Ireland’s housing market holding up, amidst limited supply

Lalaine C. Delmendo | August 06, 2021

Ireland’s house prices continue to rise, mainly due to tight supply. During 2020, the nationwide average house price rose strongly by 7.4% to €269,522 (US$317,741), according to Ireland’s largest property website Daft.ie.

Nationally, residential property prices are up almost 88% (86% inflation-adjusted) from the lowest post-crash point in Q1 2013.

Ireland house prices

All of the country’s major counties experienced strong house price rises last year.

  • In Dublin City Centre, the average asking price rose by 7.7% to €345,950 (US$407,842), according to Daft.ie.
  • North Dublin City’s average asking price rose by 6.7% y-o-y to €359,966 (US$424,366).
  • North County Dublin’s average asking price rose by 7.8% y-o-y to €334,969 (US$394,897).
  • South Dublin City’s average asking price increased 6.6% y-o-y to €428,260 (US$504,878).
  • West County Dublin’s average asking price rose by 7.3% y-o-y to €320,590 (US$377,945).
  • South County Dublin’s average asking price rose by 9.2% y-o-y to €619,012 (US$729,756).

Outside Dublin, average residential prices rose by 4% (4.2% inflation-adjusted) during 2020, according to CSO.

  • In Cork City, Ireland’s second largest city (located in Munster, in Ireland’s south), the average asking price rose by 5.8% y-o-y to €296,017 (US$348,976) in 2020.
  • In Limerick City, Ireland’s third most populous city, the average asking price rose by 9.6% y-o-y to €220,061 (US$259,431) last year.
  • In Galway, one of the country’s biggest cities and known as the “cultural heart of Ireland” (located in Connacht, Ireland’s western region), the average asking price increased 8.6% to €317,235 (US$373,990) in 2020 from a year earlier.
  • In Waterford City, also one of Ireland’s bigger cities, the average asking price increased 7.6% y-o-y to €195,571 (US$230,560) in 2020.

These continued rises mirror those in many other developed countries, but in Ireland the main driver appears not to be lower interest rates, but (at least partly) restricted supply. Market supply has never breached 20,000 units since March 2020 and in December it was just 15,390 units – 33% down on last year’s already low figures, according to Daft.ie. Dwelling permits and completions in 2020 also fell by 14.1% and 2.8%, respectively.

“2020 saw unprecedented upheaval across all of Irish society, as a result of the Covid-19 pandemic,” said Ronan Lyons of Daft.ie.  “The housing market didn’t escape this upheaval, with the number of homes put up for sale in the second quarter of the year down over 50%. While things improved in the third quarter of the year, as the economy reopened, the volume of listings in any given month never even matched the same month in 2019, let alone offered catch-up.

Ireland dublin price index

“For the year as a whole, just 49,000 homes were advertised - the lowest total in over five years.”  

The Irish economy grew by about 3% during 2020 – the only positive growth in the European Union (EU). The strong growth, despite global economic uncertainty, was mainly driven by companies nominally relocating to Ireland, such as Perrigo Co. and Jazz Pharmaceuticals Plc, attracted by the country’s very open economy and low tax inversion rate of 12.5%. The economy grew an annual average of 10% from 2014 to 2019.

The economy is projected to grow by 3.4% this year and by another 3.5% in 2022 on the back of strong private consumption, recovery in investment, as well as strong exports, according to the European Commission.

Ireland’s housing market has been highly cyclical

From 1996 to 2006 Ireland experienced a massive house price boom, with average used home prices up 383%, and new house prices up 284% - one of Europe’s longest and biggest booms.

When the bubble burst in 2008, it was Europe’s biggest property bust. Ireland’s house prices fell by an average of 53% from their peak, compared to the typical OECD fall of 23%.

The 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 8.5% in 2014, up from growth of only 1.6% in 2013 and zero growth in 2012.

In an attempt to prevent another housing bubble, in January 2015 the central bank brought in 80% maximum loan-to-value ratios on houses priced over €220,000 and on 2nd purchases, and 70% on buy-to-let purchases. Loans for private homes were limited to 3.5 times gross income.

Despite this, house prices continued to rise  - by 7.1% (7% inflation-adjusted) in 2015, by 9% (9% inflation-adjusted) in 2016 and by another 12.1% (11.7% inflation-adjusted) in 2017. But in recent years, house price growth slowed to an average of 3% (2.6% inflation-adjusted) annually, mainly due to lending restrictions and the uncertainty about Brexit.

Pandemic restrains homebuilding

Dwelling completions fell by 2.8% to 24,543 units last year, amidst coronavirus-related restrictions. Likewise, dwelling permits dropped 14.1% y-o-y to 9,260 units in 2020, its first decline in eight years, according to the Department of Housing, Planning and Local Government.

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.

Ireland housing construction

Completions rose by 32.7% to 11,016 units in 2014, by 15% to 12,666 units in 2015, by 17.9% to 14,932 units in 2016, by 28.5% to 19,185 units in 2017, by 16.7% to 22,385 units in 2018, and by another 12.8% to 25,259 units in 2019.

The country’s total housing stock was more than 2 million units last year.

Demand falling

Demand has fallen last year, mainly due to the increase in unemployment caused by the pandemic, coupled with the limited available supply in the market. During 2020, the number of residential property transactions in Ireland plummeted by 17% to 56,325 units from a year earlier, the first decline since 2011, according to figures from the CSO. Likewise, the value of transactions fell by 14.8% y-o-y to about €15 billion (US$17.7 billion).

Ireland dwellings transactions

During 2020:

  • In Dublin, which accounts for a third of all transactions, the total number of transactions plummeted 21.4% y-o-y to 18,023 units while transaction value fell by 17.6% to €7.3 billion (US$8.6 billion).
  • In Cork County, the number of transactions fell by 17% y-o-y to 6,082 units and transaction value fell by 14.9% to €1.4 billion (US$1.7 billion).
  • In Galway County, transactions fell by 13.1% y-o-y to 2,671 units and transaction value dropped 8.9% €586.3 million (US$691.2 million).
  • In Waterford City, the number of transactions fell by 16.9% y-o-y to 1,480 units and the value of transactions dropped 11.2% to €268.4 million (US$316.4 million).
  • In Limerick City, transactions fell by 14.3% y-o-y to 2,052 units while its value dropped 8.2% to €397.8 million (US$469 million).

Interest rates remain low

Mortgage interest rates in Ireland remain more or less steady in January 2021:

  • The average interest rate for housing loans with maturity of up to 1 year was 3%, slightly up from 2.96% in the same period last year.
  • The average interest rate for housing loans with maturity of between 1 and 5 years was 2.7%, down from 3.08% a year ago.
  • The average interest rate for housing loans with maturity of over 5 years was 2.5%, almost unchanged from 2.52% a year earlier.

Ireland interest rates

The European Central Bank (ECB)’s refinancing rate remained at zero in February 2021, unchanged since March 2016.

Central bank’s lending cap has restrained price rises

On January 27, 2015, the central bank introduced new regulations to limit mortgage lending. A 2020 review conducted by the central bank found the measures have kept house prices from rising significantly, so they will stay unchanged in 2021.

These measures include the following:

  • Loan to Value (LTV) limits for principal dwelling houses (PDH):
    • 90% LTV limit on PDH mortgages of first time buyers
    • 80% LTV limit on PDH mortgages of second and subsequent buyers
    • Banks and other lenders have the freedom to lend a certain amount above these limits: Up to 5% of the value of mortgages to first time buyers and up to 20% to second and subsequent buyers
  • LTV for Buy to Let mortgages (BLTs):
    • 70% LTV limit on BTL mortgages
    • Banks can lend above these limits, but only up to 10% of the 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
    • Banks can lend above the said limit: up to 20% of the value of new mortgages to first time buyers can be above the LTI cap; and up to 10% of the value of new mortgages to second and subsequent buyers can be above the LTI cap.

“The initial effects of COVID-19-related disruption on the housing market have eased, but implications of the shock continue to feed into housing demand, supply, market activity and prices. Housing supply, in particular, is likely to remain significantly below pre-pandemic levels until 2022,” said the central bank.

“House price growth has been relatively flat throughout 2020, with little sign of an adverse effect of the pandemic,” the central bank added.

According to the central bank, these measures are now a permanent feature of Ireland’s mortgage market. They raise bank and borrower resilience and ensure that the financial system can better withstand future economic shocks.

Mortgage market continues to shrink

Due to the central bank’s measures, exacerbated by the COVID-19 pandemic, Ireland’s mortgage market continues to shrink. Residential mortgage lending fell to just 21.1% of GDP in 2020, from 21.5% in 2019, 27% in 2016, 46.3% in 2013 and 64.6% in 2009.

Loans outstanding for house purchase fell by 3.7% y-o-y to €73.6 billion (US$86.8 billion) in January 2021, according to the Central Bank of Ireland. More than 91% are drawn for principal dwelling houses while the remaining 9% are for buy-to-let properties.

Ireland loans house purchase

New housing loans also dropped 15% to €7.55 billion (US$8.9 billion) in 2020 from a year earlier.

  • New housing loans with floating rate and up to one-year fixation fell by 33.1% y-o-y €1.29 billion (US$1.52 billion) in 2020.
  • New housing loans with over one-year fixation fell by 9.9% to €6.26 billion (US$7.38 billion) over the same period.

Rent increases slowing

Ireland’s rent index rose slightly by 0.9% during 2020 to an average monthly rent of €1,414 (US$1,667), a sharp slowdown from last year’s 4.1% y-o-y growth, according to Daft.ie’s Rental Price Report Q4 2020. Quarter-on-quarter, rents fell by 0.4% in Q4 2020 – the third time in five quarters that rents have fallen.

Despite this, the average nationwide rent has now risen by about 93% since bottoming out in late 2011. In fact, rents are almost 40% higher than at the 2008 peak.

Though there were wide regional variations. During 2020, rents in Dublin fell by 3.3% from a year earlier while in the rest of the country rents were up by 5.4%.

“Outside Dublin, rents are rising in all 29 - albeit just about in the case of Donegal (+0.4% year-on-year) but extraordinarily strongly in Munster, with rents up 9.9% year-on-year in Kerry,” said Ronan Lyons of Daft.ie. “Rents are rising in the four other cities outside Dublin too - from 3.9% in Limerick city to 5.6% in the case of Waterford city.”

Ireland national rental index

“But across Dublin´s 25 markets, rents are falling in 23,” added Lyons.

The movements in rents are closely linked supply. In February 2021, the number of homes available to rent in Dublin surged 64% y-o-y to 2,600 units while in the rest of the country, supply were down by 43% to just 1,139 units.

In the country’s capital Dublin:

  • In Dublin City Centre, rents during 2020 start from €1,373 (US$1,619) for one-bedroom apartments to as high as €3,019 (US$3,559) for five-bedroom apartments.
  • In South County Dublin, rents range from €1,686 (US$1,988) to €2,770 (US$3,266).
  • In North County Dublin, rents range from €1,330 (US$1,568) to €2,186 (US$2,577).
  • In West Dublin, rents range from €1,360 (US$1,603) to €2,234 (US$2,634).

Outside Dublin:

  • In Cork City, rents start from €1,099 (US$1,296) for one-bedroom apartments to €1,757 (US$2,071) for five-bedroom apartments.
  • In Galway City, average rents range from €1,009 (US$1,190) to €1,614 (US$1,903).
  • In Limerick City, average rents range from €929 (US$1,095) to €1,486 (US$1,752).
  • In Waterford City, rents range from €792 (US$934) to €1,266 (US$1,492).

Excellent yields on small apartments in Dublin

Gross rental yields on apartments remain excellent in Ireland, in certain areas and for certain sizes. But in general, smaller units earn higher returns.

In Q4 2020, nationwide gross rental yields range from as high as 9.5% for one-bedroom apartments to 4.4% for five-bedroom apartments, according to Daft.ie.

In Dublin centre, gross rental yields range from 2.7% to 12.2% in Q4 2020, according to Daft.ie. One-bedroom apartments earn yields of 5.9% to 12.2% while five-bedroom houses offer yields of just 2.7% to 5.7%. Dublin 17 has the highest rental yields nationwide, followed by Dublin 22, 10, 24, and 11.

In other areas:

  • West County Dublin gross rental yields range from 4.6% to 9.8% in Q4 2020, according to Daft.ie.
  • North County Dublin yields range from 4.2% to 9.1%.
  • South County Dublin yields range from 3% to 6.5%.
  • Cork City yields range from 3.8% to 9.9%.
  • Galway City yields range from 3.6% to 9.3%.
  • Limerick City gross rental yields range from 4.2% to 10.9%.
  • Waterford City gross rental yields range from 4.2% to 10.8%.

Irish economy continues to grow, defying the pandemic

The Irish economy grew by about 3% in 2020 from a year earlier – the only positive growth in the European Union (EU). The strong growth, despite global economic uncertainty, was mainly driven by companies nominally relocating in the country, such as Perrigo Co. and Jazz Pharmaceuticals Plc, who are attracted by the country’s very open economy and by its relatively low tax inversion rate of 12.5%. However these corporate inversions result in little real change in output, just a change in where the legal ownership of the output is located.

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 also create confusion about the real condition of the Irish economy, and increase people’s skepticism with regards to the reliability of economic figures.

Ireland gdp unemployment

Nobel Prize award-winning economist Paul Krugman described a similar phenomenon as “Leprechaun economics”.

Because of this, the Irish economy grew by an annual average of 10% from 2014 to 2019.

The economy is projected to grow by 3.4% this year and by another 3.5% in 2022 on the back of strong private consumption, recovery in investment, as well as strong exports, according to the European Commission.

Overall inflation was -0.4% in February 2021, down from 1.1% in the same month last year, according to CSO. It was the eleventh consecutive month of consumer price falls. Nationwide inflation is estimated at 0.7% this year, based on EC estimates.

Seasonally-adjusted unemployment rate stood at 5.8% in February 2021, up from 5% in the previous year, according to the CSO. This is slightly higher than the average of 5.5% from 2018 to 2020 but still substantially lower than the 12.1% average unemployment from 2009 to 2017.

There were about 140,800 unemployed persons in February 2021 – an increase of 15,600 from a year earlier.

Ireland is back to deficit

Ireland’s economy has been on an unusual journey over the past decade.

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 (US$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 (US$618 billion) bailout fund.

Ireland government budget balance

By 2011 the Irish budget deficit had fallen to 12.8%, and to 8.1% 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 6.2% of GDP in 2013. At end-2013 Ireland became the first country to exit the eurozone bailout programme.

The government’s budget balance continuously improved since. In 2019, Ireland recorded a budget surplus equivalent to 0.4% of GDP, up from a surplus of 0.1% of GDP in 2018, amidst strong economic growth and robust corporation tax payments. It was the second consecutive year of surplus since 2007.

However in 2020, the country ran a deficit equivalent to 5.5% of GDP, amidst a decline in tax receipts coupled by a surge in coronavirus-related government spending.

The deficit is expected to rise further to 7.5% of GDP this year, according to the central bank.

Likewise, gross public debt widened to 59.1% of GDP in 2020, up from 57.4% in 2019, marking the first increase since 2012, according to Fitch Ratings. The debt ratio is expected to rise further to 61.4% of GDP this year.


Sources:

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