The property market in 2018
RECENTLY the Government announced a revamped first-time buyers’ loan scheme. The scheme provides a fixed interest rate loan for the period of the mortgage. The scheme is designed to assist a person who earns less than €50,000 to borrow up to 90% of the value of the house subject to a maximum house value of €320,000 in greater Dublin. The scheme also allows for a couple who earn less than €75,000 to borrow up to 90% of the value of the house subject to a maximum house value of €320,000 in greater Dublin. It is understood that the local authority will provide the mortgage and the interest rate will be approximately 2.25%. THE figures in this year-end Daft.ie Report for the sales segment of the housing market show that 2017 was very much a year of two halves. In the first half of the year, prices rose nationwide by an average of 8.8% - with Dublin (9.5%) and the rest of Leinster (11.4%) seeing the biggest increases regionally.
By contrast, the second six months of the year saw almost no change in the average price: whereas it had been €240,093 in the second quarter, it was €240,783 by the end of the year.
When it comes to the sales market, then, the story of 2017 is the story of just how pivotal the Central Bank’s mortgage rules are. At the start of the year, the Central Bank relaxed its minimum deposit rules, in particular for wealthier first-time buyers. Whereas previously, any mortgage credit above €220,000 required a 20% deposit, from 2017 all first-time buyers required no more than a 10% deposit, no matter how large their mortgage.
This relaxation of the rules spawned an almost immediate price response in the market. But a one-off change in rules can only bring about a one-off shift in prices. And once this change in credit conditions had been absorbed by the market, the rules kicked in. Incomes are rising but very modestly.
Taking a step back, it means that the price at the end of 2017 was 9.2% higher than at the end of 2016. This is a bigger increase than was seen during 2016 (8%) or 2015 (8.5%). Indeed, of the years since 2006, only 2014 - when prices rose 14.2% on average nationwide - saw a bigger increase than the year just gone. (Prices were stable in 2007 and in 2013 and falling for the years in between.)
The substantial increases over the last four years mean that in a number of parts of the country, prices are now within a year or two of reaching their 2007 peak. The first is that all the areas closest to their 2007 peak are urban areas. Outside the main cities and the Greater Dublin Area, the typical region has prices that are still 45% below peak values. However, the second noteworthy point to take is just how spread out the areas closest to their peak area. The peak of the Celtic Tiger housing bubble is not, of course, a target. Apart from those in negative equity, there is little reason to cheer prices as they rise year on year. What the bigger picture price trends tell us is that housing demand is focused in and around cities.
Contrary to some of the political debate in Ireland, this is far from unhealthy. What is unhealthy is trying to impose a non-urbanised housing market on an urbanised labour market. Ireland is the least urbanised country in Europe - but this just makes it late, not different.
As Ireland goes from 65% urban to 80% or 85% over the coming few decades, this will create huge additional demand for housing in and around Ireland’s major cities. If we as a country get that wrong, we will be stuck in a sprawl model, with implications for family life and environmental sustainability, as well as for the housing market.
In 2018, work will get underway on implementing the National Planning Framework, which is supposed to put in place the foundations for Ireland to grow over the next two decades. Here’s hoping the Framework gets it right. Otherwise, there could be many more years of housing market angst ahead.