Just how high could house prices go? Estimating a “fair value” is an imperfect science, but on any calculation, and despite the strong jobs market, Irish house prices are “toppy”, in the sense that they are out of reach of the average earner. But the average hides a lot and this is where we see a key factor in today’s market – there are enough higher earners and wealthy people coming to live here to ensure plenty of demand at higher prices. Cash is again king in the housing market. With tight supply, this is enough to keep prices on the rise generally, as we saw this week when Central Statistics Office figures showed an 8.6 per cent rise in prices in the year to June.
The problem, of course, is that this makes houses less affordable for average earners, as outlined again this week in research from the Society of Chartered Surveyors in Ireland (SCSI), which showed that a couple with a decent joint income of €107,000 were priced out in many counties, even with the assistance of the Government Help-to-Buy scheme. But even though the tens of thousands in this earning range are spectators in many areas of the housing market, properties are still being snapped up. The market is awash with cash, according to Pat Davitt, chief executive of the Institute of Professional Auctioneers & Valuers, who pointed this week to the dominance of those on higher salaries and cash buyers in the marketplace.
The peculiar structure of the Irish economy is at play here. Many high earners work in the better-paying tech and pharma sectors and the ecosystem of professional services that supports them. These sectors also create economic ripples as they push up costs and earnings in other areas. It is part of the reason why Ireland is an expensive country, and why many average earners find their finances are tight here.
Despite the travails of some tech companies, the number of high earners in Ireland has grown rapidly in recent years. Revenue Commissioners estimates show that the number of so-called tax units – jointly-assessed couples and single earners – with annual incomes of more than €100,000 has doubled from 177,000 in 2018 to 357,000 this year. Even since 2022, the number in this category has risen by about 100,000. This shows a big increase in buying power in the economy, which is being reflected in the housing market.
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Longer-term trends also help to tell the story. Since the floor of the property market in 2012/13, earnings across the State have risen by roughly 40 per cent, while in the high-paid ICT sector they have increased by about 80 per cent. The gap between the average-and the higher-earners is growing.
Cash buyers – which include those who have sold previous homes as well as wealthier people coming to work here – are first in line in the queue to buy
Property prices have risen by even more, of course, with the price of an average home bottoming out at €155,000 and now costing €337,000. Much of this rise is justified by economic fundamentals. The economy has moved from a debt crisis with 15 per cent unemployment, to strong growth and unemployment of less than 5 per cent. The population has surged, with research from Savills this week estimating a rise of nearly four people for every new home built in recent years. With about 2.6 people on average in each home, you can see the shortfall here.
This combination of insufficient supply in a strongly growing economy kept house prices on the up, a rise only slowed by Covid and then by the cost-of-living crisis. Now, estate agents and economists are revising up their price estimates for the full year.
It is unclear what a reasonable valuation for house prices would be in Ireland – the twin-track nature of the high-earning sectors and the more modestly paid domestic ones makes this hard to judge. But prices are increasingly out of reach of average earners, even households with two incomes, and in overall terms the market is looking frothy. We have seen before how this upward leg of the Irish property rollercoaster can go on for a prolonged period – and we have also experienced how quickly things can turn.
These trends are being reflected in a decidedly odd housing market. The small number of second-hand properties becoming available are snapped up, with higher-income buyers dominating at the middle and top end.
Cash buyers – which include those who have sold previous homes as well as wealthier people coming to work here – are first in line in the queue to buy. Estate agents say that in some areas of the market they account for up to 40 per cent of business at the moment. These are followed by better-off people with mortgage approval. There are plenty of couples with joint incomes of €250,000 to €300,000 in the market, or at least enough to make a big impact when few homes are for sale. First-time buyers are increasingly struggling in this second-hand market, particularly because supports such as Help-to-Buy are only available on new homes, but also because of price levels.
[ The Irish Times view on house prices: the affordability squeeze tightens furtherOpens in new window ]
Perhaps nowhere is the twin-track nature of the Irish housing market more evident than in the new home sector. The €250,000 income couple, or the cash buyer, purchase the €1 million-plus home in Dublin’s suburbs. The average earners in the capital head to the outer reaches of the county or into commuter-land in Kildare, Meath and Wicklow, where they buy properties priced just within the €500,000 Help-to-Buy cap. Land is cheaper here, so this works for builders.
The huge wealth created by the multinational sector has been a boon for Ireland, creating tens of thousands of well-paying jobs and billions in tax revenues. It has funded a large expansion in State spending. But the two-tier economy also creates challenges, and housing is part of this story. The seemingly never-ending rise in house prices may in part reflect economic success and rising incomes, but it is not good news for the Coalition heading for a general election. With prices set to rise further, Ministers have another reason to call an early general election.