IT’S 12 NOON on a Saturday and people are filing in and out of this house in Churchtown, Dublin, like someone is giving away free breakfast rolls inside.
They’re not – the house is just up for sale, but it’s the first time it’s had an open viewing and anyone on the hunt for a new home has just a half an hour to knock on the walls and check out the storage space.
During that half hour, some 40 couples viewed this regular three-bed family home which is on the market for €550,000. The property is nice and bright and has a good sized extension but the first floor is relatively small, the house has just one bathroom and it will need a little work.
So, at more than half a million euro, it may seem a bit pricey. For the couples looking around on Saturday, the price tag was not a surprise, as this is what they’ve been seeing at most properties in the area since they started looking.
“We actually have a house to live in at the moment, but if we didn’t and we were looking to move into our own home, we’d be very worried, ” said one man, who has been looking on and off for a new house with his wife for around a year now.
They said when they were looking at houses like this one a year ago, they were on the market for at least €100,000 less.
“I think it’s probably a good time to buy now – it’s buy now or pay more for it in 12 months,” he said.
All of the people we spoke to at the open house said they’d seen huge interest at every viewing they’d gone to.
“There’s big competition again now,” one man commented.
“I think there’s another massive bubble there now,” another told us, adding that he and his wife had not thought any of the houses they’d been to see so far were worth the money they sold for.
There were a few of them that we said “Yeah, absolutely” and we were taking into account the amount of work that needs to be done on them and we weren’t even close – we were just blown out of the market.
“All of these types of houses, they all need a bit of work, they all need money put in just to get the basics right,” his wife added.
Though there is a noticeable rise in prices, none of the couples who spoke to TheJournal.ie said they were willing to take a risk, or pay more than they think a house is worth.
“I won’t settle – I’d rather rent for a while than settle,” one woman said. “I don’t want a noose around my neck in five years’ time.”
It appears that people on the hunt for a new home right now are – in this area at least – somewhat more cautious than those back in the days of the boom who were placing massive bids on houses they had not even seen yet.
This was confirmed by the DNG estate agent on the day, who said buyers are definitely more patient with their search now, though one informal offer of €530,000 had already been put in on this property that day. She said this particular house had sunk to a value of €350,000 around two years ago but, at its peak during the boom, it would have been valued at €900,000 or even a million euro.
Supply and demand
The main reason for escalating house prices, especially in urban areas, is simply that there aren’t enough of them.
Micheál Collins is a senior researcher with the Nevin Economic Research Institute. He has researched the level of house completions and the affordability of housing stock.
“The plunge in supply, when you see the raw numbers, is dramatic, even ignoring the madness at the height of the boom.”
Using figures on electricity connections from the ESB, he estimates that around 8,000 units were built last year, with the same the year before.
“This year will probably be a bit higher, but it will still be considerably lower than anything reasonable when you look at what’s needed.”
It’s not 8,000 that we need to be building, it’s multiples of that.
An upper end of what is needed, according to Davy chief economist Conall Mac Coille, could be up to 35,000 units per year in Ireland, if inward migration picks up.
Bank lending, despite the stresses visited on the sector, is not an impediment to the housing market, Mac Coille argues.
“There’s plenty of funding available for mortgages. It’s just that people can’t get the houses.”
Housing woes
His view is borne out by the data. New statistics published last month show that mortgage approvals are much higher than mortgage drawdowns.
Basically, people are getting loans for houses, but there’s no houses for the loans.
In the teeth of the recession, with minds focused elsewhere, the replenishment of the housing stock essentially evaporated. Now, Collins says, there’s a new demand for housing, and it’s greater than it has been before.
“There’s been a glut built up of individuals who at some stage over the last five years probably should have been in the market buying, but they didn’t-plus normal flow into the market.”
In addition to this, people are flocking to the cities, according to Allsop director Robert Hoban:
“A lot of internal migration has gone on in Ireland…we’ve seen a lot of people move from the country into towns and cities for employment.”
By comparing average household incomes with property prices, a picture of an imbalanced market emerges.
Research from NERI shows that in 2006, at the peak of the property market, house prices were 5.55 the average gross household income.
The most recent year for which data is available is 2012, when they were around 4.22 times what came into the average house every year.
“Those average house prices are climbing back up, so you’ll begin to see those figures nudge back up” predicts Collins.
The symptoms of the supply shortage are grimly familiar. Bidding practices that were widespread during the boom have returned, according to Hoban.
It’s very difficult to secure a property at an open market price because you don’t have transparency and accountability over bidding.
One woman with experience of this said she knew it had become a sellers’ market when she and her partner bid for four weeks on a small, semi-detached house in Marino in north Dublin, only to be told that they would be thrown into ’best and final offer’ scenario.
“We were informed of this late on a Friday afternoon, and had to have a sealed bid – accompanied by assurances from a solicitor and a bank that we were good for the money and a quick move – into the estate agent by noon on Monday,” she explained.
It was incredibly stressful and essentially leaves your fate up to a blind auction. We found out later that the ‘winner’ was a developer with deep cash-lined pockets and that we came ‘second’.
For this couple, the scenario she described has become the “tactic of choice for every house” they bid on since then and they are not alone in this.
“We are trying to heed the mistakes of the boom, where we saw our friends get caught up in huge mortgages which have now crippled them and their young families, but it’s very difficult,” she said.
Policy response
The response from the government so far has not inspired confidence among market observers.
Construction 2020, while welcome, was described by one source as being “an announcement about announcements.”
The most evolved policy that has been mooted so far is a proposal to allow borrowers to claim up to 95 per cent of the value of their home with backing from the Government.
Mac Coille is scathing in his assessment of the plan.
“With little construction in Dublin, extending looser credit to first time buyers will merely bid up house prices.”
“Ireland’s housing market is beginning to show its microwave properties – the process of quickly going from lukewarm to scalding hot long before the economy truly recovers.
Collins agrees:
“That’s not going to work as a solution to the issue we have. It’s purely on the demand side, and it’s quite populist.”
If nothing happens on the supply side, it’s just going to fuel prices, so there’s no benefit at all from the ability to borrow money, because that’s entirely going to be absorbed by the market price.
Change required
In order to tackle the crisis, Irish people are going to have to change their attitudes towards property.
Last week, the head of An Bord Pleanala said that high-density housing is the way forward.
Professor Rob Kitchen works in the institute for regional and spatial analysis in NUIM. He says that long-held expectations about what our housing stock can deliver need to change.
“We need to alter what people want. We have an expectation of a three bed house and garden, and in the future if you want that, you’ll have to pay a premium.”
You have to get high density, otherwise you’ll have massive urbanisation out for miles.
Mettle needed
The Government, Mac Coille says, will “have to accept harsh realities about repossessions, especially among the buy-to-let sector.”
Collins says that policy has to overcome and latent timidity about tackling housing issues.
“There’s a very clear fear in the political system of dealing with housing. It’s territory that they don’t want to go to.”
“The residential price issue originates from households, which is where polticians are elected from and are connected into…they’re fearful because there would be a fair view that the political and policy system should have done something about this and didn’t.”
Reporting by Michelle Hennessy and Jack Horgan-Jones
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