Commenting on the most recent CSO Residential Property Price Index for May, IPAV, the Institute of Professional Auctioneers and Valuers, said while it’s not surprising there is a large drop in the number of dwelling purchases, 46.2 percent on May last year, arising from the pandemic, the big worry is what the pandemic and the reaction to it by stakeholders will do to the supply of properties, which is already well behind demand.
Pat Davitt, Chief Executive of IPAV said it looks like delivery of new homes could drop to 17,000 or fewer this year, at a time when estimated demand is running at about twice that and he pointed out that prices are still 21pc below prices at the peak in 2007.
“On that basis, and as anecdotal evidence would suggest at this stage in the life of the pandemic, house prices are unlikely to drop as predicted by some sources.
“If stakeholders, such as lenders, continue to operate in a severe risk averse way, issuing mortgages only to those in the most secure of jobs, then, sadly, that will have an adverse impact of the supply of new homes.
“Builders are not going to build if they cannot be confident there will be a market for their homes,” Mr Davitt remarked.
He said the Government’s July stimulus package must contain measures to improve the supply of more affordable homes by reducing the cost of building homes.
He also said the Help-to-Buy scheme needs to be extended to include second-hand homes. There is a good supply of such properties for prices much lower than new homes, typically at prices of between €170k to €250k.
“First-time buyers could be incentivised to purchase these second hand properties and such a strategy, if it were adopted, could chime with the so-called ‘new normal’ where post the pandemic we may well see more people opt to live in rural areas and work from home, at least part-time,” Mr Davitt added.
CSO data shows the number of owner occupied households fell between 2011 and 2016 (from1,149,924 to 1,147,552 ) causing the overall home ownership rate to drop from 69.7pc to 67.6pc, a rate last seen in 1971.
Rent Impact Factors
Meanwhile, the IPAV has noted that the fall in annual rent growth and a drop of 3.3 percent year-on-year by June is hardly surprising given the extent of the lockdown and the drop off in short-term lets, particularly in Dublin, arising from the halt in tourism.
“Even though this Index does not cover existing rentals but new stock; new tenancies in existing rentals, and renewals - 20,878 in total – the entire rental market is likely to be impacted. Demand and supply in residential lettings is changing utterly, particularly in high demand urban areas.
“The downward pressure on rents evident in today’s report is likely to be sustained for a period. Factors such as employment levels and any new work patterns to emerge will play an important part,” Mr Davitt asserted.
In any event, the IPAV Chief Executive said rents had reached unsustainable levels.
“Among the factors that contributed to this was the shape of the Rent Pressure Zone regulations introduced in December 2016, which attempted to curb rents but had the unintended consequence of driving them up.
“Unfortunately despite IPAV’s best efforts to convince policymakers, new properties were left outside of the RPZ legislation until July 19. This meant that vulture funds buying new properties were able to charge exorbitant rents.
“We now have a situation where they are charging froth rents, above market rent, and many landlords who did not even charge market rents were caught by the RPZ regulations and kept at that low benchmark by the regulations,” Mr Davitt emphasised.
Mr Davitt said the whole rental market needs a fresh look and the voice of professionals in the market must be taken into consideration.
“Many landlords want to sell their properties and are prepared to provide long leases, provided the same protection is afforded to them as is to commercial leases. The government should facilitate this by enabling these landlords to charge market rent if they provide a long lease.”
Mr Davitt said on the supply side there is a continuing exodus of private landlords from the market. The RTB in its 2018 annual report identified the number of tenancies registered by private landlords fell by nearly 6,000, or 1.8pc, to 307,348.
He said the RTB has committed to undertake further research into the drop off from the market of private landlords. It intends to: ‘provide a more comprehensive understanding of the dynamics and drivers of this change’.
“The organisation may well find, as our Institute did in our own research, that the three most influential factors motivating this trend are: high taxes; onerous regulation and irresponsible tenants,” he said.