It appears that a reduction in interest rates by the European Central Bank is anticipated at their upcoming meeting in early June. This change may come as a relief for those with mortgages, especially those who are on tracker loans. Nevertheless, although borrowers could benefit from this reduction, it’s possibly not in the best interest of the Irish property market which is currently experiencing hikes in prices and rents. Additionally, young people looking to buy homes face difficulties no matter which course they choose.
Unlike the trend in several other European nations, property prices in Ireland persistently increase and these climbing costs are only fuelled further by lower borrowing costs. Rather than being hindered, the market absorbed the rise in interest rates which started in mid-2022. On average, Irish house prices boosted by 12 per cent since this rise in ECB interest rates. And in spite of slowing down last year, the price growth has kicked off once more, speeding up in the entrance to 2024.
Expectedly, falling interest rates are beneficial for those looking to buy houses. However, they are entering a market in which prices are soaring. This is unusually aided, in the case of new home buyers, by the growing state support with both the Help-to-Buy scheme and the First Home Scheme, in which the state possesses a stake in equity. Inevitably, when demand is pumped up in a market where supply is limited, prices will rise. Yet, plans by a government led by Simon Harris include continuing support for those buying homes. He declared in his ardfheis speech that if it’s under his leadership, the Help-to-Buy scheme would be extended for an extra five years after its current end next year.
Contrarily, the main opposition party, Sinn Féin, intends to end both Help-to-Buy and the First Home Scheme. They argue that these plans only cause a surge in prices, primarily benefitting developers. There’s possibly truth in this, as a 9.2 per cent rise in the price of new homes in comparison to a 1.6 per cent rise in second-hand homes over the past year illustrates the impact the schemes have had. They also highlight that the majority of qualifying new homes are situated in commuter regions, which are situated outside city centres. However, disconnecting the Irish property market from this inherent support may pose significant challenges.
In the remaining time of his tenure, Harris has clearly outlined his strategy. It focuses on amplifying the surge seen in the housing construction sector, with the commencement numbers skyrocketing and anticipated completion of 35,000 properties within this year. Furthermore, the party’s return to power would promise even more progression. A major action likely to be taken is the continuation of current waivers on development charges and water connection fees for new residential projects, due to expire on the 24th of April. Introduced a year ago, this initiative has managed to decrease the average housing construction cost by approximately €12,500, seemingly contributing to the recent wave of new construction starts, many of which are aiming to meet the deadline.
However, Harris has the daunting task of detailing a sustainable plan for constructing 250,000 new homes over the subsequent five years, starting in 2025. His fellow party members who have sworn similar pledges are in the same boat. The government has restrained from confirming new official goals until later in the year, taking into account ongoing research at the ESRI. However, Harris has at least acknowledged that an increased target is fitting.
In order to support this blueprint, we are still awaiting the unveiling of the Commission on Housing report, which is predicted to be formally delivered to the Housing Minister Darragh O’Brien shortly. It is foreseen that the report will highlight the necessity not only to significantly increase the housing stock to accommodate population increase and immigration but also address the “backlog” issue of countless young adults who continuously live with their parents due to unaffordable rent and house prices.
Harris has passionately affirmed his commitment to “move mountains to get the children out of the box room and into a home of their own” in his speech. This is a significant issue as the CSO has estimated that over 40 per cent of individuals aged between 18 to 34 continue to reside with their parents.
Rising costs of property and rent mean that numerous individuals will find themselves unable to move. Recent findings from MyHome.ie illustrate that wealthier individuals, who have enjoyed salary increments, are pushing the prices higher. Statistics reveal that a first-time buyer’s annual salary averages at €88,258, showing a 6.7% surge in the past twelve months. This indicates that those with average to lower pay scales are increasingly being disadvantaged, with only the middle earners managing to buy by relying heavily on governmental grants and borrowing close to four times their income.
Young individuals are confronted with significant risks in the marketplace. With sky-rocketing rents and current tenants clinging onto their properties due to protective regulations and prohibitive costs of new rentals, the market dynamics are fraught. The property supply also represents a significant issue. Historical data from Sherry FitzGerald estate agency suggests that, over the last ten years, for every small private investor entering the market, three have exited. The involvement of large investment funds has similarly decreased.
At present, the government’s strategy is plain: stimulate house buying and construction via incentives, in the hope that circumstances will improve. However, the long-term risks of such high borrowing cannot be discounted. John Fahy, a broker at Pangaea Mortgages, has expressed uncertainty over the future value of newly-constructed properties bought using state assistance and cost-effective “green” mortgages. When these houses re-enter the market as resale properties, without the provision of state financial support, what might happen? Like always, the unpredictable nature of Ireland’s housing market dictates that everything will be good until a decrease in prices is observed.
The current stance of the government, though clear, remains hopeful: continue to incentivise housing purchases and construction, hoping for positive outcomes. Some of this incentive investment is successful, leading to many managing to buy new properties. However, the perennial supply problem persists. The impending election campaign will unearth the contrast between the government’s standpoint of consistency and improvement, and the opposition pledge for changes, spearheaded by Sinn Féin and other rivals. Regardless of who holds power, billions will continue to be expended, as Leo Varadkar highlighted during his exit, we are bearing heavy costs due to the lack of sufficient investment following the financial collapse.