Wealth Report H2 2020 | Daft.ie

Daft Reports

13th Dec 2020

An analysis of recent trends in the premium property market in 2020

The year 2020 will go down in history as the year of Covid - a year when the pandemic brought extraordinary changes in how we live our lives. Ordinarily, negative economic shocks would be expected to bring about falls in the wealth value of assets such as property. This happens through two channels.

The first is what would usually be termed 'changes to fundamentals'. More people are unemployed, while many others have suffered losses to their household income. These very real consequences of the pandemic and the associated restrictions on social and economic activity would be expected to feed through to both rents and sale prices.

Temple Gardens is Ireland's most expensive street

The second channel is the relationship between rental prices - which reflect only fundamentals - and sale prices, which also reflect confidence about and expectations of the future. The more optimistic people are about the future, the higher sale prices are relative to rents: in other words, if a property rents for €10,000 per year, will someone be willing to bid ten, fifteen or twenty years rent to secure it... or more? The bigger this number, the more confident sellers are.

If you had surveyed 100 economists at the start of the year, when there was only the first inklings of the potential impact of Covid-19, I doubt whether any - in all honesty - would have predicted that such an economic shock would have caused property prices to rise, not fall, but yet that is what happened.

Not only in Ireland, but in many if not most high-income countries, property prices have increased this year. Some of this may be down to a quite abnormal wider macroeconomic environment: in times of crisis, there is usually a 'flight to safety' by savers. That typically means things like government debt - but across the high-income world, government debt or more regular saving accounts are giving negative interest. In that context, property has become the new go-to asset for savers... of which there are a glut currently, given the age structure in high-income countries.

But that is unlikely to explain things fully. At least some of the increase in housing values around the world this year is down to the nature of the pandemic: it forced us all to spend a lot more time at home. That alone may have led people to re-evaluate what exactly they want from their home - as well as convince some that their unspent holiday kitty might now transform into the deposit for a holiday home within driving distance.

This latest Wealth Report for Irish property updates all the regular analysis. The headline is that overall housing wealth in Ireland is up about 3.5% on a year ago - at €536.4bn, up almost €18bn on the figure in the 2019H2 report. That increase of almost €50m per day was driven not by the completion of €6bn of new homes, which was affected by the pandemic, but instead by higher values of existing homes.

The report outlines the most expensive regional and "micro" markets in each region of the country. Of 54 regional markets, Dublin 6 is the most expensive - with an average property price of €616,000 - followed by South County Dublin and Dublin 4. Dublin 6W and Dublin 14 are the two other markets where the average property value is above €500,000. Leitrim is the cheapest market in the country, with average property values there of just €128,000, well below Roscommon, at €143,000 the second cheapest. Three other markets - Longford, Mayo and Sligo - also have average property values below €150,000.

We can dig deeper and look at average property values in each of nearly 400 "micro markets" around the country too. The most expensive micro-market in the country is Mount Merrion, where average property values are €820,000 - followed by Dalkey, Sandycove, Foxrock and Sandymount, all of which have average property values between €700,000 and €800,000. In the four other cities, Salthill in Galway and Montenotti/Tivoli and Rochestown in Cork - together with Cork's commuter towns - are the most expensive markets.

Outside the cities, the most expensive micro-markets are Enniskerry in Leinster - followed by Delgany - and In Munster, the most expensive market is Kinsale followed by Adare, while in Connacht-Ulster, it's Kinvara and Oughterard. Bundoran (Donegal), and Castlereagh and Ballaghaderreen (both in Roscommon) are the three cheapest micro-markets in the country and the only three where the average prices is €100,000 or less.

The value of all Irish residential property value is now €536 billion

Lastly, we can look at the most expensive streets in the country. Unsurprisingly, they are all concentrated in Dublin - although not all in Dublin's south side. Over the course of 2019 and 2020, Temple Gardens has risen to become Dublin's most expensive street, with three properties changing hands on the relatively short road at an average price of €3.1m. Two busier streets nearby in Dublin 6- Palmerston Road and Orwell Road - are also in the top five, but are pipped to second place by Thormanby Road, Howth, which has seen three properties change hands over the last two years with an average price of €2.8m. Rounding out the top five is Park Avenue, Dublin 4, with average property prices of €2.5m.

Housing wealth is fascinating - but it's also reflective of a broad range of bigger trends. The country could add to its housing wealth rapidly by building lots of new homes - but this is likely to be unpopular with existing homeowners who typically would rather fewer homes, worth more each. 2019 saw construction add more to housing wealth than price changes but this year it's the opposite. Affordable housing is good for the country and that trumps other concerns in a country with a chronic and worsening shortage of homes.

Methodology:

The Daft.ie Wealth Report is based primarily on the output of hedonic price regressions, which reveal average property values for particular classes of property. This can be broken down by period, location and dwelling attribute (such as size or type). To calculate average prices by city or county, these averages by class are weighted by the class frequency to give a meaningful average price by location. For example, Dublin 1 will be more weighted to 1-bedroom apartments than Leitrim, which will be weighted more towards 4- and 5-bedroom bungalow and detached properties. The same methodology allows an estimate of the total number of property millionaires in Ireland, as follows: for each of the 389 micro-market in the country, the average value of 25 main property types, from 1-bed apartment to 5-bed detached, is calculated, giving the average value for almost 10,000 property segments. The number of property millionaires was calculated by focusing on the 43 segment where the average property value was at least €1m and adding up, based on Census information and the Daft.ie listings archive, the total number of dwellings in this segment. The Property Price Register was used to calculate the most expensive streets, with exclusions based on transactions concerning sites for development or containing multiple units.