What is happening to house prices and rents in Ireland?

Yesterday brought us up to date with house price changes in the Euro area at least for the start of 2018. From Eurostat.

House prices, as measured by the House Price Index, rose by 4.5% in the euro area and by 4.7% in the EU in the
first quarter of 2018 compared with the same quarter of the previous year…….Compared with the fourth quarter of 2017, house prices rose by 0.6% in the euro area and by 0.7% in the EU in the first quarter of 2018.

As you might expect there are some swings from country to country but before we get there we see some interpretation of history.

House prices in the EU up 11 % since 2010

Actually they fell for a while due to the Euro area crisis and then responded to the “Whatever It Takes” measures.

Prices started growing again in 2014.

A particular disappointment to Mario Draghi must be that his home country Italy has ignored all his efforts to pump up house prices as they fell there by 0.4% over the last year and are down 15% since 2010. Meanwhile my attention was drawn to Ireland with its 12.3% rise in the latest year.

This is because the boom and then bust in Irish house prices took much of the banking system with it.  This meant via the usual privatisation of profits but socialisation of losses with respect to the banking system the Irish taxpayer found themselves in this situation described by its national debt agency NTMA.

That may bring Ireland’s high stock of debt – which at €213bn is more than four times its 2007 level – into sharp focus. Whilst our debt ratios are improving, our total nominal debt is still rising as we continue to borrow to pay interest.

This means that whilst the interest-rate or yield on Ireland’s bonds has fallen a lot mostly due to the bond buying or QE of the ECB (European Central Bank) there is a tidy bill to pay each year.

Almost irrespective of the external interest rate environment, we still expect Ireland’s annual interest bill to fall towards €5bn in the near term, from €6.1bn in 2017 and a peak of €7.5bn in 2014.

Ireland now only has an interest-rate of 0.81% on its ten-year benchmark bond so a fair bit lower than the UK which represents quite a change when we borrowed money to lend to theme to help them out.

House prices

The Irish statistics office or CSO brings us more up to date.

In the year to April, residential property prices at national level increased by 13.0%. This compares with an increase of 12.6% in the year to March and an increase of 9.5% in the twelve months to April 2017.

As you can see the pace has been picking up although it is no longer being quite so led by Dublin.

In Dublin, residential property prices increased by 12.5% in the year to April. Dublin house prices increased 11.7%. Apartments in Dublin increased 15.9% in the same period.

The reason why I raise the Dublin issue is that it has seen the widest swings as it had the biggest bubble then fell the most and then for a while picked back up more quickly. Or as it is put here.

From the trough in early 2013, prices nationally have increased by 76.0%. Dublin residential property prices have increased 90.1% from their February 2012 low, whilst residential property prices in the Rest of Ireland are 69.9% higher than the trough, which was in May 2013.

That is quite a surge is it not? Whilst the Dublin recovery started earlier nearly all of this fits with the “Whatever It Takes” policies and timing of the ECB, Of course it raises old fears as well although we are not back to where the bubble burst.

Overall, the national index is 21.1% lower than its highest level in 2007. Dublin residential property prices are 23.3% lower than their February 2007 peak, while residential property prices in the Rest of Ireland are 26.1% lower than their May 2007 peak.

Oh and maybe another issue is having an impact.

The Border region showed the least price growth, with house prices increasing 9.3%.

Rents

We can track these down via the consumer inflation numbers and we get a hint here.

Housing, Water, Electricity, Gas & Other Fuels rose mainly due to higher rents and an increase in the price of home heating oil and electricity.

Looking into the detail we see that rents have risen by 7.4% over the past year and by 0.5% in May. The larger private-sector market is currently seeing a faster rate of rise but there must have been quite a chunky rise in public-sector rents at some point in the last year as they are up by 10.6% over that period.

Mortgage Interest-Rates

I found these hard to track down as the Central Bank of Ireland changed its reporting system but the Irish Consumer Price Index gives us a guide. It must have been designed in a similar way to the UK RPI as it includes mortgage interest-rates. The index for this was 143 when Mario Draghi was giving his “Whatever It Takes” ( to reduce mortgage rates) speech whereas in May it was 99.1.

Although rather curiously the Irish Independent reports that many have not bothered to switch to lower mortgage-rates.

KBC Bank is due to tell the Oireachtas Finance Committee it has 36,000 residential customers paying variable rates, which are its most expensive home-loan option, when they could get a lower priced deal from a bank.

It comes after it emerged that more than 100,000 homeowners at Bank of Ireland and Permanent TSB are paying up to €3,000 more a year on their mortgages than they need to at the two banks.

Perhaps they do not realise they can get them as I recall Ireland having a situation where many could not switch due to the house price falls.

Comment

There is a fair bit to consider here and let me open by agreeing to some extent with Mario Draghi.

European Central Bank chief Mario Draghi has linked the current spike in Irish property prices to “the search for yield by international investors”.

Mr Draghi said the real estate market in the Republic and several other EU states was “overstretched” and vulnerable to “repricing”. ( Irish Times yesterday).

He cannot bring himself to say falls nor to acknowledge his own role in them being overstretched but he does have time to bring up the fall guy which is of course financial terrorists.

 being fuelled by cross-border financing and non-banks, and that it would be important to investigate whether new macro-prudential instruments should be introduced for non-banks, especially in relation to their commercial real estate exposures.

We can’t have banks losing profitable business can we? Speaking of macro-prudential so the 2015 measures did not work then which is not a surprise here but perhaps a suggestion from the UK might help.

Under such a target the Bank of England should aim to keep nominal house price inflation at (say)
zero per cent for an initial period – perhaps five years – to reset expectations, ( IPPR)

So the organisation which has pumped them up has the job of controlling them? Whilst the central planners would love this sadly it would not work and I say that as someone who thinks we badly need lower house prices and switching back to Ireland because of this sort of thing. From the Irish Examiner.

The scramble to find a home in the crisis-hit rental sector has led to people queuing to view a €900-a-month one-bedroom apartment on Cork’s Tuckey Street……..

Piet said last week they were the first people in a 50-person queue on MacCurtain Street and were refused the apartment because they did not have a reference letter with them.

Piet said the rental sector is a lot more expensive than it was a few years ago.

The average rental property in Cork has soared to above €1,210 a month — up almost 10% on last year.

“We pushed the boat out to €900 a month just to get somewhere nice. That is the very end of our budget,” said Piet.

Or to put it another way with both house prices and rents soaring the rentiers are quids ( Euros) in.

 

 

 

 

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10 thoughts on “What is happening to house prices and rents in Ireland?

  1. Hello Shaun,

    indeed assets are boosted and this helps the Banks ( again )

    but I do wonder the cost to the Irish tax payer and this is mirrored over here too isn’t it ?

    we’ve gone from a council estate paid for houses for the lower 1/3 to a private rented but paid for by the state scheme. Money that was made in the rush to buy-your-own was not re-distributed to the tax payer ( the privatizations of state owned companies was the same, and sell offs of radio frequencies to mobile phone companies ) and thus leaves the tax payer to cough up more money to pay for rents ….. to private landlords ( who are funded by the TBTF Banks )

    did I get that right?

    I get the impression the entire Western economies are run for the benefit of a few Bankers ….

    ( I guess I’m due a “tin foil hat” award….;-) )

    Forbin

    • Hi Forbin

      The “precious” is always at the head of the queue and by the time it has gorged itself there us usually not much left for the rest of us. On the subject of Ireland I was contacted on social media by someone saying that people were emigrating to the UK again because of the cost of housing there. Must be expensive if you can get something cheaper here!

  2. Shaun
    I Have just arrived back from Ireland where I had only occasional internet and no data for most of the time ( I thoroughly recommend it! It allows you to realise once again what is really important in the world) so quite a bit of catching up to do. Irish house prices and the economy in general are definitely picking up and yet I saw very little evidence of new industry or changes that might account for this – with one exception. Tourism has boomed to an almost unimaginable level and there are as many tourists as Irish! Like Greece, Ireland has rediscovered tourism and agriculture are the mainstay of their economies and as a result most people are benefitting. The official numbers don’t do justice to the importance of these sectors as they employ both directly and indirectly a huge number of people.One of the families I stayed with have a boat slip, where engineers were repairing a lobster boat, who sells to restaurants who employs a chef and staff to provide for the tourists. Everyone in this chain benefits from increased tourism and I daresay you could extend the chain backwards even further but you get the picture.Restaurants in even the most remote places were booked out – and it isn’t even the main holiday season yet!
    In Greece (where I was a couple of months back) a lot of this money disappears into the black economy as the tourism sector is notorious for tax avoidance. Never the less it does filter through to the general public and I would say that there is a small improvement in the situation for the Greek people. The official economy, however, is still in a black hole.
    hopefully the Irish will have learn’t their lesson from the last house price bubble but from conversations I have had, I’m not so sure that it is true. The lure of quick riches is all too powerful.

    • Hi Pavlaki and welcome back although it reads like you thoroughly enjoyed it.

      Moving onto Ireland your reply made me check the numbers and Ireland’s tourism exports were £4.944 billion last year or up 5.5% so maybe not all of the gains are being reported. As for Greece times have been so hard only those with hearts of stone would not wish their tourism industry well.

      Did they say what has driven the tourism boom in Ireland?

      • One of the great successes is the ‘creation’ of the ‘Wild Atlantic Way’ which is a route that takes drivers, walkers and cyclists along roads near the Atlantic coastline on the west coast. The roads already existed however some genius in the tourist organisation decided to link them on a map and call it the Wild Atlantic Way, promote it abroad and the tourists have responded in huge numbers. I have never seen so many tourists in Ireland, including large numbers of Americans.

        • Returning on ferry from Ireland now having driven some of wild Atlantic way. I have never seen so many incedibly presented tidy new build ranch style properties, apparently there were huge tax breaks 10 years or so ago to build holiday homes in tourist areas. Certainly someone has made capital on it!! Apperently called section 48 housing.

  3. So, Shaun, House prices are up by 90% in Dublin since 2012 and debt has quadrupled since 2007.
    What could possibly go wrong?

  4. For Draghi to claim house prices are overstretched in Ireland as a result of yield seeking international investors is farcical, yes high end Dublin properties would have got a boost, but what about the rest of Ireland where prices are going up nearly 10% annually, those investors are not buying there, prices are soaring because interest rates are too low, and have been kept too low for too long.
    Just as London’s housing bubble has been aided by foreign buying, the rest of the country has also seen the bubble continue due to Carney’s refusal to raise rates. Ireland has however, the benefit of a booming economy to add to the bubble, as mentioned in the article, tourism and agriculture are doing well but the use of Ireland as the backdoor to Europe by (mainly( US multinationals) has created an economy unique in Europe, unlike the rest of Europe(bar Germany) youth unemployment is very low and wages are rising, this combined with very low interest rates, a recent strike by builders that has exacrerbated shortages in Dublin(now ended after the government capitulated and was forced tell the central bank to ease the lending criterai and multiples) mean that prices will just keep going up.
    Add in the Irish obsession with property and using it to speculate to make money, and it is obvious that the Irish property market is now fully in bubble territory again, with people queing to buy new builds, rental properties not even being advertised as they are snapped up before anyone has the oportunity to see them, and building in the so called “commuter towns” back in full swing.(Commuter towns are towns anything from 30-50 miles from Dublin that people commute to daily, ostensibly extending the Dublin housing market to a radius of 50 miles).
    As in the UK, Draghi can call the market overstretched or anything else he likes as if his policies have no influence on it!!!, but it will not change anything, as long as interest rates are kept close to current levels, house prices will continue to go up.
    I consider Irelands bubble to be now entering the third stage, stage one was 1995 to 2000, when interest rates in Ireland fell to European levels prior to them adopting the Euro, stage two started around the dot com bubble and was a brief pause,prices soon took off again peaking in around 2006/7, fell to bottom out sometime near the end of 2013(possibly 2012 in Dublin) and have been rising every year since, stage three will soon be upon us when prices make new all time highs – that is unless you think Draghi is going to put up interest rates.

    Can anyone show me any bubble that has lasted almost 25 years as Irelands property bubble has?

    • Hi Kevin

      UK property is not that different as in the last realm price falls overall were in the early 90s. I dread to think what would have happened here if we had not been thrown out of the ERM in 1992 and ended up with Euro area interest-rates.

      I agree that Mario Draghi is being misleading as the idea that international buyers are piling into rural Ireland is a smokescreen for a consequence of his own policy of negative interest-rates and credit easing as well as QE.

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