The pandemic has neither killed nor cured the real estate market. It’s still so dysfunctional

As we wearily enter a third year of the global pandemic, the coronavirus has neither killed nor cured the ailments of the Irish property market. It’s still as dysfunctional as ever, but there are signs of hope, warning signs of change, a slightly different momentum, and hopes of improving the offering.

After several containment restrictions that affected construction and sites, the homebuilding industry has returned to work with vigor and is expected to produce more than 25,000 units in 2022, up 25% from production a year or two annually.

This is still a fraction of what it was producing in 2007, of course, when production was reaching staggering heights of 90,000 units per year: no wonder the resulting drop has been so steep.

More importantly, however, it is still below the 30,000 units per year which it is widely recognized is a realistic target to begin delivering the hundreds of thousands of new homes needed as part of the government’s 2021 Housing Strategy. all, regardless of the type of occupation. .

To reach this level of production, the sector still has to face capacity constraints, from skills shortages to certain materials in shortage and / or rising prices.

In addition to capacity constraints in the skills sector, there is the need to renovate tens of thousands of old Irish houses every year as part of climate action plans.

The goal is to bring 500,000 homes to a B2 level or above over the next decade. It’s a huge hill to climb. Both in terms of funding (private or state) and man / woman hours at work.

These construction barriers impact on several fronts: Construction prices are simply too high, at a time when homeownership aspirations seem beyond the reach of too many hopeful buyers.

The government’s proposed share capital plan, designed to help buyers at the lower end of the price scale, is expected to materialize in the coming year. The country needs to tackle issues like VAT on new homes (could it be reduced for home buyers?).

The government’s purchase assistance program keeps buyers in tune, but supports price levels: are prices inflationary? Given that this has helped around 30,000 first-time buyers to get a house, it would be a brave government to pull the plug in 2022 or 23.

However, house price inflation reached a high single-digit level in Dublin in 2021 and fell into double-digit inflation territory outside the capital at around 13% nationwide until October.

This is clearly not sustainable, and forecasts point to further inflation in 2022, with most analysts predicting further growth of 5-10% in 2022.

With nationwide prices now just 6% below the all-time tiger-era peak, as of May 2007, it is only a matter of time before levels return to these. exhilarating levels.

And, given all that, it’s likely that the 2022 review of the Central Bank’s mortgage rules, which were introduced in 2015, is unlikely to deviate much from the 3.5x income multiplier – despite some reports at the start of winter 2021 that the multiples could go up to 4.5x for some eligible first-time buyers.

Price inflation in the used home market exceeds that in the new home sector, massively in some cases and in specific locations: older suburbs with a high level of service and short haul options will continue to grow. be hot spots.

Almost paradoxically, this is also seen in the perimeter of the country, the coastal areas of Leinster and Munster in particular, where buyers have the possibility of working from home during a good part of their working hours (if broadband allows it. ), as well as relative ease of access. at airports.

Even as rents continued to rise, by nearly 8%, divisions and even discord continued to grow between the various segments of the search for housing in the country. Not enough new inventory and starting prices are often too high for whole swatches of “lower paid” singles and couples – as in average wages.

Quite a bit of money was paid for used homes, much going for $ 50,000 or even $ 100,000 above introductory level AMVs, causing despair among disappointed underbidders.

Much of the seemingly reckless auction was spot buyers behind (appraisers often said banks wouldn’t lend at such overheated price points): The stock of cash-laden buyers must start to grow. decrease now?

Adding fuel to the fire in the cases was not just mom and dad’s bank, parents helping with deposits and perhaps to fill a gap at peak bidding points, but coming to the fray was also the ‘bank of gramps’ – where older couples inherit a slice of money from the estates of their deceased parents and from the sale of the old family home.

Sometimes this intergenerational windfall benefits young people in their twenties if it is passed on.

In other cases, couples in their 50s and 60s use the money to fund their own lifestyle changes, perhaps from half-half-half-town to seaside retirement homes.

While further distorting specific markets, such moves at least free up urban family homes for others to trade in, and at least the drop in once punitive stamp duty rates encourages such necessary mobility (nearly 55,000 Real estate transactions took place in 2021, near 2019 levels of 58,000, and up 6,000 from the 49,000 idle sales of 2020.)

Amidst all the back-and-forth, however, the used home market is likely to have some drag on new listings as sellers (who usually have to sell first, to buy the other). side) fear falling into a loophole of selling, being unable to buy, and also not being able to rent while they wait and sit.

While waiting for an increase in supply, it will be another difficult year.