The Irish residential property market has been a hive of activity, with prices surging by 7.7% through 2022, according to Davy’s latest housing market analysis. Conall MacCoille, the firm’s Chief Economist, however, pointed out that recent quarters have seen a pullback in asking prices, indicating a market correction of stretched valuations that emerged in a frothy environment.
In Dublin, the reality of this adjustment has been particularly pronounced. “House prices have already declined by 2% between September and January,” stated Mr MacCoille. Despite this, the housing market continues to be constrained, with robust demand showing no signs of abating.
In an interesting development, MacCoille pointed out that the Central Bank’s unexpected move to relax mortgage lending rules could inflate house prices by as much as 8%. “This may be already evident in mortgage approvals data,” he observed, noting that “The average first-time-buyer approval rose by 2.3% in February to a fresh record high of €281,350.”
As the housing market teeters between demand and supply challenges, the Irish government is reportedly considering new policy initiatives to rectify ongoing issues. The Chief Economist highlighted the consideration of tax changes to prevent buy-to-let landlords from exiting the market and strategies to facilitate the acquisition of such properties by local authorities.
However, as Mr MacCoille went on to explain, there are significant hurdles that remain to be overcome. Capacity issues in An Bord Pleanala and Irish Water are still hindering development, despite draft legislation published by Minister Darragh O’Brien in January aiming to simplify the planning system. The Irish Planning Institute criticised these proposals as unfeasible.
The lack of clarity surrounding the spending for the National Development Plan, the Slaintecare primary care system and Climate Action Plan has come under fire from the Irish Fiscal Advisory Council (IFAC), as Mr MacCoille further elaborated. The unchanged capital spending budget of €12.4bn for 2023 in last October’s budget, despite evident build cost inflation, has raised eyebrows.
In conclusion, Conall MacCoille signalled a warning: the biggest threat to Ireland’s prosperity might not be external factors but the risk of public investment failing to address the burgeoning evidence of bottlenecks and cost pressures in the economy. As Davy’s Chief Economist stated, “The key threat to Ireland’s fortunes may not be external, but the risk that public investment will fail to address the growing evidence of bottlenecks and cost pressures in the economy.”