After a tumultuous 2020 and a somewhat disorderly 2021, many of us felt that we deserved stability this year. Eight months into 2022, however, stable is perhaps the last word one could use to describe this year. The war in Ukraine, rapidly rising consumer prices, supply-chain challenges and a 50-basis-point rise in interest rates have all served to challenge both our economy and our housing market.
Looking at the residential property market in the year so far, perhaps the most prominent fallout from the current global challenges lies in the construction sector. Following an uptick in building activity in 2021, bolstered by the easing of public-health restrictions, commencement activity has slowed this year. Having peaked at almost 35,000 units commenced in the 12 months to March 2022, the following months have recorded a steady decline, with significant building-cost inflation hampering activity. This slowdown in activity will impact construction output in the second half of 2022 and, perhaps most worryingly, 2023.
Such a slowdown in activity, coming at a time of rapidly rising population, is particularly frustrating. The release of the preliminary figures for the 2022 census underscores the scale of the housing crisis. This data highlights the need to build more than 50,000 new homes each year until 2036 if we are to even bring Ireland into line with the European average in household size. The required number of new-home builds is more than twice as many as we are currently delivering.
The rental crisis continues to lie at the core of the accommodation deficit in Ireland. After a challenging decade of limited investor activity and an exodus of our existing landlords, it now appears the situation has deteriorated further in 2022. According to our in-house research, 37 per cent of vendors in the second quarter of this year were investors selling their property. This is the highest proportion on record, and highlights the continued dysfunction within the rental market.
Furthermore, rental inflation has continued to gather pace over recent months. According to the subindices of the consumer price index, private rents increased by 11.9 per cent over recent months, which is the strongest rate of annual growth in a five-year period. This is particularly wearisome because, unlike the complex nature of the wider property market, there are many well-documented solutions to the rental crisis. These solutions have been disregarded by policymakers, however, for more than a decade. The time for action on this debacle is now.
Despite all the above – or perhaps because of it – the second-hand residential market has shown considerable stability in the year to date. Continuing from last year, sales activity remains healthy. Excluding block sales and new homes acquired for social housing, 12,200 housing transactions were recorded on the Residential Property Price Register in quarter one. Activity levels have improved again in the second-hand market, with approximately 10,600 sales recorded in quarter one, representing the strongest first quarter since at least 2010.
We are also beginning to see stability re-emerge in terms of prices. Our latest index shows that the average value of second-hand homes in Ireland increased 1.6 per cent in the second quarter of 2022, the slowest rate of quarterly growth for more than a year.
That said, the overall pace of growth remains elevated. Over the opening six months of the year, average values rose by 4.5 per cent, matching the rate recorded in the first six months of 2021. In the 12 months to June average values increased by 9.6 per cent.
The challenging nature of the Irish property story is by no means unique; indeed, there is growing evidence of housing-market imbalances in many developed countries. However, there is no doubt that the accommodation crisis in Ireland is rooted more deeply than most. That said, rising interest rates and volatile consumer sentiment are likely to result in a moderation in the pace of property-price inflation in the months ahead and into 2023. At this juncture we expect to see inflation of 4-5 per cent in the Dublin market in the full year, with overall inflation in Ireland higher, at between 6 and 8 per cent.
Looking at the immediate future, all indications are for a busy selling season in the autumn. Traditionally the market slowed in the summer months, reopening at the end of August. With the disruptions of the past two years the customary summer lull has dissipated, although the quantum of new properties coming to the market did slow this summer.
However, early indications are that stock levels will be replenished in the coming weeks, with an improved volume of both second-hand homes and new homes coming to the market. And although the frenzied bidding evident in the opening weeks of the year has diminished, demand remains strong, with a notable urgency from purchasers to transact more quickly in the face of rising interest rates. As always, the market performance will not be homogenous, but at this juncture we are expecting a busy season.
Marian Finnegan is managing director of Sherry FitzGerald
