• Demand and Supply in the Property Market .... 17-05-2018


    Comparing prices in the first three months of 2018 with those in the final three months of 2017, with only Monaghan recording a slight fall. Compared with prices a year ago, only Donegal has seen a fall.
    It is, in other words, a market that continues to see almost across-the-board strong increases in prices. Looking at the national average, the annual rate of inflation was 7.3% in the first quarter of the year. The optimist will point out that this is the slowest rate of inflation in almost two years
    However, in a healthy housing system, housing prices increase at the same rate as prices in the rest of the economy, no faster. According to the official measure of the price level, general prices in the Irish economy are no higher now, in early 2018, than they were five years ago. This is a remarkable achievement in recovering the lost cost competitiveness of the Celtic Tiger years. It is all the more remarkable considering that one of the single largest components of the CPI is private rents – so in truth, leaving the housing market aside, consumer prices in Ireland have fallen over the past five years.
    In the same time, though, the purchase price of housing has risen by one half, on average. In Dublin the increase is slightly above 60%, outside urban areas, the increase is closer to 40%. But overall, this is a collection of geographical markets more defined by their similarities than their differences.
    The reason that prices are rising is not complicated: the growth in demand far exceeds the growth in supply. The fundamental barometer of a healthy housing system is that, where new demand occurs, new supply follows quickly. This should be true for the housing system as a whole – i.e. both market and social housing segments. But a closer look at the figures reveals just how dysfunctional Ireland’s housing system is.
    Turning to demand, first, Ireland’s population is rising by over 50,000 people a year. About two-thirds of that increase – between 30,000 and 35,000 – is down to a natural increase in the population. The remainder – a far more volatile number in Ireland but 20,000 in 2017 and on average that amount over the last two decades – is net migration.
    Of course, it’s a little more complicated than births exceeding deaths. A population increase of 50,000 does not mean the country needs 50,000 new homes a year. At a very basic level, not every individual – and certainly not new-borns – has a household by themselves.
    This information is supplied by Daft Property Report.