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House price rise analysis: Too few homes

Thursday, July 24 15:53:17

Analysts and business groups agreed that today's official figures showing house prices in Dublin nearly 24pc higher than a year ago while national prices were up 12.5pc shows that the market is under-supplied.

Dermot O'Leary, an economist with Goodbody Stockbrokers, said you'd have to go back to 1999 to find a comparable rate of increase. At that time, falling borrowing costs triggered by Ireland's entry into the euro were fuelling lending and thus house prices. "This time around, an acute shortage of property in the capital is the culprit," he said.

Property Industry Ireland (PII) said the new CSO figures reflect a "continued and serious mis-match between supply and demand, especially in urban areas".

PII Director Peter Stafford said: "Rising house prices may be good news for many homeowners, but the speed at which prices are growing is putting pressure on the private rental and social housing sectors. Students, in particular, are facing the consequence of increased prices in Irish cities."

"Only 8,400 new homes will be completed in 2014. We need 25,000 new homes every year, just to keep prices and rents under control. As young people begin thinking of moving to university or college, we need to prioritise the development of purpose-built student accommodation in our cities to help students find accommodation at a price they can afford," he added.

Alan McQuaid of Merrion Economics agreed. "A lack of supply of houses is clearly pushing up prices, particularly in the Dublin area, something which the Fine Gael/Labour government hopes to address. Clearly, there is an element of housing froth at the moment which is pricing many first-time buyers out of the market. Apart from supply, the other key issue remains credit availability in the economy, though the banks maintain this is more down to weak consumer demand. If that is indeed the case, then an improving labour market should see the demand for credit pick up in the coming months, but that is only going to push prices up further if the supply of houses for sale doesn't increase dramatically."

The Society of Chartered Surveyors Ireland called for the prompt implementation of the measures recommended in the Government's Construction 2020 Strategy to address the current housing supply shortage and pace of increases in property prices.

Conor O'Donovan, Policy Director of the SCSI said "Average property prices have increased by almost a quarter since this time last year in Dublin and while property values still remain approximately 45pc lower than in 2007, the current rate of price inflation is of significant concern and poses a challenge to levels of affordability and our economic competitiveness."

"They key issue appears to be the shortage of supply of new properties. Last year we built just 8,301 new houses when we should be building up to 25,000 pa to meet demand. Clearly the pendulum has swung too far in Ireland and we now need a more balanced approach to building houses to meet the needs of our population and economy."

For more visit www.businessworld.ie