A shortage in the supply of new homes has been an issue in Ireland over the past number of years and, according to industry experts, issues with the planning system are one of the main contributing factors.
“In the building industry, there is continued frustration with the severe blockages in the planning system as this adds to the lack of stock currently under construction,” according to Gemma Lanigan, partner at DNG New Homes. “We have a number of clients patiently waiting on planning decisions on their development sites over excessive periods of time, while, in the meantime, rising construction costs eat into the viability of projects,” she says.
As a possible solution to the backlog in planning applications, Ivan Gaine, director of Sherry FitzGerald New Homes, cites the draft Planning and Development Bill, the aim of which is to reform the planning system and reduce the number of judicial reviews. “The devil will be in the detail [regarding the Bill],” he says, adding that proposed reforms include longer 10-year development plans and mandatory timelines for decision-making.
He also hopes to see the National Planning Framework reviewed following the latest census “to reflect our changing demographics”.
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The number of new homes built rose to almost 30,000 units nationwide in 2022, according to the Central Statistics Office. However, only a small amount of those units were available to individual homebuyers. “This [figure] is well short of the estimated annual need according to the Housing Commission, which believes there is a baseline housing requirement ranging between 42,000 to 62,000 new homes per year between now and 2050,” says Ray Palmer-Smith, director of new homes at Knight Frank.
“Worryingly, instead of moving closer to this range in 2023, completions are likely to contract,” he says, due to planning delays as well as a shortage of zoned and serviced development land, expensive finance and rapid build-cost inflation.
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Despite high inflation and rising mortgage rates, Palmer-Smith cites the observation of banking lobby group the Banking & Payments Federation Ireland (BPFI), which said mortgage approvals – “a crucial barometer of future demand,” he says – continued to demonstrate resilience in the market.
“Notwithstanding the continuing challenges posed by higher inflation and interest rates, we believe that a combination of resilient demand, contracting supply and continued desire to live in more energy-efficient homes will prevent any significant fall-off in price growth this year,” he says.
Lower-rate green mortgages are also supporting the high demand for new energy-efficient homes, says Judy Sorohan, associate director at Hooke & MacDonald, as well as the energy savings they offer a buyer against the backdrop of rising energy costs.
“Another component enticing people to buy new is the cost-of-living crisis,” says Will Coonan, director of Coonan Property. “This, coupled with rising building costs, have made people stop and think.
“Plenty of purchasers who would have chosen a renovation project or a second-hand home that needed extending have opted to go with a new-build. Some purchasers want the hard work done for them instead of putting money into an older home,” he says.
Experts note that Government schemes such as the Help-to-Buy (HTB) scheme, the tax-refund incentive to help first-time buyers reach the 10 per cent deposit required to buy a new build, and the shared-equity First Home Scheme (FHS), where the Government takes a stake in your home in return for a percentage of the price of the property, are contributing to the demand in new developments.
“[Purchasers] now have the opportunity to bridge the gap between deposit saved, mortgage, and purchase price with these schemes, both of which are available on new homes only,” says Coonan. “With house prices on the rise, these are much-needed initiatives.”
“As rents continue to hit record highs, the Help-to-Buy scheme coupled with the First Home Scheme, will provide much-needed affordability to both single purchasers, and couples on lower incomes,” according to David Browne, head of new homes at Savills.
“We are seeing an increase in enquiries for apartments, for example, as in the majority of cases, most people will be better off financially by purchasing their home rather than renting it. This should have a positive impact on the viability of higher density apartment and duplex schemes,” he says.
The change in Central Bank lending rules to allow first-time buyers to borrow four times their income and second-time/subsequent buyers to borrow up to 90 per cent of the property value is already having an impact on the new-homes market, says Browne. “[There is] a high volume of brand new entrants to the market, and those trading up can now borrow more to move on, freeing up second-hand stock,” he says.
Estate agents note the effect rising mortgage interest rates are having on the market. According to Lanigan, rising rates have had “a welcome steadying effect on all levels of the market”.
“In the main, buyers of new homes are opting to fix their mortgage interest rate and buyers are shopping around to ensure that they are securing the best fixed rate available to them in the mortgage market at the time of closing,” she says. “Due to our very strong economy, keen fixed rates are available to buyers.”
Palmer-Smith also has an optimistic view: “According to the Banking & Payments Federation Ireland, mortgage approvals, a crucial barometer of future demand, continue to demonstrate resilience despite the spectre of higher inflation and interest rates.”
“We anticipate that continued strong employment growth, high levels of household savings, Government incentives as well as changes to the Central Bank’s mortgage rules, whereby buyers can now borrow up to four times their gross income, will continue to support demand this year in the face of challenges,” he says.
Browne expects rising interest rates “to have a dampening effect on demand, while soaring build costs will unfortunately continue to push affordability further out of reach for some.”
“However,” he says, “the critical imbalance between supply and demand will inevitability ensure prices remain strong.”
All the industry experts who spoke to The Irish Times provided a positive outlook for the new homes market for the year ahead.
Lanigan anticipates strong demand and sales “as supply continues to lag demand”.
Browne predicts a positive year for the market. “However,” he says, “much more progress could be made if the thorny issue of supply is finally grasped.”
“We estimate there is currently a shortfall of 72,000 residential units in Dublin, so despite a reduction in demand, supply issues look likely to continue for the foreseeable future,” he says.
Coonan also fears a stock deficit. “Indicators are showing that the influx of new developments may be starting to dry up,” he says, “and housing starts have already slowed.”
Regarding the housing system as a whole, Gaine concludes: “Industry, society and Government need to continue to collaborate and show ambition and bravery to improve the system and not let ‘perfect’ get in the way of ‘better’.”
