Concerns that housing completions will decline from 2022 levels are growing after the Society of Chartered Surveyors Ireland (SCSI) predicted that the number of new builds could fall this year and next year due to rising construction costs.
SCSI reported in its annual residential property report that its agents had expressed worry that completions would decline in 2023, in line with the dwindling number of planning permissions and commencements, echoing the sentiments of Lisney.
Some SCSI agents report in the survey that the cost of construction is a particular concern in relation to the supply of new homes with inflation and labour shortages contributing to higher costs.
C. 25,000 new homes were completed last year, a figure widely considered to be significantly short of the average level required to the end of the decade to meet housing demand.
In fact, SCSI projects that housing output would need to increase 8% each year to meet the targets set in the government's Housing for All strategy, meaning 27,000 houses would need to be completed in 2023, rising to 45,000 in 2030.
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The organisation forecast that house prices would increase 2% in 2023 following a downward shift in activity and sentiment at the end of last year due to economic uncertainty and rising interest rates.
Agents believe these two factors look set to dominate the market this year with prices expected to rise by just 1% in the first quarter and by another 1% over the course of 2023.
A three-bed semi-detached homes remains out of reach by tens of thousands of euro for first-time buyers (FTB) on average salaries in some parts of the country, specifically Wicklow (€74,000 gap and Kildare (€27,000).
Meath, Cork and Galway remain affordable to the average FTB couple with available purchasing power exceeding new home prices by as much as €28,000, €8,000 and €21,000 respectively.
“Residential values have increased exponentially in the past number of years with year-on-year house price inflation running at 10% nationally. Increases of that magnitude are simply not sustainable and a return to a more stable environment is welcome in terms of affordability," John O'Sullivan, chair of SCSI's practice and policy committee.
“However, the price inflation we have seen was also a response to higher construction costs and helped ensure some housing projects remained viable. If values plateau or fall during a period of high construction inflation, many projects may stall or not commence and that is a real concern given the current housing crisis” he said.
O'Sullivan added that schemes such as Help to Buy and the First Home Shared Equity would be vital for the ongoing delivery of housing and the viability of new home construction.
The report found there was a marked drop off in viewings activity in Q4 which, combined with the large proportion of rental properties coming on the market, illustrates some of the complex challenges facing the property market at this time.
“The report shows a significant decline in viewings and sales in Q4 2022 when compared with Q4 2021. While 49% of agents reported an increase in sales and viewing activity in Q4 2021 – largely due to pent-up demand in the wake of Covid – this fell to just 15% in Q4 2022," O'Sullivan said,
“Well-presented houses in good condition that are priced correctly are performing well when placed on the market for sale.
"Agents say homebuyers are showing a growing preference for completed ‘A Rated’ homes rather than properties that require renovations/modernisation or those with poorer Building Energy Rating (BER) while high speed broadband is also a major plus.”
“Although the trend of second-hand buy-to-let properties coming on the market was in evidence throughout 2022, it appears to have ramped up in the last quarter of the year.
"While this may have helped to increase the number of properties available for sale - 66% of agents reported low stock levels this year as opposed to 85% last year – the lack of supply remains the dominant issue in the market."
“Of course, the trend of private landlords exiting the market has serious implications for the supply of rental properties. SCSI agents are reporting that the supply of available units to rent is at one of the lowest levels ever experienced and they don’t believe the situation is set to improve in the short term.”
Almost eight out of ten agents (78%) surveyed believe that individual buy-to-let second-hand rental units being sold at present will not be replaced in the rental market in the next two years.
The survey found that the complexity of rent regulations, landlords' difficulty in complying with rented housing standards, and net rental returns being too low were the main reasons for rental properties being put on the market.
The survey also found that 59% of agents surveyed reported an increase of tenants overholding rented property, ie remaining in a property after a valid notice of termination has expired in the past two years, indicative of the difficulties renters face when trying to find an alternative rental property.
(Pic: Mark Stedman/Photocall Ireland)
