While the supply of homes – new and second hand – remains inadequate compared with the estimated level of demand, it can’t explain the current spike in prices.
Asking prices for houses in the Republic are now rising by 13 per cent, according to property websites Daft and Myhome, the latter of which is owned by The Irish Times. Both reports noted that listed prices were rising at a faster rate outside Dublin than in the capital.
In Wexford, Waterford and Kerry, the purchase of holiday homes amid a staycation boom, has led to annual inflation for property of 20-21 per cent.
Official figures from the Central Statistics Office (CSO), which are based on actual transactions rather than asking prices, are a lot tamer. They point to an annual inflation rate of just 4.5 per cent in April and 3.5 per cent in Dublin.
Nevertheless Covid-19 appears to have created a demand bubble in the housing market here and elsewhere. Property prices globally are being fuelled by pandemic-related factors – remote working and savings – and local factors. In the case of the US, a massive fiscal stimulus, in the UK it is stamp duty cuts and in New Zealand it is the temporary suspension of macroprudential rules.
This is problematic for two reasons. First, prices could spiral, precipitating a sudden market correction which creates an unwelcome level of volatility. Second, home ownership could become even more unaffordable, pushing young people further from the market and into an already overcrowded rental market. An estimated 12 per cent of 25 to 39-year-olds own their own homes in Ireland compared to 85 per cent of 65-year-olds.
Affordability constraints are likely to limit the upswing. According to the CSO, the average sales price for a property in Dublin in the 12 months to the end of April was €466,211, nine times the average full-time income.
However, it seems likely to get worse, at least in the short term, before it gets better.
