The most important part of the title of the new ESRI paper entitled Irish house prices: Deja vu all over again? is the question mark at the end.
Property prices are again on the rise, inviting comparisons with the Celtic Tiger era, but the firm conclusion of the report is that we are not back in the 2006-7 territory of a credit-fuelled boom pushing prices here out of line with economic fundamentals. In turn this begs another question.
If this is the case, then why do people find it so hard to afford homes and why is the rental market in such a mess? We are clearly in a crisis - it is just another kind of one.
The paper, written by ESRI research professor Kieran McQuinn, points to the extraordinary long-term moves in Irish house prices, which had the largest house price gain among international countries between 1995 and 2007, then the biggest fall during the crash and subsequently the most significant recovery. The Irish housing market matches our economy in terms of its boom and bust volatility.
However, what matters is where we are now, and McQuinn concludes that house prices not are not out of line with economic fundamentals and could, in fact, be a bit higher on the basis of what is going on in the Irish economy.
This is in direct contrast to 2007, when a credit bubble pushed prices 30 to 40 per cent above the levels justified by economic fundamentals, driven by a boom in the provision of credit.
Soaring credit
Before the crisis, the key factor pushing up prices was soaring credit availability. Remember the 100 per cent mortgages. Now it is a shortage of supply in the market, mixed with a recovering economy, which has pushed up prices. In some cases, the problem for buyers is that they can’t afford a property– but in many cases it is that they simply can’t find one.
McQuinn says prices are set to rise by a further 20 per cent over the next three years and cautions that a key aim of policy is to monitor the supply of credit to ensure that another lending boom does not add yet more fuel to the fire.
These forecasts will be looked at askance by those who are struggling to buy and finding the sums challenging, or impossible.
While overall prices in Ireland may not be out of line with economic fundamentals, there are clearly affordability problems for a significant number of earners and the risk is of these quickly spreading.
When house prices are rising at 12-13 per cent at the same time as earnings are rising at 2 - 3 per cent, the dangers are pretty clear.
The growing affordability problem shows up in various ways. For new buyers, while the ESRI data covers the national average, there are circumstances causing problems for many, particularly those buying the big cities.
Squeezed
House prices are higher in Dublin, for example, and affordability data suggests that single buyers in particular face a squeeze in the capital, with mortgage repayments now often taking well over a third of an average disposable income.
Often the return of a second partner to work is hampered by childcare costs which are high by international standards - or if two partners are already working, this limits financial room for manoeuvre.
Meanwhile, another survey from Daft shows rents - already well past Celtic Tiger peaks – continue to rise in double digit percentages year on year, closing off an option for many who can’t afford or don’t want to buy.
High rents are also making it difficult for many already renting to save the deposit on a new home.
The solution is, of course, more housing supply for both buyers and renters.
Dr Ronan Lyons estimates in the Daft report that 50,000 additional properties a year are required.
The problem, of course, is that houses take time to plan and build and that the range of policies needed are complex and multi-faceted. We may not have a 2007-style bubble, but it is still a crisis.
