The State will need to build almost 50,000 homes a year for the next 30 years “if its housing stock is to reflect the country’s demographics,” a new report has claimed.
The analysis by property economist Ronan Lyons and industry body Irish Institutional Property (IIP) said building on this scale would require an annual capital investment of €16 billion, most of which, it said, would have to come from overseas.
The report comes as CSO figures released on Thursday show house prices rose at an annual rate of 6.9 per cent in June, the fastest level of growth seen in 2½ years. This was up from 5.4 per cent the previous month. Prices in the capital rose by 6.4 per cent on an annual basis in June, while prices outside Dublin rose 7.4 per cent.
The 50,000 figure is significantly higher than the Government’s 35,000 housing output target and more than double the current level of supply, which was 21,000 last year.
With a population of 6.5 million forecast by 2050, arranged into households of 2.1 persons on average, and where 0.6 per cent of the existing building stock becomes obsolete each year, the report estimates that the underlying housing need in the Republic will be just under 49,000 per year, between 2016 and 2051. Of these, roughly 20,000 are likely to be needed in the Greater Dublin Area.
It suggests the need for housing and the capital to fund it will be split across the three main tenure categories: owner-occupied, market rental, and social housing.
The bulk of new homes are needed for smaller households and in locations that are in and near the main cities.
However, households with fewer persons are – on a per capita basis – more expensive to build, “highlighting the importance of collective investment vehicles to address this funding need,” the report said.
The challenge is exacerbated by very high construction costs, relative to ordinary incomes and to costs in other countries, it said.
Break-even cost
The group’s report claimed that the break-even cost for developers of a two-bedroom apartment in the Republic was now close to €450,000, “something that only the top sixth of the income distribution could sustainably afford currently”.
“With social housing realistically available for at most the bottom third of the income distribution, the challenge for policymakers is clear: how to reform the housing system to ensure that all households are covered by either market housing or social housing,” it said.
“Rarely has it been viable, given prevailing construction costs and market rents, for new rental housing to be built for anything other than the top of the income distribution,” it said, noting the exception – during the late 1990s and early 2000s – was due to unprecedented tax breaks, such as Section 23.
"While those tax breaks, coupled with loose lending, drove the Celtic Tiger bubble and crash, they highlight a key feature of the housing market here: the laws of supply and demand," it said.
Areas that saw a number of new homes built in the early 2000s well beyond any realistic measure of demand have housing prices that, as of the early 2020s, are still well below Celtic Tiger peaks, it said.
In contrast,the urban areas of Dublin and Cork did not witness excess construction and have instead experienced a doubling of rental prices over the course of the last decade.
Rents and incomes
The report noted that rents have risen substantially faster than incomes: while rents are 40 per cent above Celtic Tiger peaks, on average, incomes have risen by 10 per cent in the same period.
The IIP’s members include most of the biggest property firms and landlords in the State, including Cairn Homes and Ires Reit.
A report from property website Daft.ie earlier this week suggested rents nationally are now rising at an annual rate of 5.6 per cent, the strongest level of growth seen since mid-2019.
According to Daft, the average monthly asking rent stood at €1,477 in the second quarter of 2021, up almost 99 per cent from a low of €742 per month seen in late 2011, while the average in Dublin was €2,035.
