House prices have been surging in Ireland lately, and the new home market has been hit especially hard. The rise in house prices has been caused by a number of factors, and significantly accelerated due to the economic strains of the Covid-19 pandemic. Two recent reports from property websites myhome.ie and daft.ie have suggested that home prices are currently inflating at a 13 percent annual rate. Now, the Central Bank has warned that the pandemic will have a significant affect on the housing supply for the foreseeable future. The Central Bank projects that approximately 25,000 fewer new homes will be built between 2020 and 2023 when compared to pre-pandemic projections.
Among the many factors already driving an increase in pricing has been pent up savings. Consumers have had significantly less things to spend money on since March of last year, especially during those times when the country was under level 5 lockdowns-the strictest possible measure. People have not been able to shop at non-essential retail stores, eat or drink at their favorite pubs, or commute to work, leading to a decrease in spending on fuel.
Housing investment was also slowed significantly due to the pandemic, with many building sites remaining closed until as recently as April. Due to this, completions fell 20 percent year on year in the first quarter , according to the Central Bank. However, the regulator says that completions are projected to rebound through the end of the year. This will hopefully drive further investment and help ease some stress on the housing supply.
Housing completions are still forecasted to remain well below the threshold of long-run demand, leading to 25,000 fewer completions expected between 2020-2023. This continuing gap between supply and demand will mean that homes and rents will continue to become less affordable for the time being, as prospective buyers rush to take advantage of the scarce supply.
The impact of this housing crisis continues to be seen across many demographics, particularly families. For example, according to the Banking and Payments Federation of Ireland (BPFI) has found that the shortage of houses to buy has seen the average age of a first-time buyer rise from 31 in 2008 to 34 in 2020, a trend that figures to continue as supply of newly built homes continues to be outpaced by demand until 2023. Regarding the crisis, Brian Hayes, Chief Executive of BPFI says, “While the gap between current demand and supply had been narrowing before the pandemic, the delayed response in supply is creating latent demand for future years.” He also states that the surge in prices is drawing them near the peak of the previous cycle, reached in 2007.