It’s been an extraordinary year, with unprecedented changes to our way of life in Ireland. That said, the property industry has proved surprisingly solid in the face of this turmoil. Our expert team has been closely monitoring the market’s performance throughout the year; here we highlight a number of the key drivers behind the statistics and predict a promising 2021 ahead.
One of the surprising economic aspects of the Pandemic and associated lockdowns has been the resilience of the housing market, although there has been a notable shift favouring First Time Buyers (FTBs) which is evident in the respective performance of prices and rents. Residential prices (excluding Dublin) were still modestly higher in the year to August, according to the CSO index, while in the capital the price of houses fell an annual 1.5%. That said, apartment prices were still marginally up on last year. Rents, in contrast, fell an annual 3.2% in October using CSO data.
This price performance seems at odds with job losses and unemployment, which are normally key drivers of housing demand. In October a headline figure for Irish unemployment of 500,000 was reported – an unemployment rate of over 20% – which is much higher than that seen in the depths of the post-crash recession a decade ago. However, that number includes the recipients of the Pandemic Unemployment Payment, who are not officially classed as unemployed, according to the standard definition (which requires someone to be available for work). Based on that criterion, the unemployment total was 180,000, giving an unemployment rate of 7.3%.
Employment did recover some ground in the third quarter after a plunge in the second but may well fall again as we move through the final months of the year and into 2021; some businesses are likely to shut for good while others may re-open but cut back on staff numbers. The official unemployment total will rise but the composition may well be skewed towards the hospitality, retail and tourist sectors as in recent months, which helps to explain the resilience of the housing market. To date, those on higher incomes, employed in the professions, the public sector and the multinational sector, have not seen a big change in employment or a loss of income; average weekly pay in Ireland rose by an annual 5% over the first half of the year. So those who can afford to buy houses in Ireland have generally weathered the economic storm in a way not open to those in sectors dependent on personal contact and customer footfall.
The impact is also clear in mortgage lending. Unlike a decade ago, banks now have the capital and low cost funding to supply credit. Mortgage approvals for house purchases did fall sharply from April through to June but have recovered since, with September seeing an annual increase of 27%. At around €8bn, drawdowns in 2020 will be lower than last year but stronger than generally predicted a few months ago. Mortgage rates are still falling and FTBs can also avail of an amended and extended Help to Buy scheme while, in effect, higher income households have been forced savers during the Pandemic, further boosting their buying power. In fact, bank deposits have soared and the savings ratio has jumped to an extraordinary 35%, the highest across the EU.
Rents have not fared as well as house prices; the average monthly figure actually paid by tenants started to fall in March and although the summer months saw a modest respite, the annual decline in October was 3.2%, with Dublin as the main drag. The overall supply of new housing will be down this year but again by less than many expected, with an annual total of 18,000 now possible. The supply of rental properties in the capital has increased, however, reflecting in part the impact of falling employment on demand but also the impact of lockdowns on the multinational sector with most employees working from home. ‘Home’ in that context could be anywhere in Europe, and many workers have left Dublin. Moreover, they are often well-paid, younger and with no plan to settle in Ireland, hence happy to rent rather than buy.
The new year is likely to bring increased visibility for the property sector: the terms of the Brexit trade arrangements are still undecided but the economic outlook for 2021 looks less cloudy now given the recent positive news on a Covid-19 vaccine, albeit with uncertainties around the timing and impact of any roll-out. The housing market is most sensitive to the path of employment, and that in turn would clearly be supported by a quicker return to a more normal economic landscape. The rental market, in particular, would be boosted by the return of multinational workers, although it is likely to remain a market more favourable to FTBs, given the interest rate outlook and Help to Buy scheme. It remains to be seen how quickly we’ll achieve any return to normality, but for now, we can breathe a cautious sigh of relief that the worst might be behind us and the housing market has weathered the storm well.