This was the year when the Central Bank of Ireland’s mortgage-lending rules really kicked in – and boy did they. Most market observers last year predicted price growth of between 9 and 11 per cent in 2018. That figure is more likely to come in at around 5 per cent – definitely a sharper-than-expected cooling off. This has generally been greeted as a good thing. Why, then, does it not feel like it?
Affordability has become a huge issue, particularly for buyers on lower incomes or who borrowed heavily during the last credit bubble. The Central Bank’s mortgage cap of three and a half times borrowers’ income is inadequate as long as wage inflation dramatically lags property-price rises. A couple earning the average wage of €40,000 each can expect to borrow just €280,000, which pretty much rules out most properties in Dublin.
The Central Bank has declared itself happy with its lending restrictions’ impact on prices, and although it acknowledges that a housing market in balance does not necessarily translate into a market that is affordable for most, it has certainly made it clear it will not be adjusting its lending rules any time soon.
Builders set prices by adding together their construction costs and the profit they want to make. But their asking prices are clearly still unaffordable for many buyers
The solution will therefore have to come on the supply side. The Government will feel it tackled this hoary chestnut head on in October, when, before the budget, it launched the Land Development Agency, with its mandate to deliver 150,000 homes over 20 years on tracts of State-owned land. But with the first of these homes not due before 2020, the urgency will in all likelihood have gone from the housing crisis by that time.
These homes will be built in partnership with private developers, who will clearly engage only if the profit motive adds up. It really seems to have been a big win for developers faced with prohibitive land prices in the capital. The release of lands at affordable prices in these areas will be a boon for them, but whether this will translate into more affordable new homes has yet to be seen.
Cost constraints are already very evident in the new-homes sector, from both a supply and a demand perspective. It was expected that 2018 would be the year when the new-homes trickle would turn to a flow, but this has not materialised despite constant reports that we need 35,000 new homes a year. In reality about 17,000 new homes will have been built in 2018, a 30 per cent increase on 2017.
Developers are taking a very cautious approach with schemes, releasing only in small phases. This is linked to funding constraints; the Construction Industry Federation has consistently called for policy measures to reduce building costs. Again affordability is a factor: builders set prices by adding together their construction costs and the profit they want to make when they sell a home; the asking prices this produces are clearly not proving attractive or affordable enough for buyers.
Affordability was also a key driver when, after a busy start to the year, the banks quickly met their mortgage-approval quotas – and the market promptly ground to a halt. It made for a sluggish autumn selling season, with very little new stock coming on the market, and not too much activity among the stock that was already for sale.
It all points to a reality check for vendors (and agents) whose bullish pricing is no longer finding a market, particularly at the mid and upper levels. Buyers either can’t afford the heady prices because they simply can’t get the funding, or they have seen the slowdown in price growth and won’t be panicked into buying any time soon.
Falls in asking prices in premium areas like Dublin 4 and Dublin 6 certainly point to a correction. The October lending figures showed a surge in mortgage lending, running counter to the previous two months. It’s not clear if this is the banks allocating 2019 approvals early, but it might at least pave the way for a brisk start to the new year.
Cash buyers still have their pick of the crop, particularly in the second-hand market, where research indicates they account for about half of all transactions. This has a devastating effect on mortgage-funded buyers, as vendors invariably opt for a tidy sale to a cash buyer.
Most years have had a couple of big country-estate acquisitions, as canny buyers picked up value, but clearly this market has been exhausted
The sale-agreed process is still taking too long to move house sales to completion; deals frequently collapse after four or five months, when banks take a closer look at valuations. The window of opportunity for fixer-uppers certainly seems to have narrowed; banks are nervy about lending if it’s unclear how much a post-sale refurbishment will cost. Ready-to-go properties, with little work to do, and new-builds are seen as safer bets.
In the new-homes sector only about one in five buyers pays in cash. The Help to Buy scheme has also provided a good leg up for many first-time purchasers; market observers anticipate a surge in new-home completions next year, to meet demand from buyers availing of Help to Buy assistance before the scheme's scheduled wind-up, at the end of 2019.
Strong demand for city-centre accommodation has boosted investor demand for central-Dublin Georgian buildings in good condition. As a consequence there has been a slew of transactions around the €2 million mark for properties of this type, which have seen values increase by about 20 per cent in two years. In late October, numbers on the Residential Property Price Register swelled when 30 redeveloped Georgian houses in Dublin 4, 6 and 8 appeared sold for more than their €60 million guide price to a Dutch property-investment company, Orange Capital Partners.
This was also the year when the small private investor was ousted by private-rental-sector investment funds. International funds and real-estate investment trusts, or Reits, have been buying apartment blocks outright, but soaring rents suggest a lot more schemes need to come on stream to meet demand.
A professionally managed rental sector is to be welcomed, but, given the activity this year, it has also removed a lot of potential first-time-buyer stock from the market, worsening the housing shortage.
Outside Dublin, country-home sales have been utterly flat. Brexit uncertainty has put paid to expat interest from overseas, while delays in property sales in the UK are killing off potential buyer interest from that market over here.
This year will surely go down as the worst in the country-homes market since the recovery began. Most years have had a couple of big country-estate acquisitions, as canny buyers picked up value, but clearly this market has been exhausted. With buyers now as likely to come from within Ireland as outside, 2019 will probably see prices fall on some of the many high-quality, and highly priced, country estates still on the market.
