Ireland

Ireland Residential Real Estate Market Analysis

Lalaine C. Delmendo

Ireland’s house prices continue to accelerate, amidst strong demand and tight supply. In July 2022, the national residential property price index rose strongly by 13.1% (3.67% inflation-adjusted) from a year earlier, up from a y-o-y increase of 8.48% in the same period last year, according to the country’s Central Statistics Office (CSO).

Ireland’s house price annual change

This is supported by the latest figures from Ireland’s largest property website Daft.ie, which showed that the nationwide average house price rose by a robust 8.28% to €311,514 (US$305,259) during the year to Q2 2022.

All of the country’s major counties experienced strong house price rises during the year to Q2 2022.

  • In Dublin City Centre, the average asking price rose by 6.3% to €370,173 (US$362,740), according to Daft.ie’s Q3 2022 House Price Report.
  • North Dublin City’s average asking price rose by 5.6% y-o-y to €389,981 (US$382,150).
  • North County Dublin’s average asking price rose strongly by 9.6% y-o-y to €380,013 (US$372,382).
  • South Dublin City’s average asking price increased 6.2% y-o-y to €469,065 (US$459,646).
  • West County Dublin’s average asking price rose by 7% y-o-y to €351,682 (US$344,620).
  • South County Dublin’s average asking price was up by 4.9% y-o-y to €654,207 (US$641,071).

Outside Dublin, average residential prices soared 15.25% (5.65% inflation-adjusted) y-o-y in July 2022, according to CSO.

  • In Cork City, Ireland’s second-largest city (located in Munster, in Ireland’s south), the average asking price rose by 7.6% y-o-y to €332,125 (US$325,456) in Q2 2022.
  • In Limerick City, Ireland’s third most populous city, the average asking price rose by 8.9% y-o-y to €251,448 (US$246,399) in Q2 2022.
  • 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 sharply by 11.6% to €354,569 (US$347,449) in Q2 2022 from a year earlier.
  • In Waterford City, also one of Ireland’s bigger cities, the average asking price increased 11% y-o-y to €228,487 (US$223,899) over the same period.

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 September 2022, it was just 15,461 units.

The supply situation outside Dublin is worse. “While Dublin has seen repeated cycles in availability over the past decade, for the rest of the country, it has been a period of steady falls in availability, from extraordinary gluts in late 2010 to acute shortages in early 2022: from over 55,000 homes to just 7,300 homes in early 2022,” said Ronan Lyons of Daft.ie.

Ireland dublin price index

Demand remains healthy. The total number of market-based household purchases of residential dwellings in Ireland rose by 3.6% y-o-y to 24,608 units in the first seven months of 2022, following a 22.2% growth during the whole year of 2021, based on figures from CSO.

However, with interest rates rising and high inflation sharply reducing the purchasing power of households, housing demand is expected to slow in the coming months.

Ireland’s economic growth accelerated to 13.5% y-o-y in 2021, buoyed by the exceptional performance of multinational sectors, particularly information/communications technology firms, pharmaceutical, and med-tech manufacturing companies, which are attracted by the country’s very open economy and by its relatively low tax inversion rate of 12.5%. In 2020, economic growth slowed to 5.9% - but still the only positive growth in the European Union (EU). The economy grew by an annual average of 10% from 2014 to 2019.

The Irish economy is projected to grow by 5.3% this year and by another 4% in 2023, 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 12.2% (11.8% inflation-adjusted) in 2017. House price growth slowed to an annual average of 3.3% (2.3% inflation-adjusted) in 2018-19, mainly due to lending restrictions and the uncertainty about Brexit.

Amidst the onset of the Covid-19 pandemic in 2020, Irish house prices rose by a modest 2.2% (3.2% inflation-adjusted). But with the easing of pandemic-related restrictions and improving the economy, house prices surged by 14.2% (8.2% inflation-adjusted) in 2021.

Construction activity mixed

Dwelling completions were up by a huge 49% to 13,316 units in the first half of 2022 from a year earlier, following an almost zero growth in 2021, based on figures from CSO. In contrast, the total number of residential units commenced in the first eight months of 2022 fell by 11% y-o-y to 18,708 units, 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 completions

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 13.4% to 25,389 units in 2019.

Amidst travel restrictions and pandemic-related restrictions, dwelling completions fell by 2.8% in 2020 and increased by a meager 0.7% in 2021.

Currently, the country’s total housing stock is more than 2.12 million units, according to the 2022 Census. Of these, 87.5% are occupied.

Demand remains robust

Demand remains healthy, with the total number of market-based household purchases of residential dwellings in Ireland rising by 3.6% y-o-y to 24,608 units in the first seven months of 2022, based on figures from CSO. Likewise, the value of residential dwelling purchases also increased 13.8% y-o-y to about €8.54 billion (US$8.44 billion) over the same period.

Ireland dwellings transactions

In the first seven months of 2022:

  • In Dublin, which accounts for almost a third of all transactions, the total number of transactions rose by 5.5% y-o-y to 7,143 units while transaction value increased 10% to €3.71 billion (US$3.7 billion).
  • In Cork County, the number of transactions rose slightly by 1.5% y-o-y to 2,118 units and transaction value increased strongly by 15.4% to €671.1 million (US$670 million).
  • In Galway County, transactions fell by 11.9% y-o-y to 688 units and transaction value dropped slightly by 0.7% €189.1 million (US$188.8 million).
  • In Waterford City, the number of transactions increased 14% y-o-y to 351 units and the value of transactions surged 38.1% to €81.6 million (US$81.5 million).
  • In Limerick City, transactions rose by 13% y-o-y to 296 units while its value soared 27% to €70.1 million (US$69.9 million).

Mortgage interest rates remain low despite ECB rate hike

In September 2022, the European Central Bank (ECB) raised its key rate by 75 basis points to 1.25% - the second consecutive rate hike in three months, in an effort to rein in inflationary pressures in the region.

Ireland interest rates

Despite this, mortgage interest rates in Ireland remain low. In July 2022, the average mortgage interest rate was 2.46%, almost at par with the 2.44% rate in the same period last year.

  • The average interest rate for housing loans with a maturity of up to 1 year was 2.78%, down from 2.9% in the same period last year.
  • The average interest rate for housing loans with a maturity of between 1 and 5 years was 2.77%, up from 2.62% a year ago.
  • The average interest rate for housing loans with a maturity of over 5 years was 2.46%, almost unchanged from 2.44% a year earlier.

Central bank’s lending cap has restrained price rises

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

The 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.

According to the central bank, these measures raise bank and borrower resilience and ensure that the financial system can better withstand future economic shocks.

However in light of drastic changes in the financial system and economy recently, the Central Bank of Ireland is currently conducting a comprehensive review of the mortgage measures framework to ensure that they continue to remain fit for purpose.

“The framework review is considering the overarching approach to the mortgage measures to ensure that they remain fit for purpose, in view of the evolution of the financial system and economy since the measures were first introduced in 2015,” said the central bank.

The mortgage market shows signs of improvement

Due to the central bank’s measures, exacerbated by the COVID-19 pandemic and ongoing global economic slowdown, Ireland’s mortgage market has been continuously shrinking in recent years. Residential mortgage lending fell to just 16.6% of GDP in 2021, from 19.7% in 2020, 21.4% in 2019, 27% in 2016, 46.3% in 2013 and 64.6% in 2009.

Ireland loans house purchase

However, in the first half of 2022, the mortgage market has shown signs of improvement. In Q2 2022, loans outstanding for house purchases rose by 13.6% y-o-y to €83.45 billion (US$82.64 billion), according to the Central Bank of Ireland. About 93.2% are drawn for principal dwelling houses, 6.3% are for buy-to-let properties, and the remaining 0.4% are for second/holiday homes.

By interest rate fixation (IRF), in Q2 2022:

  • Housing loans with floating rate and up to one-year fixation fell slightly by 1.4% y-o-y €41.54 billion (US$41.2 billion).
  • Housing loans with over 1 and up to 3 years IRF rose by 13.4% y-o-y to €11.35 billion (US$11.25 billion).
  • Housing loans with over 3 and up to 5 years IRF surged 45.4% y-o-y to €27.23 billion (US$27 billion).
  • Housing loans with over 5 years of IRF rose strongly by 29.5% y-o-y to €3.3 billion (US$3.27 billion).

Rents rising strongly amidst tight supply

Ireland’s rent index soared 12.6% y-o-y to an average monthly rent of €1,618 (US$1,633) in July 2022, up from a 7% annual increase in the same period last year, according to Daft.ie’s Rental Price Report Q2 2022. In fact, it was the highest y-o-y growth since the launch of the Daft.ie rental price report in 2005.

All markets experienced rent increases, though there were wide regional variations.

Ireland national rental index

“Rents are higher, compared to a year ago, in all 54 markets covered in the Daft.ie Report,” said Daft.ie. “The smallest increase (7.3% year-on-year) is seen in Dublin 20, while the largest increase (21.3%) was in Leitrim. For the first time since 2016, year-on-year percentage increases in rents were larger in Dublin than elsewhere (12.7% vs 12.5%).”

In the country’s capital Dublin:

  • In Dublin City Centre, rents during Q2 2022 start from €1,319 (US$1,292) for one-bedroom apartments to as high as €3,707 (US$3,631) for five-bedroom houses.
  • In South County Dublin, rents range from €1,592 (US$1,559) for one-bedroom apartments to €3,253 (US$3,186) for five-bedroom houses.
  • In North County Dublin, rents range from €1,306 (US$1,279) for one-bedroom apartments to €2,669 (US$2,614) for five-bedroom houses.
  • In West Dublin, rents range from €1,299 (US$1,273) to €2,654 (US$2,600).

Outside Dublin:

  • In Cork City, rents start from €1,156 (US$1,133) for one-bedroom apartments to €2,099 (US$2,056) for five-bedroom houses.
  • In Galway City, average rents range from €1,110 (US$1,087) to €2,016 (US$1,975).
  • In Limerick City, average rents range from €1,041 (US$1,020) to €1,890 (US$1,851).
  • In Waterford City, rents range from €884 (US$866) to €1,605 (US$1,572).

The movements in rents are closely linked to supply. On August 2022, there were just 716 homes listed to rent nationwide, just one-fifth of the average number of homes available to rent on the same date between 2015 and 2019. In fact, in Dublin, there were fewer than 300 homes available to rent in August 2022 – in contrast to the nearly 8,000 homes for rent in August 2009.

“In August 2009, there were over 23,400 homes available to rent nationwide – nearly 8,000 in Dublin and 15,500 elsewhere. That means that for every 100 homes available to rent thirteen years ago, there are just three on the market today,” said Ronan Lyons of Daft.ie.

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 Q2 2022, nationwide gross rental yields range from as high as 12.2% for one-bedroom apartments to 3.3% for five-bedroom houses, according to Daft.ie’s Q2 2022 Rental Price Report.

In Dublin centre, one-bedroom apartments earn yields of 5.5% to 12.2% in Q2 2022 while five-bedroom houses offer yields between 3.3% and 7.2%. Dublin 17 has the highest rental yields nationwide, followed by Dublin 10, 22, 24, and 11.

In other areas:

  • West County Dublin gross rental yields range from 5.3% to 9% in Q2 2022, according to Daft.ie.
  • North County Dublin yields range from 4.9% to 8.2%.
  • South County Dublin yields range from 3.5% to 5.9%.
  • Cork City yields range from 4.6% to 9%.
  • Galway City yields range from 4.5% to 8.8%.
  • Limerick City´s gross rental yields range from 5.3% to 10.5%.
  • Waterford City´s gross rental yields range from 5.1% to 10.1%.

The Irish economy continues to grow

Ireland’s economic growth accelerated to 13.5% y-o-y in 2021, buoyed by the exceptional performance of multinational sectors, particularly information and communications technology firms, pharmaceutical, and med-tech manufacturing companies, which 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.

Ireland gdp unemployment

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

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.

In fact, in 2020, Ireland still managed to register an economic growth of 5.9% - the only positive growth in the European Union (EU).

Ireland’s economic growth is expected to continue expanding, albeit at a slower pace, amidst a deteriorating global outlook, persistent inflationary pressures, and weakening sentiment.  The European Commission projects a real GDP growth rate of 5.3% for Ireland this year and 4% in 2023.

Overall inflation stood at 8.7% in August 2022, easing from the 38-year high of 9.1% in the two prior months but still sharply up from just 2.8% in the same period last year, according to the latest figures released by the CSO. Inflation averaged just 0.3% from 2010 to 2020 before rising to 2.4% in 2021.

Ireland’s labor market continues to strengthen. In September 2022, the seasonally-adjusted unemployment rate stood at 4.3%, unchanged from the prior month but down from 5.2% a year earlier, according to the CSO.

Ireland unemployment rate

“The rate of 4.3% in September 2022 was lower than the pre-pandemic level of 4.9% recorded in September 2019. The unemployment rate for males was 4.2% and 4.3% for females in September 2022,” said the CSO.

There were about 116,900 unemployed persons in Ireland in September 2022.

Ireland’s finances improving

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 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 access to the European Stability Mechanism, a €500 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. In end-2013 Ireland became the first country to exit the eurozone bailout program.

The government’s budget balance continuously improved since. In 2019, Ireland recorded a budget surplus equivalent to 0.5% 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 5.1% of GDP, amidst a decline in tax receipts coupled with a surge in coronavirus-related government spending. The government was able to bring back its shortfall to just 0.1% of GDP in 2021, amidst improving economic conditions. The country is expected to return to a budget surplus this year.

Ireland’s gross public debt fell slightly to 56% of GDP in 2021, from 58.4% of GDP in 2020.

Sources:

Ireland - More data and information