mechanism, a €500 billion ($618 billion) bailout fund.
By 2011 the Irish budget deficit had fallen to 12.5%, and to 8% in 2012, comfortably within the 8.6% target set by Ireland’s international creditors: the EU, ECB and IMF. The budget deficit declined again to 5.7% of GDP in 2013. At end-2013 Ireland became the first country to exit the eurozone bailout programme.
In 2015, the budget deficit shrunk to 2.3% of GDP, from 3.9% of GDP in 2014, amidst strong economic growth and a surge of corporation tax payments.
The deficit is expected to fall to 0.9% of GDP this year and to 0.4% in 2017, before achieving a balanced budget in 2018, according to government estimates.
Likewise, government debt is expected to fall from 93.8% of GDP last year to 88% this year and to 85% in 2018, falling below the euro area average.
- Dublin’s housing market is now cooling, <br>but rest of Ireland remains very strong - November 01, 2016
- Ireland - rents rising fast, house price inflation slowing - January 04, 2016
- Irish house prices surging! - January 20, 2015
- Ireland housing market continues to recover, Dublin in mini-bubble? - January 08, 2014
- Irish house price decline slows sharply - February 15, 2013
- Housing slump in Ireland continues - July 26, 2012
- Irish house price falls accelerating! - February 22, 2012
- Ireland's residential property still in deep crisis - August 27, 2011
- Ireland’s house prices plunge further as crisis deepens - December 21, 2010