It is always difficult to judge what level of property prices is justified given the state of the economy. But on any reasonable assessment, the Irish property market is starting to look frothy. Prices increased at an annual rate of over 10 per cent in August, according to the latest data from the Central Statistics Office. They are now more than 13 per cent above their 2007 peak.
The economy has grown significantly in the meantime, of course, and inflation has moved the general level of wages and prices higher. But house prices are now increasingly out of reach of even couples earning two reasonable salaries. And evidence is growing of properties being bid up significantly above their original asking price.
There are – by definition – buyers who can afford current prices. Wages are on the rise and official figures show earnings in multinational-dominated sectors and areas of professional services are high. But more and more people are priced out and becoming dispirited as the market runs away from them. This applies both to first-time buyers and to those who want to move but face a second-hand market where supply remains near historic lows. Tellingly, the number of transactions in the market is falling.
Bank lending rules introduced after the financial crash mean that there are limits on what people can borrow and also on what financial institutions can lend to developers. This means that a repeat of the 2008 crash is unlikely. But as prices head ever higher, newer buyers are more and more exposed to any turn for the worse in the jobs market or the wider economy.
For now, there is no sign of the housing market turning. On the contrary, the lack of supply and the downward trend in interest rates could well see prices continuing to head higher well into 2025, presuming there is no wider economic shock in the meantime. The affordability issue could start to act as a brake on prices, but it is hard to tell in a dysfunctional market.
Boosting supply is, of course, the central policy issue. While building levels have increased over recent years they remain well below what is necessary, with particular problems in some areas of the market, for example smaller homes to buy.
As we head towards a general election, the Government needs to concede that a new policy approach is needed. The planning bill, passed into law last week, may be part of this, though the industry remains sceptical of some of its provisions. But a much wider drive to develop housing at scale is needed. And in its reaction to the report of the Housing Commission, the entire State apparatus has shown an unwelcome lack of openness to new policies and structures.
This must change. The Coalition – and the Opposition, where Sinn Féin have already published a detailed strategy - all need to try to persuade voters that they can deliver on housing.