half-year residential market review q2 -...

HALF-YEAR RESIDENTIALMARKET REVIEW Q2

2019

| DNG HALF-YEAR RESIDENTIAL MARKET REVIEW 2019 | dng.ie

CONTENTSIntroduction 3

DNG House Price Gauge 5

Annual % Change in Second Hand House Prices 10

DNG Apartment Price Gauge 11

DNG National Price Gauge 15

Cash / Non Mortgage Transactions 19

Transaction Levels Ireland v UK 20

Supply Side Analysis 22

Help To Buy Initiative Analysis 24

Commentary And Analysis 27

Report complied by DNG Research 2019

Paul Murgatroyd

Director of Research & Business Development


DNG HALF-YEARRESIDENTIAL PROPERTYMARKET REVIEW

The first half of this year has been a busy one with DNG having one of its strongest periods of residential property sales. It is difficult to assess if this is a one-off or the beginning of a trend of improved activity, but undoubtedly it is a sign of increased confidence levels in the market.

On the other side of the equation, property prices are without question in a period of stabilisation, as the latest results of the DNG HPG show a change of only 0.1% in the average price of a residential property in Dublin. Indeed, property prices in the last twelve months in the capital have been more or less level, and have only seen a rise of 0.4%. This is good news for buyers and the market. The reason why prices are stabilising are two-fold. Firstly, the Central Bank macro prudential rules, which limit lending, are restricting how much a buyer can borrow and secondly, there is a marked increase in new homes construction across the capital which is helping meet demand from home buyers.

Market transaction volumes in the first quarter were more or less identical to last year in the re-sale market, and it is likely that by the end of this year the total number of residential sales will be marginally ahead of the 2018 total. This is a little disappointing as it indicates that the market is still in recovery mode and is not operating normally, as these numbers should be increasing at a greater pace. DNG Research estimates that 2.4 sales per thousand population are presently transacting in Ireland compared to 3.9 on average in the UK, our nearest and most similar market. However, it is noteworthy that sales of property in the €1million – €2.5million price range, which had been challenging for some time now, have noticeably increased so far this year.

Whilst supply might be close to meeting demand in the home purchase market it is a very different story in the rental sector. To add to this sectors’ woes, the Government has just introduced further legislation which affects non-institutional landlords in particular, whom account for over 96% of all landlords in the state* These changes in June, essentially make it more or less impossible to increase rents to anywhere near market value where properties are underlet. Anecdotal evidence over the last few weeks from across our network has noted a marked upturn in the number of private investors leaving the market as they move to offload investment property. This is the opposite to what should be happening at this juncture of the market cycle. Private landlords are unhappy with the new regulations and fear as to what may come next. They also pay high taxes on rents, PRTB costs, and property tax (in the UK tenants are responsible for the payment of this charge) and already face some of the toughest regulation in Europe. As a result it is perhaps unsurprising that they continue to exit the sector.

INTRODUCTIONBy Keith Lowe, Chief Executive

| DNG HALF-YEAR RESIDENTIAL MARKET REVIEW 2019 | dng.ie Page 5 | DNG HALF-YEAR RESIDENTIAL MARKET REVIEW 2019 | dng.ie

On the New Homes front, data from DNG Research which tracks the number new homes completions sold in the open market in schemes of three or more units, recorded no increase in the number sold during the first quarter of the year compared to the same period last year in Dublin. Neither were there any appreciable gains in other locations including the four Dublin commuter counties or the cities and counties of Cork, Galway or Limerick in Quarter 1, 2019. However, new homes completions tend to increase as the year progresses and certainly it would appear overall numbers for 2019 will exceed the levels of 2018.

In looking at the 2018 data for Dublin, the same measure of new homes production, i.e. schemes of 3 or more sold in the open market, just 9 developments nationwide sold in excess of 100 units from 5 different builders compared with only 4 schemes in 2017. Overall new homes completions in these schemes in Dublin were up 25% in 2018 compared with the previous year, with Nama having involvement in 30% of them in 2018 and 32% in 2017.

Whilst we have no doubt that new homes construction and sales will rise sharply in the years ahead, certain aspects of the New Homes market are still challenging. Factors such as site and construction funding, the relatively small numbers of builders and developers that have the capability to deliver large scale developments, purchaser’s uncertainty and limitations around the Help to Buy Initiative and the Central Banking lending rules are all impacting on current output.

The current Help to Buy Initiative is due to end this year. It is essential that this is extended as it is a vital incentive and allows first time buyers to purchase their own home, the majority of whom are currently living in rental accommodation. For the last 5 years DNG have sought the introduction of an enhanced Help to Buy Initiative, in the form of a Shared Equity Scheme loan and have made a number of submissions to the Department of Finance without success. This scheme has been operating in the UK for the last six years and has led to a sharp increase in construction numbers, especially in London, where the scheme has been extended multiple times. 38% of all new homes sold in the UK since 2013 have been sold with this incentive which accounts for 211,000 properties and this is predicted to rise to 352,000 by March 2021.** DNG Research estimates that in Ireland the impact has been even greater, in that 44% of all new homes purchased in Ireland since the introduction of Help to Buy were bought with the aid of the initiative.

In recent times, the Irish Government has adopted policies which lean towards the rental sector and not home ownership. I believe that the opposite should be the case and that the state should be strongly promoting home ownership. Those renting at high rents, which are partly underpinned by state rent assistance, are in for a rude awaking when they reach retirement age and realise that their state pension will not be high enough to continue paying their rent. This is something the state will now have to plan for. Home ownership provides security of tenure, is a form of wealth for families to pass down to their dependents and is a home to live in that they can adapt and change as they wish as their circumstances change. Home ownership should not just be for the privileged but should be open to as many people as possible.

We predict that property prices will rise by an average of 2% - 4% this year which would be a good result for the market, the Central Bank rules which do require some relaxation, are certainly doing what they were designed to achieve, and without them, prices would be rising at double digit rates which would not be sustainable. Brexit still remains a market risk the effects of which are difficult to predict.

*Department of Finance - ‘INSTITUTIONAL INVESTMENT IN THE HOUSING MARKET’ February 2019.

** The National Audit Office UK - Help to Buy: Equity Loan scheme – progress review’ June 2019.

INTRODUCTION CONTINUED


KEY FINDINGS

• House Price inflation remained at a minimal level during second quarter.

• Virtually no change in prices in the year to June 2019 across the capital.

• Nominal values plateaued over past 12 months as Central Bank Lending rules limit price growth.

• New Dwellings completions forecast to exceed 22,000 in 2019.

QUARTERLY RESULTS

DNG HOUSE PRICE GAUGE DUBLIN

FIGURE 1. QUARTERLY PERCENTAGE CHANGE IN DUBLIN RESIDENTIAL PROPERTY PRICES

Q2 2019

Average Dublin Second Hand Price €454,867

Percentage Change Q2 2019 0.1%

Annual Percentage Change 0.4%

% Change Since Low (Q2 2012) 87.8%

% Change From Peak (Q3 2006) -36.5%

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Source: DNG Research


Residential resale properties remained constant during the three months to June according to the latest results from the DNG House Price Gauge (HPG). In the second quarter of the year the average price of a home in the capital rose by 0.1%, following no change in prices in quarter one. The latest results mean that prices have risen by less than one percent in each of the last five quarters.

As shown in figure 2 above, the annual rate of inflation fell to 0.4% in the year to June. This is the sixth successive quarter when the HPG recorded a fall in the annual rate of price inflation as prices remained stable over the course of the twelve-month period.

The latest results are in contrast to the twelve months to the end of June 2018, when prices increased by 6.4% on average. Prices across the capital remain 36.5% below their previous peak levels, recorded in 2006 at the top of the last cycle however, the HPG shows that prices have risen by 88% from the market low point in 2012.

The latest results mean that the average price of a residential resale property in the capital remained virtually unchanged at €454,867.

FIGURE 2. ANNUAL PERCENTAGE CHANGE IN DUBLIN RESIDENTIAL PROPERTY PRICES

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ANNUAL RESULTS



PRICE CHANGES BY LOCATIONThe DNG HPG records the change in the average price of a residential property according to location within Dublin as shown in table 1 below.

Prices in south Dublin eased back slightly during the second quarter and are -0.3% lower than twelve months ago, whilst prices in West Dublin recorded a marginal increase of 1.1% in the second quarter and are therefore 2.7% higher than a year ago. Prices in west Dublin are almost double their lowest value at the market low point but remain 25% below their previous peak level.

Market prices in North Dublin have remained constant over the course of the last twelve months and remain 33% below their previous peak.

PRICE CHANGES BY PRICE BRACKETThe DNG HPG measures the movement in prices for different price brackets of property within the sample as shown in table 2. below.

First time buyers continue to drive demand in the market and prices below €300,000 saw the strongest growth in values in both quarter two and over the last twelve months. At all levels above this prices remained stable, as they have done in recent quarters. Prices at the upper end of the market remain 44% below previous peak values however they have increased by 76% since 2012 at the bottom of the previous cycle.

Q2 2019 Annual % Change From Peak (Q3 2006) Q2 2019

Southside -0.1% -0.3% -41.4% 84.6%

Northside 0.0% 0.2% -33.2% 87.9%

Westside 1.1% 2.7% -25.6% 96.7%

Q2 2019 Annual % Change From Peak (Q3 2006) Q2 2019

Up to €300,000 0.7% 2.3% -29.6% 126.2%

€301,000 to €500,000 -0.2% 0.2% -26.2% 91.4%

Over €500,000 0.2% 0.0% -43.8% 75.7%

TABLE 1.

TABLE 2.


DNG HPG & CSO RPPI DUBLINFigures 3 and 4 below show the quarterly change in Dublin residential property prices as measured by both the DNG HPG and the CSO Residential Property Price Index (RPPI) for all Dublin residential property.

Both the DNG House Price Gauge and the Central Statistics Office Residential Property Price Index (RPPI) for Dublin show that prices have remained virtually unchanged in recent months, as shown in figure 3. above.

Indeed, the CSO RPPI has recorded a marginal decline in values of around 1% per quarter over the last three quarters whilst the DNG HPG has recorded no material change in nominal values.

As shown in figure 4. opposite, the trend of both measures shows a high level of consistency with both measures recording an increase in the average value of a Dublin home of 0.4-0.5% over the last twelve months.

FIGURE 3. QUARTERLY PERCENTAGE CHANGE - DNG HPG & CSO RPPI DUBLIN RESIDENTIAL PROPERTY

FIGURE 3. QUARTERLY PERCENTAGE CHANGE - DNG HPG & CSO RPPI DUBLIN RESIDENTIAL PROPERTY

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DNG HPG

CSO RPPI Dublin Residential Property

Note – The CSO data reported above in the period Q2 2019 relates to the 3 months to April 2019 only. The latest available data at time of writing.

Source: DNG Research and CSO RPPI


FIGURE 4. ANNUAL PERCENTAGE CHANGE DUBLIN RESIDENTIAL PROPERTY PRICES

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DNG HPG

CSO RPPI Dublin all Residential Property

Note – The CSO data reported above in the period Q2 2018–Q2 2019 relates to the 12 months to April 2019. The latest available data at time of writing.



ANNUAL % CHANGE IN SECOND HAND HOUSE PRICESANNUAL PERCENTAGE CHANGE IN SECOND HAND HOUSE PRICES 2001 - 2018

Year Change second hand house price

2001 -3.5%

2002 +21.2%

2003 +9.5%

2004 +13.0%

2005 +22.0%

2006 +19.0%

2007 -11.3%

2008 -21.5%

2009 -24.2%

2010 -15.1%

2011 -20.0%

2012 +2.2%

2013 +17.7%

2014 +23.5%

2015 +0.7%

2016 +5.9%

2017 +10.9%

2018 +2.8%

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HEADLINE RESULTSThe DNG Apartment Price Gauge (APG) analyses the movement of apartment prices across Dublin. The APG measures the change in value of a representative sample of apartment dwellings across Dublin on a quarterly basis. Within the Dublin apartment market, the APG analyses price movements in different areas (Central, North, South and West) and by the number of bedrooms the property contains.

QUARTERLY RESULTSThe rate of increase in the capitals apartment prices eased back in quarter two compared to the first quarter with the DNG Apartment Price Gauge (APG) recording an average growth rate of 0.2% in the period.

More sustainable rates of growth in apartment prices is now evident with the average price of an apartment in the capital increasing by less than 1% in each quarter, over the last fifteen months.

DNG APARTMENT PRICE GAUGE

DNG APG Results Q2 2019

Ave. Price of an Apartment in Dublin E330,385

% Change Q2 2019 0.2%

Annual Percentage Change 0.9%

TABLE 3.

FIGURE 5. QUARTERLY PERCENTAGE CHANGE IN DUBLIN RESIDENTIAL PROPERTY PRICES

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ANNUAL PERCENTAGE CHANGE

PRICE CHANGES BY LOCATION

The annual rate of increase continues to moderate, with the APG recording price increases of 0.9% in the year to June 2019. Since the peak annual growth rate of 14.7% in the year to September 2017 (see figure 6 below) the annual increase in prices recorded by the APG has moderated with each successive quarter meaning that prices in the apartment market have remained virtually unchanged over the course of the past twelve months.

Apartment prices in north Dublin recorded the strongest rate of growth during the second quarter, rising by 0.8% on average. Over the last twelve months the northside of the city also saw the strongest capital appreciation in values at 3.6%. This is in sharp contrast to south Dublin, where apartment prices fell by -1.5% on an annualised basis however they did record growth of 0.1% in the second quarter. West Dublin apartment values also increased, by 0.6% during quarter two and by 1.4% in the year to June.

FIGURE 6. ANNUAL PERCENTAGE CHANGE IN DUBLIN APARTMENT PRICES

TABLE 4.

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By Area

% Change Q2 2019 Annual Percentage Change

Central 0.1% -1.5%

North Dublin 0.8% 3.6%

South Dublin -0.2% 1.0%

West Dublin 0.6% 1.4%



PRICE CHANGES BY NUMBER OF BEDROOMS

Somewhat surprisingly, one-bedroom apartments saw prices decline in the three months to June, declining by -0.2% in the period. Conversely three-bedroom apartments rose in value by 0.4% over the same period but the average price of these properties remained constant over the twelve-month period to the end of quarter two.

TABLE 5.

By No. Bedrooms

% Change Q2 2019 Annual Percentage Change

One bedroom apartment -0.2% 0.6%

Two bedroom apartment 0.1% 0.9%

Three bedroom apartment 0.4% 0.0%

DNG APG & CSO RPPI DUBLIN APARTMENTSInterestingly the CSO RPPI for Dublin apartments has now recorded small declines in the average price of an apartment over the last three quarters, in contrast to the DNG APG which has effectively shown little or no change in nominal values. As shown below in figure 7. It is clear from both measures that overall, apartment price growth in the capital has remained muted in recent months.

Note – The CSO data reported above in the period Q2 2019 relates to the 3 months to April 2019 only. The latest available data at time of writing.


FIGURE 7. QUARTERLY PERCENTAGE CHANGE DNG APG & CSO RPPI DUBLIN APARTMENTS

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APG

CSO Dublin Apartment Index


On an annualised basis, both the DNG APG and CSO RPPI Dublin Apartments show very similar trends as the rate of price growth across the capital has moderated since the middle of 2018, following a period of rapid price appreciation dating back to early 2017. On an annualised basis, apartment prices are now rising at less than 3% per annum.

FIGURE 8. ANNUAL PERCENTAGE CHANGE IN DUBLIN APARTMENT PRICES

Note – The CSO data reported above in the period Q2 2018–Q2 2019 relates to the 12 months to April 2019. The latest available data at time of writing.

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APG

CSO Dublin Apartment Index



The DNG National Price Gauge (NPG) measures the movement in prices of residential property across the country. The results are aggregated at the NUTS III statistical level which comprises seven regions within Ireland excluding the Dublin Region (Border, West, Mid-West, Midlands, Mid-East, South East and South West).

The DNG NPG measures the movement in prices of a representative sample of properties drawn from all areas of the country excluding the Dublin region. The sample properties are revalued half yearly in June and December and results are aggregated by property type and by the number of bedrooms the property has.

DNG NATIONAL PRICE GAUGE

KEY FINDINGS

TABLE 6.

Area% Change in Price

H1 2019Annual

% changeAverage Price

June 2019

National (ex Dublin) 1.2% 2.8% E212,947

• Nationally (excluding Dublin) the average price of a residential property continues to increase but at a slower rate than previously seen.

• Prices increased by 1.2% in the first six months of 2019.

• On an annualised basis, the Midlands record the strongest growth in prices in the year to June, increasing by 5.2%, but from a low base.

• Prices in the Mid-East recorded the lowest rate of growth at 0.5% however prices still increased compared to six months earlier.

FIGURE 9. HALF YEARLY PERCENTAGE CHANGE IN NATIONAL PRICES (EX DUBLIN)

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H2 2016 H1 2017 H2 2017 H1 2018 H2 2018 H2 2019

At a national level, the DNG National Price Gauge (NPG) recorded an average increase of 1.2% in the first six months of 2019, down slightly from the rate of 1.5% recorded in the second half of 2018. The latest half yearly results are somewhat in contrast to the same period of 2018, when prices increased by 3.4% on average.



ANNUAL PERCENTAGE CHANGE IN NATIONAL PRICESAs shown in figure 10 below, the annual rate of increase in the price of a resale property continued to moderate in the twelve months to June, increasing by 2.8% on average. Two years previously, in the year to June 2017, the rate of price growth was in excess of 10% as prices rose quickly in percentage terms from a much lower base.

The average price of a residential property outside the capital now stands at €212,947 up from €210,377 a year ago.

PRICE CHANGES BY REGIONThe half yearly movement in residential property prices is measured for each region within Ireland and the results are shown in Table 7. below.

FIGURE 10. ANNUAL PERCENTAGE CHANGE IN NATIONAL PRICES (EX DUBLIN)

Area% Change in Price

H1 2019Annual % change

Average Price June 2019

Border 1.3% 1.2% €163,005

West 2.1% 4.9% €209,912

Mid West 1.6% 2.3% €184,580

Mid East 0.5% 1.4% €306,676

South East 1.2% 2.9% €198,406

Midlands 1.7% 5.2% €172,118

South West 0.8% 2.2% €246,908

TABLE 7.

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July 2018 - June 2019

Jan 2018 - Dec 2018

July 2017 - June 2018

Jan 2017 - Dec 2017



FIGURE 11. HALF YEARLY CHANGE IN AVERAGE RESIDENTIAL PROPERTY PRICE BY AREA

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Border West Mid West South East Midlands South WestMid East

Prices in the West recorded an average increase of 2.1% in the six months to June 2019, whilst prices in the Mid-East of the country (excluding Dublin) rose 0.5%. The Mid East continues to have the highest average residential property price at €306,676 due to it’s proximity to the capital. Prices in the Border region rebounded somewhat in H1, increasing by 1.3% on average, having fallen by -0.1% in the second half of 2018.

Smaller properties continue to show the strongest price appreciation nationally, with apartment prices increasing 2.4% in the first half of 2019, and 4.8% in the year to June 2019. In a similar vein, terraced properties increased by 1.8% in the first six months of the year whilst detached properties saw more modest price appreciation, increasing by 1.1% in H1 and by 2.4% in the last twelve months.

Only apartment prices saw their rate of growth increase when compared to H2 2018 whilst all other property types saw a moderation in the rate of capital appreciation.

Property Type% Change in Price



Detached 1.1% 2.4% E248,774

Semi Detached 1.3% 2.9% E193,705

Terrace 1.8% 4.4% E155,622

Apartment 2.4% 4.8% E119,000

TABLE 8.

PRICE CHANGES BY PROPERTY TYPEThe DNG NPG records the change in the average price of a residential property according to property type, as shown in Table 8.


H2 2016

H1 2017

H2 2017

H1 2018

H2 2018

H1 2019


FIGURE 12. HALF YEARLY CHANGE IN PRICE BY PROPERTY TYPE

Two-bedroom properties recorded the strongest growth in H1 at 2.3% whilst five-bedroom homes saw more modest growth over the period at 0.8%. The H1 results for 2019 are in contrast to the same period in 2018 when price appreciation was much stronger (see Figure 13) ranging from 5.8% to 3.6% reflecting the moderation seen in house price growth over the last twelve months.

No. Bedrooms% Change in Price



Two 2.3% 4.8% E120,570

Three 1.4% 3.3.% E177,262

Four 1.1% 2.4% E252,670

Five 0.8% 1.7% E312,022

TABLE 9.

PRICE CHANGES BY NO. BEDROOMSThe DNG NPG records the change in the average price of a residential property according to the number of bedrooms a property has, as shown in Table 9.

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H1 2017

H2 2017

H1 2018

H2 2018

H1 2019


FIGURE 13. HALF YEARLY CHANGE IN PRICE BY BEDROOMS

CASH / NON-MORTGAGE TRANSACTIONS

FIGURE 14.

10

9

8

7

6

5

4

3

2

1

0

% C

han

ge

Two Bed Five BedFour BedThree Bed

Source: DNG Research – BPFI & Property Price Register (Figures exclude re-mortgages & top-ups)

VALUE OF TRANSACTIONS Q1 2019 – EURO (BILLION)

VOLUME OF TRANSACTIONS Q1 2019

3.21

Value of transactions

52.4%

% value funded by cash or other

sources

42.2%

% transactions funded by cash or other sources

1.68

Value of purchases funded by cash or

other sources

4,864

No. of transactions funded by cash or

other sources

1.53

Value of residential purchase mortgages

issued

6,673

No. of transactions funded by purchase

mortgage

11,537

Number of transactions


H2 2016

H1 2017

H2 2017

H1 2018

H2 2018

H1 2019


QUARTERLY HOUSING TRANSACTIONS PER ‘000 POPULATION• In Q1 2019 housing transactions per thousand population In Ireland were constant to those seen in

Q1 2018 as shown in figure 15. It was a similar pattern across the UK, with only very marginal declines seen in England, Scotland and Wales. However, Northern Ireland was the only area of the UK where an increase in the number of transactions per thousand population was evident.

TRANSACTION LEVELS IRELAND V UKHOUSING TRANSACTIONS PER ‘000 POPULATION DNG Research tracks the number of housing transactions across the United Kingdom and Ireland on a quarterly basis. Results are presented as the number of housing transactions per thousand head of population for each country for comparison.

FIGURE 15. HOUSING TRANSACTIONS PER THOUSAND POPULATION

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

No

. Tra

nsa

ctio

ns

Per

‘000

Po

pu

lati

on

Ireland UK England Scotland Wales N. Ireland Dublin

• Cash / Non mortgage monies funded 52.4% of transactions in value terms in Q1 2019 down from 53.8% in Q1 2018.

• In volume terms, a significant portion of the market transactions (42.2%) was funded by cash / non mortgage funds in Q1 2019, down from 44.1% in Q1 2018.

• In excess of €3.2 billion of residential property was transacted in the first quarter 2019, up from €3.1 billion in the same period 2018.

• €1.52 billion of residential mortgages for purchase were issued in the period, an increase of 5.5% on Q1 2018.

Source: DNG Research, Property Price Register, HM Revenue and Customs UK Property Transaction Statistics April 2019.

Q1 2018

Q1 2019


The trend of much lower transaction volumes per thousand head of population in Ireland compared to the United Kingdom continues to be evident as it has been for the last number of years. In Q1 2019 in Ireland just 2.4 homes were sold per thousand population compared to 3.9 in the UK as a whole.

As the figures are not seasonally adjusted a truer picture of the current market performance can been seen in figure 16A which shows the average number of transactions in each quarter over the year to March 2019. Ireland averaged 2.9 transactions per head of population per quarter compared to the UK which averaged 4.5, much closer to the accepted norm for a functioning housing market. Dublin, which accounts for approximately one third of all transactions annually, averaged a rate of 3.3 per thousand.

FIGURE 16. QUARTERLY TRANSACTIONS PER ‘000 POPULATION - IRELAND & UK

FIGURE 16A. AVE. NO TRANSACTIONS PER QUARTER - YEAR TO MARCH 2019

6.0

5.5

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

No

. Tra

nsa

ctio

ns

Per

‘000

Po

pu

lati

on

No

. Tra

nsa

ctio

ns

Per

‘000

Po

pu

lati

on

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

Ireland UK England Scotland Wales N. Ireland Dublin

Source: DNG Research, Property Price Register, HM Revenue and Customs UK Property. Transaction Statistics April 2019.

Source: DNG Research, Property Price Register, HM Revenue and Customs UK Property. Transaction Statistics April 2019.

Ireland

UK


SUPPLY SIDE ANALYSISRESIDENTIAL PLANNING PERMISSIONS

The number of dwelling units approved for planning permission increased by 40.8% in 2018 compared to 2017 signifying the continued strength of the residential development sector last year. The appetite for constructing new apartment dwellings was very evident in 2018, with 9,224 units granted permission, an increase of 72.9% on 2017.

Undoubtedly the decision by government in June 2017, to allow fast track planning applications for developments of 100 units or more to be submitted directly to An Bord Pleanála certainly contributed to the increased volume of apartments granted permission throughout 2018.

After very strong growth in planning applications in Q3 last year when a total of 8,018 residential dwelling units were granted permission, it is perhaps unsurprising that the volume of permissions granted eased back somewhat in the final quarter of the year (see figure 18). In quarter four 2018, 6,682 dwelling units were granted permission, a decline of -16.6% when compared to Q3. Apartment permissions declined by -26.5% whilst permissions for houses also declined by -10.3% in Q4 compared to Q3 2018.

FIGURE 18. QUARTERLY PLANNING PERMISSIONS - HOUSES & APARTMENTS

9000

8000

7000

6000

5000

4000

3000

2000

1000

0

No

. of

Un

its

All houses

Apartments

Total dwellings (All Houses & Apartments)

Q1 Q1 Q1Q2 Q2 Q2Q3 Q3 Q3Q4 Q4 Q4

2016 2017 2018

Source: DNG Research and CSO


SUPPLY SIDE ANALYSIS

NO. OF NEW APARTMENTS

GRANTED PLANNING PERMISSION

73%in 2018 v 2017

59%OF ALL HELP TO BUY

CLAIMS ORIGINATED IN DUBLIN, MEATH,

KILDARE AND WICKLOW

60%OF UNITS

BUILT IN Q1 2019 WERE IN SCHEMES

+ 23.2%MORE DWELLINGS

COMPLETED IN Q1 2019 V Q1 2018

+142%THE INCREASE IN THE MONTHLY AVERAGE

NUMBER OF NEW HOMES BOUGHT BY FIRST

TIME BUYERS IN 2018 COMPARED TO 2015

339 PER MONTH

THE NUMBER OF NEW HOMES SOLD TO FIRST TIME BUYERS IN 2018

+26% ON 2017

41%NO. OF DWELLINGS

APPROVED PLANNING PERMISSION 2018 V 2017

44%OF ALL NEW HOMES

PURCHASES SINCE JULY 2016 ASSISTED BY THE HELP TO BUY SCHEME

33%OF NEW DWELLINGS

COMPLETED IN Q1 2019 IN DUBLIN WERE

APARTMENTS

SOLD


NEW HOUSING COMPLETIONSThe number of new dwellings completed in Q1 2019 rose by 23.2% compared to Q1 2018 with 4,275 dwellings built in the first three months of the year. Strong growth was evident in the number of new scheme dwellings completed in Q1 2019, with the total of 2,564 representing a 26.7% increase on the same period in 2018. Units in schemes represented around 60% of new completions in Q1 2019 and in Dublin almost 33% of new dwellings completed were apartments compared to 14% nationally showing how in many parts of the country it remains economically unviable to deliver apartment schemes.

In addition, the number of apartments supplied to the market in Q1 also rose strongly, up 28.8% however the nominal figure of only 613 apartments completed is still woefully inadequate to meet demand in the market.

It is however, encouraging that all the supply metrics continue on an upward trajectory albeit not at a rate that most people would like to see. Even as confidence has returned to the development market over the last couple of years, and government policy has been positive in supporting increased supply, it still takes considerable time to bring new apartment developments through the planning and construction phases.

Based on the planning permissions data the rate of new housing output will continue to increase in the medium term.

HELP TO BUY SCHEME INITIATIVEThe Help To Buy Initiative announced in Budget 2017 (October 2016) is designed to assist first time buyers with the deposit amount required to purchase a newly built or self-constructed home. The initiative was announced in October 2016 but backdated to July 2016, and is due to end in December 2019.

The Initiative provides for a refund of income tax and DIRT paid over the previous four tax years up to a maximum refund of 5% of the purchase value of €400,000. For a property to qualify under the scheme it must be purchased from a qualifying contractor and must be used as the first-time buyer’s home. The maximum property value associated with the scheme is €500,000, having being reduced from €600,000 following the Initiative’s implementation.

FIGURE 19. ALL HOUSING COMPLETIONS

6000

5000

4000

3000

2000

1000

0

No

. of

Un

its

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

Single house

Scheme house

Apartment

All housing Completions



VOLUMES AND VALUEAs at the end of May 2019, 28,821 applications for Help To Buy had been received by Revenue. Of these 20,889 had been approved and 12,737 claims made. The vast majority of claims were for newly build homes (79%) with the balance of circa. 21% applying to self-build properties. Tables 10,11 and 12 below summarise the claims made to date.

The analysis highlights the value of the Initiative to first time buyers in the market following seven years of rising prices and in light of the current Central Bank mortgage lending rules in place. 46% of claims under the Initiative were made against properties valued up to €300,000 and a further 47% made against properties valued between €301,000 and €450,000. The scheme is effective and is targeting first time buyers who require assistance with purchasing their first property, as only 6% of claimed were for properties valued over €450,000. In addition, almost 60% of claims were made on properties where the loan to value on the property was above 85% with just over one third being on properties with a loan to value of 90% or over.

It is not surprising that the largest volume of claims has come in Dublin where prices are highest and the number of new completions greatest. 4,288 (33%) of claims originated for purchases in Dublin, whilst a further 26% of claims originated across the commuter counties of Kildare, Meath and Wicklow. The other main urban areas account for a significant proportion of claims (10% in Cork, 4% in Galway and 3% in Limerick).

TABLE 10.

TABLE 11.

TABLE 12.

Property Value Range Total Claims %

€0 - €225,000 1764 13.8%

€226,000 - €300,000 4140 32.5%

€301,000 - €375,000 4232 33.2%

€376,000 - €450,000 1783 14.0%

over €450,000 818 6.4%

Loan to Value Ratio of Claims Total Claims %

70% - 74.99% 1786 14.0%

75% - 79.99% 1486 11.7%

80% - 84.99% 1948 15.3%

85% - 89.99% 3144 24.7%

90% & over 4373 34.3%

Amount Claimed Total Claims %

€0 - €4,999 334 2.6%

€5,000 - €9,999 1476 11.6%

€10,000 - €14,999 4378 34.4%

€15,000 - €19,999 4769 37.4%

€20,000 1780 14.0%

Source: Revenue


FIGURE 20. VOLUME OF NEW DWELLING SALES TO OWNER OCCUPIER FIRST TIME BUYERS

500

450

400

350

300

250

200

150

100

50

0

No

. of

Un

its

2015 M

01

2015 M

02

2015 M

03

2015 M

04

2015 M

05

2015 M

06

2015 M

07

2015 M

08

2015 M

09

2015 M

10

2015 M

11

2015 M

12

2016 M

01

2016 M

02

2016 M

03

2016 M

04

2016 M

05

2016 M

06

2016 M

07

2016 M

08

2016 M

09

2016 M

10

2016 M

11

2016 M

12

2017 M

01

2017 M

02

2017 M

03

2017 M

04

2017 M

05

2017 M

06

2017 M

07

2017 M

08

2017 M

09

2017 M

10

2017 M

11

2017 M

12

2018 M

01

2018 M

02

2018 M

03

2018 M

04

2018 M

05

2018 M

06

2018 M

07

2018 M

08

2018 M

09

2018 M

10

2018 M

11

2018 M

12

The significance and importance of the Initiative to the new homes sector and to first time buyers cannot therefore be understated. Over 10,00 sales of new homes to first time buyers since July 2016 have been conducted using the scheme and figure 20 shows the total number of new homes sales to first time buyers on a monthly basis. In 2015, prior to the introduction of the scheme, the monthly average of new dwellings sold to first time buyers over the course of the year was 140. In 2016 this increased by 22% to 170. In 2017, the first full year of the Help To Buy Initiative, the figure rocketed to 268, an increase of 58%. Even in 2018 the demand for the scheme was evident based on the data presented above and the average number of new homes purchased by first time buyers increased again to 339 per month or 26%.

Analysis by DNG Research shows that since the implementation of the Help To Buy Incentive Initiative in July 2016, the initiative has been utilised in the sale of 44% of all new homes sold to individual purchasers nationally during that period. Analysis of new homes sales in Dublin so far this year indicates that in excess of 75% of all new home purchases involve a Help To Buy claim, highlighting the importance of the initiative in assisting first time buyers to purchase their first home. The Central Bank mortgage lending rules which curb borrowing to 3.5 times income, combined with elevated nominal house prices in Dublin mean that affordability is a potential issue for the majority of buyers so the support of Help To Buy is vital.

Developers and funders require certainty in the market to the greatest extent possible, and the fact that the Help To Buy Initiative is due to expire in six months’ time is a worry in the market, with the potential to slow down development plans and new dwelling commencements. It is therefore imperative that Government provide clarification as to its future intentions regarding the Initiative, and based on the positive impact the scheme has undoubtedly had, announce the extension of the scheme for a further two years to allow new dwelling construction volumes to continue on an upward trajectory in order to satisfy demand in the marketplace.


Introduction of the Help To Buy


COMMENTARY AND ANALYSIS It is clear from the latest results of the various DNG Price Gauges that the rate of growth in residential property prices has stabilised over the last six months. Nationally the annual rate of inflation has moved from 6.0% per annum in the year to June 2018 to 2.8% per annum in the year to June 2019. In Dublin, prices appear to have plateaued over the last twelve months with a 0.4% rise in the average price of a resale property in Dublin recorded by the House Price Gauge. Current nominal values appear to be the main factor causing the fall in growth rate as the Central Banks mortgage lending rules serve to limit the extent to which prices can rise further in the capital. Nationally the rate of price inflation has also started to show signs of stabilisation, with prices increasing by 1.2% in the first six months of 2019 compared to a rate of 1.5% in the second half of last year.

A noticeable increase in the supply of new homes coming to the market is also evident, with new dwelling completions continuing on an upward trajectory and this is also serving to limit price growth in the second hand market, especially in Dublin and the commuter counties where the new dwelling output is most evident. Whilst the percentage increase in apartment completions is high compared to a year ago, the increase has come from a very low nominal base, with only 613 new apartments completed nationally in the first three months of the year. Based on current trends, new dwelling completions are forecast to exceed 22,000 in 2019, an increase of approximately 22% on 2018 however this figure is still well short of the estimated 35,000 new housing units required every year to meet demand.

The fundamental factors underpinning demand remain supportive of the housing market. Interest rates remain historically low and are forecast to do so in the short term, and, combined with a stabilisation in the rate of price growth, this has resulted in a marginal improvement in affordability which is good news for the market. Affordability pressures are now evidently greater in the rental sector than the home purchase market.

Recent CSO data also confirms that average annual earnings rose by 3.3% in 2018, an acceleration in the rate of 1.9% seen in 2017 reflecting the strength of the labour market over the last twelve months. Full time regular earnings increased by 7.4% in 2018 compared to 2017 which is directly linked to the number of full-time employees at work. The strength of the economy is reflected in the fact that average annual earnings rose across all thirteen economic sectors measured during 2018.

The unemployment rate fell again in recent months, after showing signs of levelling out in the latter half of 2018. In May the seasonally adjusted unemployment rate nationally stood at 4.4%, down form 4.6% in April and 5.9% in May 2018. In the year to the end of Q1 the number of persons unemployed decreased by 18,600 (-14%) and estimates show that Dublin’s unemployment rate has dipped below 5% for the first time since Q4 2007 with over 700,000 persons at work in the capital – the highest on record.

Recent labour force survey data for Q1 2019 also confirms the strength of the economy at the present time, which in turn is underpinning demand in the residential property market. In the year to March, 81,000 new jobs were added to the economy, 62,600 of which were full time positions and the numbers employed are growing at the fastest rate in 12 years. The positive demographic effect on the labour force is also clear with 36,600 persons added to the labour force in Q1 2019 through demographic forces.

At the present time house prices are still explained by the fundamental factors underpinning the market, namely demography, disposable income, the labour market and the credit markets and as such it can be reasonably expected that house prices will continue to grow in line with these fundamental factors, as the risks on the downside appear to be low.

Disclaimer: Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by DNG and cannot be reproduced without prior written permission of DNG. All charts are created by DNG Research unless otherwise sourced.

Additional references used in this report:

Revenue – Help To Buy (HTB) Initiative Statistics 31 May 2019CSO – New Dwelling Completions Quarter 1 2019CSO – Planning Permissions Quarter 4 2018Banking & Payments Federation Ireland – Housing Market Monitor Q1 2019Banking & Payments Federation Ireland – Mortgage Drawdowns Q1 2019CSO – Earnings and Labour Costs Annual 2018CSO – Labour Force Survey Quarter 1 2019HM Revenue & Customs – UK Property Transactions Statistics April 2019CSO – Residential Property Price Index April 2019Property Services Regulatory Authority - Residential Property Price RegisterDCC/SDCC/DLR & Fingal County Council – Dublin Economic Monitor May 2019

T: +353 1 4912600 E: [email protected]

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