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House prices forecast to rise by 5% as supply struggles to meet demand


Property prices are expected to rise by about 5 per cent this year as supply shortages, pent-up demand and pandemic savings continue to drive activity, according to a survey of estate agents.

The Society of Chartered Surveyors Ireland (SCSI) said 90 per cent of 189 estate agents surveyed in December expect property prices to increase this year, ranging from a 5 per cent advance in Dublin, Leinster and Munster to a 7 per cent increase in Connacht and Ulster.

The most significant factor affecting house price increases, they say, is “the lack of supply of new housing to the market to meet growing demand”.

The majority (80 per cent) of agents who expect prices to rise believe it is due to market factors, primarily the lack of supply of new and existing homes, while 13 per cent attributed it to economic factors.

Just 4 per cent believe the Central Bank’s macroprudential rules are the key driver.

Nationally, property prices rose by 14 per cent between January and October last year compared to just 0.3 per cent in the same period the previous year.

“Twenty-twenty-one was the year when the lack of supply and Covid combined to totally distort the property market, pushing up demand and inhibiting the supply of new homes,” SCSI president TJ Cronin said.

While those issues will continue to dominate the market in 2022, he said, the double-digit inflation experienced last year was not sustainable and SCSI members believed the rate would moderate.

Stagnant

On supply, SCSI agents said they expected growth in annual housing output to resume in 2022 “having been relatively stagnant in 2020 and 2021 at approximately 21,000 completions per year”.

With residential property completions only due to hit the 30,000 mark in 2023, the SCSI said it estimated the State needs to be building 40,000 units per annum to meet demand.

Critical to increasing supply was a more efficient planning system, Mr Cronin said. He cited previous research carried out by the SCSI suggesting that a delay of a year to an average apartment development caused by judicial reviews can add at least €8,000-€12,000 to the cost of each new unit.

“At a time when material costs are rising sharply, it is particularly important that we do everything possible to lower the costs of new home construction by removing planning delays and addressing the procurement and infrastructure issues which are slowing the construction of critical housing projects,” he said.

“That is why it is so important that the Government achieves the correct balance between different stakeholders when it introduces the large-scale residential developments system which replaces the fast-track strategic housing development process,” he said.

Renovation

The Government decided last year to abolish the strategic housing process, which has become mired in legal challenges, and replace it with new large-scale residential developments legislation, which gives decision-making powers back to local authorities but with tighter timelines.

The SCSI’s report also highlighted a trend towards buying new homes linked to the rising cost of renovation, driven by construction inflation.

“The rising price of materials and labour has had an impact on those seeking to renovate homes and, although interest in the second-hand market remains brisk, some prices on derelict properties or those requiring substantial investment have not risen as much as expected by some agents,” it said.

It noted that construction tender rates for the commercial sector had increased by as much as 7 per cent in the past 12 months.

The report also highlighted the exodus of small-scale landlords from the market, which it linked to the complex set of rental regulations.

The SCSI also produces an annual replacement cost index for rebuilding homes, which is eagerly awaited by homeowners affected by the mica issue, especially in the northwest. That report is expected in the next couple of months.



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