Supply is key in post-pandemic housing

Despite initial predictions that the Covid-19 pandemic would lead to a softening of the harsh conditions of the housing market in Ireland, supply has thinned and prices have risen in the year since the virus reached Ireland’s shores.

The housing sales market was sitting stable in early 2020, with prices neither rising nor falling at substantial rates, but the pandemic has put a stop to any such steadying of prices. The number of homes coming onto the market has fallen by roughly 40 per cent in some parts of the country and as a result of strong demand and weak supply, prices have risen, the research of Trinity College Dublin Associate Professor Ronan Lyons suggests. National house prices have risen on average by between 7 per cent and 8 per cent, although some areas have seen price increases between 15 per cent and 20 per cent.

Lyons has stated that the lack of sales during the pandemic has meant that his research estimates will not yet be visible in the official data. Figures released by the Central Statistics Office in May stated that prices in Dublin rose by just 1.2 per cent in the year to February 2021. Lyons’ research indicates that the rise in prices is not to do with a credit bubble, but rather a lack of housing supply.

“Even in a market blighted by extreme volatility, such as Ireland’s over the last three decades, the last 12 months will go down as remarkable ones in the history of Ireland’s housing market,” Lyons writes in the Daft.ie house price report for the first quarter of 2021. The report states that house prices rose by €20,000 on average in the year between March 2020 and 2021, roughly twice the rate of inflation of 2018 and 2019 that again is being blamed on a lack of supply, caused in part by the “supply shock” of the lockdown halting construction and Covid restrictions meaning that potential buyers could not view a property until a sale had been agreed, leading some agents to not list properties as yet.

“There is no precedent for availability this tight in the post-Celtic Tiger housing market,” the report states. The onus for addressing this tight supply will of course fall on the Government and the supply of social and affordable housing that has long been mooted, although the ability of the construction sector to meet demand in 2021 is seriously under question, with Minister for Housing Darragh O’Brien TD estimating in early 2021 that every week of lockdown equated to the loss of between 700-800 houses scheduled to be built this year.

Estimates for the number of houses needing to be built per year in order to satiate the already gargantuan pre-pandemic housing need in Ireland ranged in the 30,000s for every year of the 2020s; the Irish Government had hoped to have 25,000 homes built in 2021. With that target almost certain to be missed due to the lockdown of construction early in the year, the battle to cool price inflation via significant increase of supply in the post-pandemic era looks as if it will be a long one.