Slowdown In House Price Growth May Be Start of a New Era

A slow-down in the rate of house price growth in Dublin may represent the beginning of a new phase of more moderate growth according to property consultants Savills.

The latest CSO data show that prices in Dublin rose by 23.4% in the 12 months to September – a slowdown from 25.1% last month.

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Commenting on the figures Dr. John McCartney, Director of Research at Savills Ireland, cautioned against reading too much into one month’s data and noted that the overall rate of house price growth remains very high.  However, he highlighted a multitude of factors that are now working to dampen the rate of house price growth.  In the short term, these include;

·       Reduced cash-sales as much of the boom-time ‘mattress money’ has been spent

·       Tighter bank lending with further restrictions to come

·       Gradual scaling-back of investor demand due to lower yields

·       Withdrawal of CGT incentives which allowed some investors to pay more

In the longer term, McCartney says that recent policy changes should also stimulate new housing development which will further help to control excessive price growth.

Budget

“Last week’s budget could have done more to kick-start house building – for example cutting the VAT on new homes to 9% would have reduced construction costs.  However, taken together, the package of measures that have been announced by Government in recent months should significantly help to boost supply, leading to more sustainable price growth.”

According to McCartney, these measures include a commitment by NAMA to deliver 4,500 new homes in Dublin over the next 18 months, longer term plans to deliver 10,000 social housing units by 2018, the recently announced reduction in Part V developer requirements, and removal of the 80% windfall gains tax on rezoned land which will facilitate the transfer of sites to developers who are keen to get building.

Stronger Price Growth Outside Dublin

An interesting aspect of today’s figures is that, while price growth is slowing in Dublin, it is accelerating outside the capital.

“With Dublin prices rising rapidly and incomes remaining more-or-less flat, affordability constraints are causing demand to be displaced more and more into the commuter counties of Wicklow, Kildare and Meath.  This, and continuing strong demand in the urban centres of Cork and Galway, is driving stronger price growth outside Dublin.” 

Central Bank

Dr. McCartney said that this trend could be strengthened by the macro-prudential proposals that were recently floated by the Central Bank will impact on housing demand.

“The proposed lending restrictions will undoubtedly impact on affordability and this is likely to drive buyers further afield in the search of affordable properties.”

However, McCartney cautions that the Bank’s proposed LTV and loan-to-income limits need to be finely judged to ensure the bar is not set too high for the first time buyers:

“Prudent lending and borrowing is in everyone’s interests.  However, under the proposed rules first time buyers purchasing the average Dublin home would have to save a deposit of up to €70,000.  Given the fact that incomes are only growing sluggishly, this may be an unrealistic target for many.”