The SCSI Annual Residential Property Review and Outlook 2017 shows that not enough housing is being built and predicts that rents will rocket outside of rent pressure zones.
While rents in Dublin, Cork city and other areas will be confined to maximum increases of 4% in 2017, areas without rent control will see increases of between 8% and 10%. Dublin’s house sales will be under no such price rise restrictions, but the biggest price increases will still be outside of the capital. Nationwide, residential property prices will increase on average by 7% in 2017. Leinster excluding Dublin (hereafter ‘Leinster’) will see one- and two-bed apartment prices rise by 11% and three-bed semi-detached houses increase in value by 10.6%. The same kind of house in Dublin is predicted to rise in value by 9.5%. The survey from which the report was compiled was completed by over 380 estate agents and Chartered Surveyors in late November/early December 2016.
Last year, most surveyors (60%) in the country saw an increase in residential property market activity. However, that left 26% who saw no change and 14% who reported seeing a decrease, meaning there are still parts of the country that are not seeing the rise in business of other areas.
Sales and activity
Despite the housing crisis and all that’s been said about the need for more residential units, shortage of new builds continues to be a problem. This is also the main driver behind rising house prices. Just 37% of surveyors expect to market a new housing scheme this year (Leinster 44%; Dublin 36%; Munster 35%; and, Connacht/Ulster 33%). Of those, most are expecting schemes of between just one and 20 units.
The biggest increase in activity last year was in Munster, with 79% of surveyors there saying they saw an increase, much higher than the nearest other region, Dublin (56%). Residential commencements during 2016 numbered just under 10,000 units nationally. All regions saw increases in commencements compared to 2015. Although there were an estimated 14,800 units completed last year (19% up from 2015), this is nowhere near the 20-25,000 units per annum required.
The profession was asked what measures could be taken to increase output. Of these, in Dublin, the number one action recommended by surveyors is a series of measures to release more development land for construction. In the other 25 counties, they believe
measures to ease the challenges relating to construction costs and the availability of finance to the construction industry would be most effective. Average property values across the State are expected to increase by: 7.7% in Leinster; 7.3% in Munster; and, 6.6% in
both the Dublin and Connacht/Ulster regions. The value of a three-bed semi-detached house nationally is set to increase by 9% for a new build, and 10% for a second-hand property, with similar rises expected across the other house and apartment types. Residential property prices increased by 5.5% in Dublin in the year to October, with the largest increase in Dublin city (7.5%) and the lowest in Fingal (3.4%). Since a low point in 2013, Dublin residential property prices have rocketed by 64.7%. The rest of the country has also seen a huge rise since then of 44.7%.
Surveyors welcomed the easing of the Central Bank’s lending rules and the introduction of the help to buy scheme for first-time buyers.
Positives and negatives of 2016
Surveyors were asked what they thought were the positive and negative factors that affected the market last year. In Leinster, proximity to Dublin and high-quality infrastructure were highlighted as key positive factors. In Leinster and Munster, lack of wastewater capacity was put down as a major challenge when it came to supplying new builds. Surveyors welcomed the easing of the Central Bank’s lending rules and the introduction of the help to buy scheme for first-time buyers. Of the survey respondents, 86% noticed an increase in vendor price expectations in 2016. Munster surveyors welcomed the increase in mortgage lending and finance availability. However, restricted mortgage lending is still seen as a problem in Connacht/Ulster. Also, the report states that one common problem since the crash has not gone away: “The issues of distressed properties and property owners in negative equity remain key challenges, particularly in the Dublin Region”.
The coming year
The largest price increase in 2017 in most regions is predicted to be in the three-bed semi-detached property type, which will see
increases of 10.6% in Leinster, 9.5% in Dublin and 8.8% in Munster. In Connacht/Ulster, it will be four-bed semis that
will rise by the most (8.7%). The largest increase across the regions and property types is predicted to be the
11% for one- and two-bed apartments in Leinster. In the second-hand market, it is expected that the largest price increases will be in two-bed apartments and three-bed town houses. Second-hand two-bed apartments will see the largest increase in all regions except Munster, where three-bed semis will rise by the most. The main problem next year in Dublin will be the lack of development land available. Outside the capital, construction costs and the availability of finance for the construction industry will pose the biggest challenge.
Nationwide, residential property prices will increase on average by 7% in 2017.
It should be noted that the survey that the report is based on was carried out before Minister Simon Coveney announced his rent pressure zones of Dublin and Cork city in December. Further zones that were included in January 2017 are:
• Galway city;
• Ballincollig and Carrigaline in Co. Cork; and,
• a number of towns in counties Kildare, Meath and Wicklow.
Without the introduction of these, surveyors predicted that rents would have continued to spiral upwards, with increases of 11.8% predicted in Dublin. The report states that: “The housing shortage over recent years and difficulty in attaining mortgage lending has resulted in a significant increase in rental prices, fuelled by the increasing high demand for properties”.
In Dublin now, rents are 5% above their 2007 peak, whereas nationally they are 7.3% behind prices ten years ago. Although prices are higher in Dublin, the rate of increase last year was larger outside the capital. To Q3, the average rental growth rate in Dublin was 7.1%, but the rest of the country saw increases of 9.7% on average. In the coming year, there will continue to be large rises because of a sustained housing demand, combined with a continuing housing shortage. The biggest price increases will be in two- and three-bed units, both apartments and houses.
Excluding Dublin and the other towns with rent control, Leinster will see rises of between 8% and 11%. In Munster, rents are expected to rise by 9-10% outside Cork city, Ballincollig and Carrigaline. In Connacht/Ulster, rents will rise less, with increases of between 7% and 9% outside of Galway city. Surveyors were asked what will most influence the supply of rental properties in 2017: “Chartered Surveyors in three out of four regions selected ‘Increase in new builds’ as the highest-ranking measure, highlighting this as the fundamental issue within the market. However, in the Rest of Leinster Region, ‘Full reinstatement of mortgage interest relief for landlords’ ranked highest by Chartered Surveyors, pointing towards a need to entice investors in to the market to meet the demand for rental properties in the region”.
Surveyors believe that while rent control measures will bring a level of certainty and security to tenants, they may further deter investors from entering the rental markets.
“The housing shortage over recent years and difficulty in attaining mortgage lending has resulted in a significant increase in rental prices, fuelled by the increasing high demand for properties.”
Top three factors that will significantly influence the supply of second-hand homes in 2017.
• Areas without rent control will see rent increases of between 8% and 10%;
• last year, most surveyors (60%) saw an increase in residential property market activity; however, that left 26% who saw no change and 14% who reported seeing a decrease;
• just 37% of surveyors expect to market a new housing scheme this year;
• Average property values across the State are expected to increase by: 7.7% in Leinster; 7.3% in Munster; and, 6.6% in both the Dublin and Connacht/Ulster regions; and,
• the largest price increase in 2017 in most regions is predicted to be in the three- bed semi-detached property type, which will see increases of 10.6% in Leinster, 9.5% in Dublin and 8.8% in Munster.
Journalist and Sub-Editor with Think Media Ltd.