March sees fastest increase in two years, with further increases expected in coming months

Dublin property prices show particular strength on limited supply

Second hand prices now rising faster than new build for first time since spring 2018

Incentivising supply likely to take time but Government has increased ‘fiscal space’

Irish house prices increased by 3.7% in the twelve months to March 2021, the fastest growth in two years (March 2019+3.7%). As in recent months, the March data hint at growing demand pressures in the face of very limited supply.

The recent acceleration in house prices is evident in the pick-up from the 3% increase reported for February and more forcefully from the 0.9% y/y drop reported for August 2020. Coming months could see a further acceleration in property price inflation as year over year comparisons are likely to be flattered by the contrast between current strong momentum and the uncertainty that weighed on the market as health-related restrictions first kicked in last spring.

For most of the past year the momentum in property prices outside Dublin remains stronger than in the capital. However, the March data saw a notably stronger monthly increase in Dublin property prices (+ 0.9%m/m) than elsewhere (+0.4% m/m) and this translated into a notably faster acceleration in the twelve month increase in Dublin (to 2.5% y/y in March from 1.5% in February) than in the rest of Ireland (to 5% y/y from 4.5%). 

Paradoxically, the average market prices of houses purchased by consumers in Dublin in March at €489k and in the rest of the country at €235k have eased marginally in recent months reflecting a shift in the composition of purchasing to smaller and/or less highly specification properties. This appears consistent with the view that current pressures are most pronounced away from the upper echelons of the market (although the particular strength of Dun Laoghaire-Rathdown prices of late argues against sweeping generalisations).

Another feature of the first quarter data is a marked pick-up in the price of existing homes relative to new builds. The price of existing homes increased by 1.9% in the quarter to stand 3.3% higher than a year earlier whereas the price of new builds increased by 0.6% to stand 2.5% higher than in the first quarter of 2020.

The 3.3% y/y increase in the price of second-hand homes marks a sharp acceleration from the 0.3% increase seen on the final quarter of 2020. This is the first time second-hand home prices have been increasing at a faster pace than new homes since Q2 2018 and likely reflects outsized demand pressures at present that are resulting in ‘bidding wars’ between prospective purchasers.  

A sense of the shifting focus to the second hand market is also evident in an increase in second hand property purchases by household buyers (up 16% y/y in March) whereas their purchases of new properties dropped by 17% y/y.

The easing in the pandemic is widely seen aggravating already substantial problems in the Irish residential property market. As we noted previously, a large and longstanding supply shortfall through the past decade, possibly totalling in the region of 150-200k homes, was worsened by health-related restrictions on construction.

At the same time, equally persistent pent-up demand has been boosted by ‘lockdown’ savings and the increased emphasis mobility restrictions placed on the home’s capacity to function as a place to work as well as rest and play.

Resolving this imbalance will take time and consistent policy actions. Significantly, however, the aftermath of the pandemic has materially increased Ireland’s fiscal and economic scope to markedly upscale construction in coming years and ease current housing problems. Internationally, there is now a much greater acceptance of the need for increased public investment to restore economies to full health and limit long term ‘scarring’ in labour markets.

While funding capacity has been enhanced, this will require consistent policy actions that incentivise sustained increases in supply rather than temporary increments to demand and underpin public and private sector co-operation to reach that goal.