Reports of a dysfunctional housing market, with signs of a speculative land price bubble, appear valid.
With the economic recovery well underway and Dublin accounting for over 50% of all jobs created together with continued population growth, there is considerable pent up housing demand in the Dublin market. The debate currently remains focused on the shortage of housing supply and the failure of this demand to be met. There are concerns that housing construction is not viable in some Dublin locations, with costs exceeding what the market can afford. At the same time there are reports from a number of private developers that they are finding it difficult to sell affordably priced housing in some parts of Dublin.
Planning permissions not translating into commencements
A total of 17,690 units were granted planning permission in the Dublin region in the last five years. However only 8,000 units were commenced in the same period (Figure 1). Housing completions meanwhile remain low, but even these may be overstated as they are based on electricity connections, some of which represent stock left over since the boom.
Dublin Housing
What is required to meet demand?
In 2014 the Housing Agency projected a minimum requirement for 35,433 housing units in Dublin over 2014-2018. This is clearly not being achieved. Over 29,000 units are required in the Dublin market over the next three years to meet this target. Population increases combined with smaller household compositions will place further pressure on housing in the capital over the medium-term.
House-building is a major factor influencing economic activity. The ability to secure housing, whether via home ownership or renting, is vital for economic growth and competitiveness. Thus a recovery in supply is essential, but schemes must be financially viable and must also deliver properties at prices that buyers can afford. There have been some moves to address cost viability in terms of development contribution rebates, reductions in Part V obligations and changes to apartment standards. However, building costs and house prices remain too high.
Separately, there are concerns about high prices being paid for land. While there is reported to be adequate zoned residential land, servicing of this land appears to be an issue in some cases. On the other side, affordability remains a problem for first time buyers. The
Central Bank lending restrictions are having an impact, particularly with respect to the loan to gross income limit of 3.5 times, which implies that a first-time buyer (FTB) working couple requires an income of €68,000 to obtain a mortgage, based on the average FTB price in Dublin of around €270,000, after saving €32,000 for their deposit. Yet a small number of new affordable private developments have recently bypassed the open market by selling in their entirety to approved housing bodies.
In summary there is market failure in the housing market as evidenced by rising rents, lack of new supply and increasing homelessness. The viability issue needs to be tackled, as land costs, building costs and house prices are too high. With land prices already showing signs of a bubble there is a need for measures to increase the availability of residential zoned and serviced land in Dublin.
Annette Hughes is a Director of DKM Economic Consultants, one of the longest established economic research firms in Ireland. She previously worked for John Laing plc, BP Ireland and lectured in economics at the University of Limerick. She has been the Irish representative of the Euroconstruct network since joining DKM in 1993.
