Dublin house prices keep rising, but that doesn't mean Central Bank lending rules have failed

THE CENTRAL BANK’S mortgage lending rules have not failed – despite renewed price rises in the already costly Dublin housing market.

That is according to economist Ronan Lyons, who said that a lack of supply is still the main factor behind ongoing inflation and the government needs to look at ways to reduce construction costs.

According to the latest Daft.ie house price report, prices rose an average of 7.6% nationally in the year to September.

The national average asking price in the third quarter of 2016 was €221,000, compared to €205,000 a year ago.

Inflation in Dublin was 5.3%, with average asking prices ranging from €261,000 in the city centre to €527,000 in south county Dublin.

The report said that while this was below the nationwide average, it was still notable as there had been almost two years of price stability following the introduction of Central Bank mortgage rules to limit how much buyers could borrow based on their deposits and income.

In the three months to the end of September, asking prices in the capital jumped by 2.7%, which marked the largest quarterly increase since early 2015.

Lack of supply

Initially, it seemed that the rules succeeded in their aim of dampening what was rapid house price growth in Dublin.

However, Lyons warned that the Central Bank rules can only limit the cost of housing in the capital so much and said a lack of supply is still pushing prices up.

A recent analysis from the Central Bank found there had been a surge of cash buyers for homes since the boom, with around 50% of all transactions not involving a mortgage during 2014.

Speaking to Fora, Lyons said: “If the Central Bank rules weren’t in place the prices would be rising an awful lot faster; without the rules people had expectations that prices would increase by 12-15% a year.

“As soon as the Central Bank rules came in expectations were moderated a lot, (but) there is very strong demand at the moment and almost nothing being built, particularly in the apartment sector, and that is what is driving up the prices.”

“We know from the last census that there is something in the order of 650 families a month coming into the greater Dublin area, but they are only getting 300 new homes. This imbalance has been growing for years and has gotten worse.”

Economist Ronan Lyons

About 14,000 houses are expected to be built across Ireland this year, just over half of the 25,000 it is thought the country needs to keep pace with demand.

Construction costs

Lyons was also cool on the idea, widely floated in advance of the Budget, that first-time buyers receive some sort of grant or rebate to help them get on the property ladder.

He said that instead of giving buyers more buying power, the government should instead look to focus on lowering the cost of construction and make it more attractive for developers to build.

“I would be reluctant to make moves on first-time buyers, it just gives more ammo for people to fight each other. I think anything that you could achieve with a rebate you could also achieve by lowering construction costs.”

A report from the Society of Chartered Surveyors Ireland earlier this year said developers needed to make more than €330,000 to construct a three-bed semi in Dublin.

Asked how building costs could be lowered Lyons said: “That is a job for quantity surveyors and engineers, but you could look at things like getting safety certs. Local authorities don’t do them, but is it most efficient getting in an outside architect instead?

“I’ve heard that the cost of concrete is high compared to other countries. Why is that? There are probably 20 or 30 steps that you would need to bring down the cost of construction by a per cent or two each.”

Note: Journal Media Ltd has shareholders in common with Daft.ie publisher Distilled Media Group.