Irish House Price Report Q4 2020 | Daft.ie

Daft Reports

18th Dec 2020

Old challenges re-emerge in the housing market

It may seem like a decade ago but just one year ago, at the end of 2019, I wrote about a sales segment in Ireland's housing system that was, in my words at the time, "by and large, in balance". The supply of homes for sale had improved for three years in a row and, as a result, prices around the country were largely unchanged over the course of 2019.

2020 saw - of course - unprecedented upheaval across all of Irish society, as a result of the Covid-19 pandemic. The housing market didn't escape this upheaval, with the number of homes put up for sale in the second quarter of the year down over 50%. While things improved in the third quarter of the year, as the economy reopened, the volume of listings in any given month never even matched the same month in 2019, let alone offered catch-up. For the year as a whole, just 49,000 homes were advertised - the lowest total in over five years.

Combined with the fall in the construction of new homes, this reduction in the volume of homes coming on to the market has translated into unprecedented scarcity of homes for sale. Since the start of 2007, when Daft.ie's nationwide coverage was effectively complete for the first time, there had always been at least 20,000 homes for sale on the market at any one time. Over those thirteen years, the average number of homes for sale on the market was just over 40,000 - with a peak of 63,000 in 2008.

Since the Covid-19 pandemic reached Ireland in March, supply on the market has never been above 20,000 and, on December 1st, was just 15,390, down one third on the already low figure recorded in the same month a year previously.

The housing market is - as the name suggests - a market and the laws of supply and demand are powerful descriptors of what is going on. The lack of supply - coupled with demand for housing holding up remarkably well this year - has translated into strong increases in housing prices, especially in the second half of the year.

Lowest available homes on market since 2006

In Dublin, for example, where there were 20% fewer homes available to buy on December 1 this year compared to the same date in 2019, average list prices rose by 7.2% year-on-year. In Connacht-Ulster, where supply is down 30%, prices rose by 8.8%. In every single one of the 54 markets covered in the Daft.ie Report, prices rose year-on-year - the first time this has been the case since the middle of 2018. Indeed, just a year ago, sale prices were gently falling in two thirds of markets.

Covid-19 raises lots of questions about how we live and how that may change as the result of the pandemic - even when the medical emergency ends. There are many interesting questions - including ones about our residential preferences - to be answered in the months and perhaps years ahead.

We can give some initial answers to some of the most obvious questions that Covid-19 throws up about housing. It certainly doesn't seem to be the case that Covid-19 has upended the pull of cities as people can work from home. While prices are up only 1.7% year-on-year in Dublin 6, there are plenty of urban areas with much larger increases - for example, 11% inflation in nearby Dublin 8 and also in Dublin 10. Inflation is close to 10% also in Galway and Limerick cities.

Outside the cities, there's a similar spread in inflation rates. In Laois and Carlow, prices rose by 10% over the course of 2020. But in Clare and in Meath, which arguably might have benefited from demand shifting away from cities in different ways, prices increased by 3-4%.

Another hypothesis suggested is that Covid-19 may change the type, rather than the location, of housing people want - in particular that of a larger premium for larger homes. While there is some evidence that in the sale market, one-bedroom homes have a larger discount relative to three-bedroom homes, it's far from conclusive that larger homes have fared better this year. Indeed, the Dublin premium for a four-bedroom home, relative to a three-bed home, was smaller in the final quarter of 2020 than at any stage since 2008 - not larger.

Definitive answers to those kinds of questions will have to wait, however. What is clear, though, is that, in 2020, Covid-19 has not upended - and in fact may have amplified - the trend that dominated Ireland's housing market in the 2010s. That trend is one of chronic and worsening shortages of housing, in particular for urban and smaller households - and in particular in the rental segment.

The sale segment had been improving in the late 2010s, with the construction of new homes helping the second-hand segment match the likely capacity of owner-occupier mortgage demand and prices stabilising as a result. Covid-19 has, however, disrupted this, with construction, listings, availability and transactions all falling. Policymakers ought to hope that this disruption is temporary and that the housing system returns to some better semblance of capacity meeting underlying need.

Decades of strong growth in the need for housing are likely on the way. Supply, supply, supply must remain the policymaker catchphrase.