A war in Ukraine, rapidly rising consumer prices, supply chain challenges, and a 50bps rise in interest rates have all served to challenge both the economy and the housing market in Ireland, according to Tony Kavanagh, director of property agents Sherry FitzGerald.
He says the most prominent fallout from the global challenges lies in the construction sector.
"Following an uptick in construction activity in 2021, bolstered by the easing of public health restrictions, commencement activity has slowed this year.
"Having peaked at almost 35,000 units commenced in the year to March 2022, the following months have recorded a steady decline, with significant issues surrounding building cost inflation hampering activity."
This slowdown in activity will impact construction outputs levels in the second half of 2022, he says, and, perhaps most worryingly, 2023.
"Such a slow down in activity, coming at a time of rapidly rising population is particularly frustrating," he says.
The release of the preliminary figures for the 2022 Census underscores the scale of the housing crisis. The data highlights the need to build more than 50,000 new homes each year until 2036 to bring Ireland in line with the European average in household size. This is more than twice as many as Ireland is currently building, and the demand for new homes developments that are due to launch this Autumn in Galway is very strong.
He says the rental crisis continues to lie at the core of the accommodation crisis in Ireland.
"After a challenging decade of limited investor activity and an exodus of existing landlords, it now appears the situation has deteriorated further in 2022. According to in-house research on vendor activity, 37 per cent of vendors in quarter two were investors selling their property.
"This is the highest proportion on record and highlights the continued dysfunction in the rental market."
Furthermore, he says, rental inflation has continued to gather pace over recent months. According to the subindices of the Consumer Price Index, private rents increased by 11.9 per cent over recent months, which is the strongest rate of annual growth in a five-year period.
"This is particularly wearisome because unlike the complex nature of the overall market, there are many well documented solutions to the rental crisis, which have been disregarded by policy makers for over a decade. The time for action on this debacle is now."
Yet, he says, the second-hand residential market has shown considerable stability in the year to date. Continuing from last year, sales activity remains healthy. Excluding block sales and new homes acquired for social housing, a total of 12,200 housing transactions were recorded on the Property Price Register in quarter one.
Activity levels have improved again in the second-hand market with approximately 10,600 sales recorded in quarter one, representing the strongest first quarter, since at least 2010.
"We are also beginning to see stability re-emerge in terms of prices. Our latest index shows that the average value of second-hand homes in Ireland increased by 1.6 per cent in the second quarter of 2022.
"This represented the slowest rate of quarterly growth in over a year. That said, the overall pace of growth remains elevated. Over the opening six months of the year, average values rose 4.5 per cent, matching the same rate recorded over the first six months of 2021. In the 12 months to June, average values have increased 9.6 per cent."
He says the challenging nature of the Irish property story is not unique, and there is growing evidence of housing market imbalances in many developed countries. However, there is no doubt the accommodation crisis in Ireland is more deep-rooted than most.
That said, rising interest rates and volatile consumer sentiment will likely result in a moderation in the pace of inflation in the months ahead and into 2023.
"At this juncture we expect to see inflation of six to eight per cent in the Galway market in the full year."
Looking at the immediate future, he says all indications are for a busy selling season in the Autumn. Traditionally the market slowed in the summer months, reopening at the end of August. However, with the disruptions of the past two years the customary summer lull has dissipated.
"That said, the quantum of new properties coming to the market did slow this summer. However, early indications are that stock levels will be replenished in the coming weeks, with an improved volume of both second-hand homes and new homes coming to the market.
The frenzied bidding activity evident in the opening weeks of the year has diminished, but demand remains strong with a notable urgency from purchasers to transact more quickly in the face of rising interest rates, he says.
"As always, the market performance will not be homogenous, but at this juncture, we are expecting a busy season in the months ahead."
