Is Ireland’s property bubble about to burst again?

Buy-to-let curbs are damaging the country’s appeal to big tech, report

Ireland’s buy-to-let crackdown has triggered a landlord exodus that is hitting business investment in a major threat to economic growth, experts have warned.

Rental supply in Ireland has plunged as a toxic cocktail of high taxes on landlords’ income, rent controls and a winter eviction ban push Irish investors to sell up en masse.

Two fifths of all homes listed for sale in the last three months of 2022 were buy-to-lets, according to the Society of Chartered Surveyors Ireland (SCSI), a professional body.

Nationally, across Ireland on Feb 1, there were 1,096 homes listed to rent on Daft.ie, a property website. This was roughly an eighth of historical levels – from 2006 to 2021, the average number of listings on Feb 1 of each year was 8,500.

The number of Daft.ie rental listings has plunged by 95pc since its peak 15 years ago.

The supply crunch is driving up rents. Nationally, average market rents in Ireland rose by 13.7pc year on year in 2022, after jumping 10.5pc in 2021, according to Daft.ie. Back in 2020, rent growth was just 0.5pc.

There are growing concerns that Ireland’s housing crisis will damage the country’s economic model, which is centred around attracting tech giants to its shores via an ultracompetitive 12.5pc corporate tax rate.

“One of the greatest threats to our economy is our lack of housing,” says John O’sullivan, of the SCSI.

“After the massive bust at the end of the 2000s, Ireland’s success story was its recovery based on investment into Ireland, primarily from tech, pharma and aviation. If these companies can’t house their staff, then maybe the next lot of companies who are thinking about investing will decide not to relocate here.”

Officials in Ireland’s Industrial Development Agency (IDA), which is responsible for drawing foreign investment into Ireland, have expressed concerns about how the housing crisis is hitting business investment.

“IDA’S clients are worried about the housing and in particular the rental situation across the country,” the organisation’s head of strategic policy wrote in an email that was released following a Freedom of Information request by The Irish Times. Employers who are already based in Ireland are targeting new-build developments directly to arrange accommodation for their staff, says Colin Richardson, of CBRE, a real-estate firm.

“When new developments are coming on to the market, whether that is to buy or rent, the big employers are in there having conversations to see what their options are about potentially taking a number of units for their staff,” he says.

Last week, Ian Talbot, chief executive of Chambers Ireland, an influential lobby group, warned that the greatest challenge for business was the lack of talent, driven by the dearth of affordable and appropriate housing.

“We are growing as an economy, but we are not growing at the pace we could grow. Our domestic market has been constrained by this lack of housing,” Talbot said.

In recent decades, the Irish government has been hugely successful in encouraging US tech companies to become tax resident in the state, as well as establishing significant operations there.

Yet the reliance on these companies to drive economic growth has raised eyebrows, with critics arguing that the model is unstable and that Ireland’s bumper GDP figures are distorted by tech and pharma giants booking their profits and assets in the country.

Its exposure to big tech companies came into particular focus in recent weeks, with the now struggling sector axing thousands of jobs in the country, including household names such as Google, Twitter and Facebook owner Meta.

There are signs of stress in Ireland’s commercial property market, with Bank of Ireland forecasting a 6pc drop this year in prices amid rising interest rates and reduced demand for office space.

In a further sign of trouble, Irish Life, one of the country’s biggest insurance and pension providers, blocked withdrawals from its €500m (£445m) Irish property fund for a six month period amid a surge in customer redemption requests.

The notice period will allow time to make any property sales “as required to pay future withdrawals” and in a manner that is fair to all customers, it said.

But as the economy creaks, housing affordability is only getting worse.

Irish buy-to-let policy is more draconian than that in the UK. In “rent pressure zones” – namely all Irish cities – rent growth on existing lets is capped at the lower of either the consumer prices index or 2pc.

“Landlords with tenants who have been in a property for five or six years have rents that at this stage could be 20pc or 25pc behind the market,” says Richardson. The result is that the landlords who are still in the market are raising rents on new lets even higher, he says.

Those who are quitting and selling up for good are doing little to ease pressures in the sales market.

House prices in December 2022 in Ireland were up 26pc compared with at the start of the pandemic, according to data compiled by Knight Frank estate agents.

The pace of growth is cooling, as the cost of living crisis and higher mortgage rates constrain affordability. Year-on-year house price growth in December had slowed to 7.8pc, down from a peak of 15.1pc in February 2022.

But the Irish housing market does not face a downturn akin to that hitting the UK. The SCSI has forecast growth will slump to 2pc across 2023 – but it does not anticipate house price falls.

Years of under-supply from the new-build market are key. In 2022, there were 30,000 new-build completions, according to Knight Frank.

This was the first time in years that builders even came close to the 34,000 that economists say is the number Ireland needs to build each year to be able to meet demand.

“The cumulative under-supply is between 180,000 and 200,000 homes right now, across all of Ireland and all tenures. Realistically, that is only going to get worse, because development is becoming more unviable,” says Richardson.

‘One of the greatest threats to our economy is our lack of housing’

‘The cumulative under-supply is between 180,000 and 200,000 homes’