The cost of buying a home will rise by at least 20 per cent over the next three years, according to the Economic and Social Research Institute (ESRI), which said price growth at such a rate would not mean another property bubble was inflating.
The latest report from the State-funded think tank says that if economic growth projections are realised and if housing supply issues are not addressed then prices could rise significantly more between now and 2020.
The study compares house prices in the Republic with prices internationally and looks at price-to-income ratios and price-to-rent ratios before reaching the “unambiguous” conclusion that “the Irish market does not yet display any signs of overheating”.
It characterises the market as one where prices have almost fully recovered from the substantial declines experienced between 2007 and 2013 but says by “international comparisons, Irish prices appear to be quite affordable”.
Unless there is “some unexpected significant shock or a substantial increase in housing supply” prices will continue to climb, the ESRI says.
The report also warns that continuing house price increases “pose certain competitiveness pressures for the economy” and calls on the Government to focus on increasing supply.
Credit provision
“Policies should not serve to increase housing demand, for example, by easing loan-to-value or loan-to-income restrictions,” it says. “As economic growth continues and the banking sector recovers, it will be critical to monitor credit provision to avoid fuelling house price inflation.”
Prof Kieran McQuinn, the author of the report, told The Irish Times that inflation estimates of 20 per cent “are on the conservative side” and he warned that prices could climb higher and more quickly.
With dramatic fall in unemployment levels and historically low interest rates as well as inward migration and “a very sticky supply you are unfortunately going to see house price increases. We are not saying that is a good thing but it is a reality,” he said.
He accepted there would be criticism of this assessment but said “it would be remiss of us it we didn’t put out there what we think is going to happen”.
Meanwhile, a new report from property website daft.ie says rents have risen by more than 11.2 per cent nationally over the last 12 months.
The annual rate of inflation in rents eased from 13.4 per cent at the start of the year but double-digit price inflation has been recorded for six straight quarters. The quarterly increase in rents between June and September was 3.4 per cent, the fourth largest ever recorded.
The average rent nationwide has risen by 61 per cent since bottoming out in late 2011 and, having exceeded its 2008 peak last year, is now 16.4 per cent above those pre-crash levels.
