Conor Skehan
House prices are increasing, but price alone does not tell the full story. First, all price increases for any single item — such as housing — must be seen in the context of price changes in the overall economy. Second, what really matters is affordability, which is the ratio of price to income.
Last week the Central Statistics Office (CSO) reported that the national Residential Property Price Index increased by 5.4pc in the 12 months to last January, with prices in Dublin rising by 4.5pc and prices outside Dublin up by 6.1pc.
It should be noted that the CSO separately reported that between February 2023 and last February, the rate of inflation, as measured by the Consumer Price Index, rose by 3.4pc, down from an annual increase of 4.1pc in the 12 months to last January.
Turning to other official sources of data about affordability, according to the OECD intergovernmental organisation Ireland’s increasing price-to-income ratio over the period 2015 to 2022 is below the OECD average — which puts it on par with Spain and the UK but below Germany, the US, New Zealand, Austria, the Netherlands, Canada and Portugal.
Similarly, the rate of real houseprice increases in Ireland are just a little above the OECD, while also lower than in Germany, Spain, Austria, the US, Canada, New Zealand and the Netherlands.
The takeaway? Ireland’s house prices are increasing generally in line with inflation at the same rate as comparable countries while becoming more affordable when measured by price-to-income ratio.
Alarmists like to draw attention to increasing house prices while conveniently failing to mention inflation.
Earlier this month the International Monetary Fund (IMF) produced a ranking of inflation-adjusted housing prices. This showed that two-thirds of the surveyed economies saw declines for their most recent quarter of available data.
Notably, Ireland showed the second smallest decline at only minus 0.04pc. This is very good compared to places like Denmark and New Zealand that are experiencing inflation-adjusted house price losses of over 5pc per quarter.
The takeaway? There is an emerging global pattern of falling inflation-adjusted house prices that is being caused by increasing inflation and rising interest rates.
The IMF’s latest World Economic Outlook update forecasts inflation to be lower this year than it was in
Sellers should sell their property as soon as they can, if they must move
Today, first-time house buyers can expect between 20pc and 30pc of the price to be supported by the Government. Instead of making houses more affordable, it appears that this excessive generosity is causing asking prices to increase.
The IMF has advised that poorly targeted housing supports tend to fuel demand for housing and potentially exacerbate existing housing market imbalances.
The big take away is first and foremost that Irish house prices are part of a global trend caused by factors beyond our control.
The second is that well-intentioned government interventions have added to the problem because these benefit housebuilders at the expense of house buyers.
And the last take away is that many of the Government’s other attempts to help have also reduced both supply and affordability because of the size, frequency and complexity of policy changes.
The time has come to ask the Government to stop getting in its own way as it attempts to deal with house prices.