With everyone seemingly going ga-ga over the rise in house prices, it’s like Ireland has made a miraculous recovery. Hold off on buying that champers-fuelled jetpack just for a moment though, as Stephen Bourke looks into the housing crisis that is still very much in existence.
The great big Bank of Ireland ad on Manor Street says something like, “I thought I’d be renting for the rest of my life – but these lads rescued me from rack-rents and put me in a 4-bed semi in Meath.” It’s back on, or so they’d have us think.
rabble toddled out to NUI Maynooth to have a chat and a leaf through the property supplements with the brain trust in the geography department.
Back in August the Sindo asked ‘are you in the bubble?’ Their map of Dublin had Sunni Triangle-style boundaries around the ‘hotspots’ – Glasnevin, Marino, Drumcondra above; and Ranelagh, Donnybrook and Blackrock below. Housing supply in the leafy zones is tight. “Buyers are waiting for homeowners in certain prized areas to pass away,” Jerome Reilly put it, “before they can land the house of their dreams.”
Average Dublin prices are up 15% on last year. Prices for the rest of the country recorded a slight rise of 1.5% in October, but the first uptick all year still leaves them 0.3% down annually. This is the ‘two-tier’ market they keep talking about: sluggish or declining sales outside the capital while the gavel drops on rapidly-inflating bids for desirable Dublin properties. God help you if you rent in the capital, because rents are up 7.6% since last year too. The market is burning hot and bright, and there are plenty of heads running to work the bellows.
But it’s grand. Independent News and Meedja has your back with its ‘Ten tips on how to buy a house in the Dublin heat’ and a killer pep-talk from “professional property buyer” Karen Mulvaney. Be assured: there are still ‘undervalued’ gaffs going, so get your nails into the last rung of that ladder before it gets hauled into the clouds.
“Dublin doesn’t necessarily have the kind of housing stock that the people who are looking to buy at the moment want,” says Cian O’Callaghan, a geography lecturer at NUI Maynooth. “The upward pressure on prices is in Dublin areas which always had strong demand for property.”
“These are areas with very little brownfield space to build new properties,” says O’Callaghan. “If you go slightly out in the commuter belt around Dublin there’s more issues of vacancy and perhaps less demand. There’s not necessarily a correlation between demand for housing in these areas and a need to build new housing in others.”
The builders say otherwise, strangely enough. Writing for the Irish Times Property supplement last month, the Construction Industry Federation’s Hubert Fitzpatrick said that ‘everyone’ knows they need to be building more housing. And they’d totally be up for doing that, except the money’s wrong for them. There’s an easy enough fix for that though: end Section Five social housing provision by developers. That’s a ‘burden’ they can’t be bothered with in these ‘austere times.’ While we’re at it, we should stop making them build tall things. Urban sprawl be damned, suburbs beat skyscrapers on unit profit.
“About the so-called bubble that’s emerging: I think it will be in very, very specific areas,” says Sinéad Kelly. Sinead studies the interplay of cities and finance. “It’ll be tiny; South Dublin, certain apartments in the Docklands area, but it’ll differ from block to block. The microgeography of this will be very, very specific. The number of transactions is critical – it often gets left out of reports.”
The result on the ground can be stark. Cosgrave Developments is working on a development of 146 houses in Castleknock, Dublin 15. Ten minutes away by car is Ongar, where graffitied houses sit empty in the dark, and the only pedestrian you meet is fifteen and wants to bum a smoke. The difference in value between the former boomtime village and the better address is two bands of Revenue’s Property Tax valuation, or close to €100,000 on a semi-detached house.
There’s much more to the property market than young double-income professional families overbidding for too few nice houses. Things are moving below the surface that the house price statistics can only hint at. The heat in the market comes despite the lowest level of mortgage lending since the ’70s. It’s cash buyers that are causing all the fuss, and buying between half and two-thirds of what’s sold. DIRT tax on investments has doubled in the last five years, and Sinead Kelly believes tax policy is pushing money from other investments to the property market.
“DIRT is going up to 44% and interest rates are going down,” she says. “If you’re leaving your money in the bank the returns on that are very, very small, and it’s high risk in the Irish banking system.” “At the moment, net yields from January after DIRT kicks in is about 1.1 or 1.2% which is pretty low.”
“Compare that to, say, a two-bedroom apartment, at say around €230,000 to €250,000 somewhere in the City Centre, the net yield on that would be around 3.5%.” Gross yields (the cash your landlord makes before costs like fixing your shower) are fairly static, but offer an investor a very strong return. Especially in Dublin City Centre, yields are at 8.2%, well above the national average of 5.9%. So for investors, apartments in town are a pretty sweet deal.
Another dynamic is Real Estate Investment Trusts. Budget 2014 allowed the formation of public limited companies exempt from corporate tax which can buy up property on behalf of a pool of shareholders. They’re like hedge funds for landlords. So far the REITs which have been established have concentrated on commercial property, but Sinéad Kelly says it’s early days yet. If you already own property, this is all great news. Steady rent increases mean a better return on investment. With Ireland’s short leases and lack of rent controls, landlords can be extremely responsive to a buoyant rental market (and as responsive as they like to an ebbing tide).
With vehicles like REITs now available to protect capital from market variations, the renter’s position seems even weaker by comparison. “Why don’t we have rent control?” Rory Hearn asks. Hearn researches social housing, community develop and urban regeneration. He believes that, “rents are going through the roof – that’s young workers, people who can’t afford to get a mortgage – they’re the ones paying for this.”
Aside from domestic investors switching to property, alone or via REITs, there are big foreign players flying in. Sinéad Kelly again: “Probably the bigger thing that’s happening is that private equity firms are buying up loan portfolios from all of the major loan holders – NAMA, IBRC, RBS, and Lloyds bank – which are basically trying to sell off their distressed assets very, very quickly.” For a large enough investor, the price of a property is essentially meaningless as long as the yield is right.
“A driving force in NAMA, in all the decisions it makes, is to increase property prices,” says Cian O’Callaghan, “and that’s been automatically seen as something good, but it’s not. They need the property prices to underwrite all the debt they’re writing off for developers. This then is being celebrated because we don’t lose billions on NAMA, and so we’re all then bought into this idea where we’re looking for property prices to rise.
“Even if there is an increase in house prices, there will remain a very serious housing crisis,” says Sinéad Kelly. “For most people that have need of housing, or have huge mortgage debt and are in arrears or negative equity – that won’t change if house prices increase.”
There over 100,000 households on the social housing list nationally and 83,000 citizens receiving rent allowance. The Government on clean-up has failed to make the kind of serious investment that might put a dent in these numbers. Instead it has opted to reinforce what Kelly calls the “rentier class which is being heavily supported, promoted and incentivised.”
“That’s the Fianna Fáil model of Irish capitalism and it hasn’t changed,” Hearn adds, “This government is promoting it the exact same way and more.”
“And more,” says Kelly, nodding.
Rory concludes, “people are asking when we will we reach the bottom of the property market – I hope we never reach it! [Prices] should keep dropping until housing becomes something which is provided on the basis of need, not on speculation.” And in the end, do we need a portfolio, or a home?