The number of houses the State must build to meet demand could be as high as 50,000 per year, according to analyst Davy.
The group said it had updated its population and housing demand forecasts following the results of Census 2016, which revealed that the population was 2 per cent larger than preliminary estimates.
It said the new analysis of housing demand and supply in the Republic revealed “an even larger imbalance” than previously thought. “Government policy seems focused on boosting supply by helping construction sector profitability,” it said in a note.
“This is likely to drive house prices higher, facilitated by an accommodative mortgage market.”
Davy said housing demand was “at a minimum” of 35,000 units and “perhaps as high” as 50,000 units per annum out to 2021.
Furthermore, it said the official figure for housing completions of 14,900 “probably overstates the true level of homebuilding by a factor of two”, bringing the actual level of completed homes closer to 7,500 per year.
Vacant properties
“Derived from connections to the electricity supply grid, they may be subject to double counting and capture existing vacant properties being finished or reconnected,” it said.
In addition, completions in Ireland have been “heavily reliant” on finished ghost estates, which have now been largely eroded. “This means the housing demand/supply imbalance in Ireland is even more severe than we had thought,” it said.
Davy also said double-digit house price gains were “likely to persist longer”.
“We expect the housing market will continue to deliver strong price gains,” it said. “The economic recovery has led to an acceleration of wage growth toward 2-3 per cent.
“Our analysis of the Irish mortgage market shows that the median loan-to-income ratios on new mortgage lending are well below those in the UK and the Central Bank’s 3.5x regulatory threshold.
“Banks have the scope for more highly leveraged lending, and buyers will demand higher levels of mortgage debt as they compete for a dwindling supply of homes listed for sale – pushing prices higher.”
VAT rate
On Government plans to stimulate the sector, it said it “now seems likely” the Help-to-Buy scheme will be retained in some form in October’s budget.
"In addition, the Fianna Fáil party, supporting the minority government, has argued for a temporary cut in the VAT rate on new homes, and there is pressure to eliminate development levies," it said.
“In the absence of meaningful structural reform on planning and land supply, Government policy is reverting to inflationary policies that will boost profit margins in the homebuilding sector.
“Looking ahead to the autumn 2017 review of the Central Bank’s mortgage lending rules, the case will be made to relax restrictions on loan to income ratios towards UK levels.
“For now, access to development finance remains a constraint for smaller builders – opening up opportunities for better capitalised, larger firms.”
