Source: Savills

Hottest Home Market in Euro Area Has Irish Lawmaker Feeling Pain

  • Irish house prices are booming amid shortage of homes
  • Price crash led to economic collapse and bailout a decade ago

Irish lawmaker Noel Rock has a very direct interest in the nation’s new house price surge -- he’s trying to buy a home in the euro-zone’s hottest market.

For about two years, Rock, 30, has joined dozens of others trudging around open houses in Dublin, in scenes reminiscent of those before Ireland’s 2008 real estate bust. Prices in November rose 1.1 percent, three times the monthly increase in October, figures on Thursday showed.

“Everything is very competitive and you get used to the idea of prices going up,” Rock, who won a seat in parliament in 2016, said. “I have heard of houses with an asking price of 350,000 euros ($420,000). Then the owner takes them off the market and later re-lists them for 380,000 euros.”

Nearly a decade after a property crash pushed Ireland’s banks into near bankruptcy and the nation into an international bailout, real estate is booming again. In another sign of the market’s strength, an unidentified Irish expatriate paid a record 6.5 million euros for a luxury penthouse at Lansdowne Place in Dublin’s embassy belt, real estate company Savills Plc said this week.

“Prices are only going one way in the short-term until the supply issue is resolved,” said Alan McQuaid, chief economist at Merrion Capital in Dublin. “Prices will continue to rise.”

Ireland's Real Estate Rebound

Home prices are surging as demand outstrips supply

Source: Central Statistics Office

Irish home prices have surged 72 percent since the depths of the financial crisis in 2013. Prices rose 7.6 percent in the third quarter from the year-earlier period, the biggest gain in the euro region, according to the Global Property Guide, which tracks over 100 markets. In Spain, also devastated by a real-estate bust, prices rose 1.4 percent in the same period.

Analysts say this boom is different from the mania that gripped the market between 2000 and 2006. While price growth a decade ago was driven by credit, most of the increases now are based on lack of supply, they argue. Home construction essentially stopped after the crash.

Surging Demand

Davy, Ireland’s largest securities firm, sees demand for as many 53,000 homes a year, five times more than the number currently being built. Homebuilder Cairn Homes Plc said this month the supply of new Irish homes will “significantly undershoot demand” for the next two years.

“The main influence on prices is on the supply side,” Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin, said. “That issue does not get resolved overnight.”

While supply is anemic, demand is back as the economy continues to recover from the crisis. Brexit may offer another boost, with firms including Bank of America Corp. choosing Dublin as its main EU base.

Analysts are not worried -- yet.

“The economy is fundamentally different to a decade ago,” Diarmaid Sheridan at Davy said. “It is not reliant on the construction industry and the home price growth we are seeing is due to supply and demand imbalance - not a credit bubble.”

Loan Rules

Still, Irish Central Bank Governor Philip Lane warned last year one-way bets in housing don’t exist and he moved to tighten up loans. Previously, up to a fifth of mortgages were permitted to beat a loan-to-income ratio of 3.5. In 2018, only 10 percent of those trading up will be allowed to breach that rule, according to McQuaid at Merrion Capital.

Lawmaker Rock said he’s cautious, but hasn’t been been deterred from his search.

“As a buyer, you’re over a barrel to a certain extent,” Rock said.

    Before it's here, it's on the Bloomberg Terminal.