House prices in Ireland need to fall to make housing more affordable. This obvious point is too often missed in the debate on housing and has been given too little emphasis in the policy mix, which includes supports for demand – which push up prices – as well as measures to increase supply.
An increase in affordability could be achieved either via falling prices or a period when prices were broadly static and incomes increased. The latest Central Statistics Office figures do show a moderate level of overall price increases, with the annual index up 1.4 per cent on one year earlier. In Dublin, prices are down 1.9 per cent year-on-year, while elsewhere they are 4 per cent higher. Overall, prices are now nearly 4 per cent above their 2007 peak, albeit that incomes have also risen significantly in the meantime.
However, the market remains challenging for first-time buyers. The price of new homes is up by 10.4 per cent over the past year, buoyed by strong demand from this group. In turn, Government schemes such as the Help-to-Buy incentive have increased the ability of first-time buyers to pay a bit more. The trouble is, in a market with insufficient supply, this is a factor in pushing up prices, along with increased building costs.
In the second-hand market, meanwhile, prices have fallen 1 per cent over the past year, though it appears that much of this is driven by the falling price of more expensive properties, as buyers become nervous and higher interest rates take a toll. Despite strong loan demand, the number of overall transactions in September was lower, with first-time buyer purchases down by almost 6 per cent on the same month last year.
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The Government has underlined that housing supply is holding up this year and construction levels look likely to beat the overall official target. This is progress, but unfortunately the rising population means that it is a moving target. All areas of policy need to be focused on increasing supply and to achieve this getting the proposed reforms of the planning regime right – including adequately resourcing the entire process – remains vital.