Irish housing market regains some momentum

This quarter’s MyHome report shows asking prices rose 0.6% in Q3 2023, up for a second successive quarter, with annual inflation accelerating to 4.1%. Even in Dublin, where valuations had become most stretched, asking prices rose 1.3%, up 3% on the year. The period of falling house prices in the first half of 2023 has come to an end, with the underlying imbalance between demand and supply providing fresh impetus.

That competition for homes is heating up and is evident in the 3% premium over the asking price that buyers were prepared to pay in September, up from 1% at the beginning of the year. Housing demand has been resilient despite European Central Bank (ECB) rate hikes, reflecting the strong performance of the economy. In July, the average mortgage approval was €298,800, up 4% on the year, with lending volumes up 18% on 2022. 

However, the lack of housing supply is concerning. Just 13,400 homes were listed for sale on MyHome at end-September, down from above 20,000 in 2019. Also, the 7,675 new listings in Q3 2023 were down 38% on the year. The figures suggest any period of catch-up for housing activity following the COVID-19 pandemic is now over. Worryingly, homebuyers may have to reconcile themselves to this tighter market.

In this report we help explain why Ireland’s housing market is behaving very differently to its peers, specifically the UK. House prices are also falling in Canada, the US and some European countries. We expect prices will be broadly flat in Ireland in 2023. Why the difference? 

The recent results of the 2022 Census help to illustrate the enormous imbalance between demand and supply. Firstly, the population was 5.15m in 2022, which meant there were only 410 homes per 1,000 persons last year. This is the lowest figure for the ratio of the housing stock per capita across a range of European countries. To bring Ireland up to UK levels would require a further 140,000 homes. 

The degree of pent-up housing demand was also evident in the Census. Adults living at home with their parents represented over 10% of the population; of these, 275,000 were in employment – a group that has grown by an enormous 28% since 2016. Cramming is now a growing feature of the market. Numbers living in homes with unrelated persons grew by 29% to 802,000 in 2022.

Can the situation be resolved? It is true that housing construction has held up far better than expected. There were 28,900 housing starts in the 12 months to July despite the challenges to viability from building costs and higher interest rates. However, the big picture is that completions would have to rise to 40-50,000 units to start addressing pent-up demand.

Where does that leave the outlook for Irish house prices? There are clearly headwinds and affordability is stretched. Also, the impact of past ECB interest rate hikes has yet to be fully felt. However, the surprise loosening of the Central Bank mortgage lending rules this year will also add fuel to house prices over time. 

We expect modest, low-single-digit price rises from here, close to the pace of pay growth, so that affordability is stable or improves marginally. However, this quarter’s MyHome report highlights the risk that the lack of housing supply could drive more aggressive price gains over the next one to two years. 

For more information on the residential property market, download a full version of the Q3 2023 MyHome report.