House prices in Ireland forge ahead of Eurozone

House price growth in Ireland steamrolled the competition last year according to Eurostat, the statistical office of the European Union. However, this upstart recovery is a conflicted source of joy and worry as the island continues to do battle with a severe housing shortage argues Leigh Stewart, international real estate editor for Tranio.

Ireland ranks in top 3 for price growth

Irish residential property prices grew 4.5% between July and September 2015, compared with the three previous months, while prices in the EU only gained 1.5% on average. In fact, Irish homes were 8.9% more expensive than the same period last year, in comparison to the EU where they only grew by 3.1% on average. This massive growth spurt puts Ireland on the map as third fastest-growing property market, measuring up to some rather desirable and solid economies like Austria and Sweden.

Fortunately, the unsustainable double-digit growth curve witnessed between May 2014 and June 2015 has tapered off. Real estate experts have welcomed this change after growth spiked at 16.8% last March according to Ireland’s Central Statistics Office (CSO).

By January 2015, the market had somewhat stabilised: prices were up 7.6% on the year before, but decreased by 0.5% month-on-month according to the latest figures by the CSO. In terms of year-on-year changes, Ireland has now experienced 32 months of positive growth. This pattern is similar to that of Sweden, which has demonstrated consistent price growth for 11 quarters (e.g., 33 months) but is really nothing compared to Austria’s 33 positive quarters (e.g., 99 months or 8 years and three months). In fact, the last time this country experienced negative price was back in Q2 2008 (–1.0%).

Affordability and house price controversy

Despite rising prices, 71 homes have been sold on average every day since January 1st 2016, which translates into 2,278 transactions between the New Year and 19 February 2016 according to the Property Services Regulatory Authority.

Data by the Economist confirms that the Irish residential market has once again surged into overpriced terrain in terms of affordability for residents, even if prices haven’t reached their pre-crisis levels yet. According to the newspaper’s calculations, Irish homes were only overvalued by 3.1% in Q2 2015 compared to 63.6% in pre-crisis times (Q2 2007). Nevertheless, official figures show that residential property in Dublin is still 36.1% cheaper than in 2007 and 34.1% cheaper in the rest of Ireland.

The average asking price was €215,000 nationwide and €312,000 in Dublin during the last three months of 2015 according to the Q4 Property Report by MyHome.ie in association with Davy, an Irish financial services provider. However, there are inconsistencies in the numbers. For example, Numbeo, an online cost of living index largely quoted by media, puts the average Irish square metre in the city centre at €4,882 and €3,269 everywhere else. If combined with MyHome.ie asking prices, this would mean that the average homeowner in Ireland lives in a 64–65 sq m flat.

When Daft.ie’s economist, Ronan Lyons, weighed in, he gave a more probable assessment of the current price and affordability situation: “in the absence of official figures, it is estimated that a two-bedroom apartment costs roughly €280,000 (excluding land costs), roughly twice the level consistent with the incomes of households that would live in two-bedroom apartments.”

On a positive note, other countries are having a lot more trouble managing their property markets. House prices in the UK and Sweden are overvalued by about 30%. In fact, authorities in Stockholm have already got out the crash caps after their National Institute of Economic Research warned of “significant risk that prices are at unsustainable levels” last October. Over the last decade, apartment prices skyrocketed 150% and one-bedroom flats in the centre of Stockholm regularly sell for upwards of €320,000.

Weak development stokes housing crisis

Ireland’s housing shortage is no myth, nor is the lack of progress to fill the country’s need. With only 342 homes per 1,000 inhabitants in 2014, Ireland had the lowest housing stock in European Union (452 per 1,000 on average) according to the European Property Market Report 2015 by Deloitte.

The situation is aggravated by the lack of new completed and initiated construction projects. As of 2014, it added just 11,000 new homes to the housing stock while Austria completed more than 50,000 and Sweden another 18,000. In terms of dwellings under construction, Ireland had the third lowest figures in Europe, with just over 5,000 new homes planned compared to more than 21,000 and 44,000 for Sweden and Austria respectively.

There were only 25,000 houses listed for sale by 01 December 2015, meaning Ireland’s vacant stock has reached a nine-year low, even though planning permission approvals for “dwellings” haven’t really budged since 2012, hovering at 3,500 per year on average. It’s worthwhile noting that Irish authorities approved over two hundred more applications annually for “other new constructions (excluding dwellings)” during the same period (3,712 on average per year).

Leaving the “pigs” behind

In the aftermath of the 2008 financial crisis, Ireland became a member of Europe’s exclusive club for the economically incompetent, affectionately referred to as “PIIGS”. Along with Portugal, Italy, Greece and Spain, it was kindly offered a “stabilisation package” to avert disaster in the Eurozone.

But Ireland has flown the coop from its ragtag band of brothers in burden. Not only has its housing market taken off, but it’s also Europe’s fast-growing economy. GDP growth skyrocketed to 7.0% compared to Spain, its closest competitor, which grew 3.5% and just 1.6% on average in the Eurozone.

So while there are legitimate reasons to worry about what’s happening on the real estate market, it’s worth looking at what’s happening further abroad too. Price growth in Ireland has slowed to a sustainable level, while Italy is suffering from oversupply and falling prices. Not to mention Spain where, despite laudatory reports by the media, price growth is actually restricted to five specific areas, leaving much of the country out in the cold. And finally, let’s not forget Greece where GDP growth was once again negative in Q3 2015 (–1.7%) and Eurostat actually failed to collect valid data on the state of its housing market in 2015.

Ireland still has hope that February’s general election can herald a new era of healthy policies targeting the housing crisis in Ireland. Whether the ousting of many big names from the Dáil will benefit Irish homebuyers has yet to be seen, but one thing is sure: the future is now in the hands of Ireland’s newest round of TDs.

Leigh Stewart, Tranio