Irish Housing: From Stabilisation to Recovery

Today Investec released a report that analyses developments in the Irish housing market. In it they examine the latest demand and supply dynamics, before offering some thoughts on the outlook for prices and the likely uptick in activity in the investment market in 2014.

The turnaround in the Irish residential market will spread beyond the Greater Dublin Area, with rising prices set to be a feature of many urban areas, in 2014.

 

Today has brought confirmation that prices outside of Dublin, as measured by the CSO’s Residential Property Price Index (RPPI), have turned positive on a y/y basis for the first time in six years, rising 1.2% in January.

Demand benefiting from economic recovery – The on-going recovery in the domestic economy, allied to improving credit availability, bodes well for the demand for property.

Lack of new supply remains an issue – Muted new build activity, the reducing overhang of vacant units and on-going new household formation are combining to cause shortages in a growing number of areas. While this augurs well for prices, if left unchecked this will undermine competitiveness in the longer term. To address this Investec have proposed that policymakers examine ways to reduce the effective cost of providing new supply, such as by reducing taxes and levies, while also considering incentives to encourage ‘empty nesters’ to trade down.

A busy year in store for the residential investment market – With a large stock of assets set to be sold by NAMA, the banks and retail investors, there will be ample scale opportunities at attractive yields for players looking to establish a meaningful presence in Ireland. The 47% rise in the number of households in rented accommodation between 2006 and 2011 has led to convergence between Ireland and the EU-28 average in the proportion of persons living in rented accommodation, so the arrival of professional landlords on the rental market is timely.

Some tail risks remain – While the risks are much reduced compared to a year ago, they have not fully gone away. The step-up in the resolution of troubled buy-to-let mortgages by lenders represents the key challenge for 2014, although Investc do not expect that this will be a particularly onerous hurdle for the market to negotiate.