(soft music) - Hello and welcome to the property round up here and I'm property radio with myself, Carol Talon, the show where we chat to industry experts to get a view and activity on the ground and to learn about new trends emerging. This show was sponsored by daf.ie, Ireland's most visited property website. And today I'm delighted to be joined by Ronan Lyons, economist at Trinity College Dublin and author of the draft report. Ronan, welcome back. Thank you for joining me today. - Thanks for having me on. - And Ronan, I feel like every time we speak, I learn a little more, but realize I know a little less about Ireland's property market. So the latest draft report has just landed and you indeed are the author. You might just explain some of the trends that are emerging and really what that means for people who are considering buying and selling in 2024. - Yeah, so this is the report that covers the second quarter of the year, so between April and June. So there's a couple of different ways to look at the headline figures. The standard one is to take the figures for the second quarter this year and compare them to a year ago. And if you do that, you'll see that nationally prices are up between six and 7% year on year. That's a national average. And when you break it down, there's different trends. Dublin in particular is seeing slightly less inflation kind of a little bit below 5%. The other cities are actually seeing quite high inflation, typically above 10%. And then as you go around the country, lens stir is more similar to Dublin, monster is more similar to the other cities. And comic dusters are booking the trend a little bit. In most places, we've seen inflation tick up between the first and second quarters. That's the trend in the draft report. It's also the trend in the CSO index, which measures similar things. But in comic dust are actually inflation as eased off just a little bit. It's still high. So prices there are a little bit higher than 6% year on year, but they had been up at 8% this time three months ago. But really, it's across the country, prices are still going up, but that's about weak supply in the face of strong demand. - And not withstanding that, in terms of maybe some of the underlying drivers, it's fair to say that when we look at the different inflation, because I'm particularly that breakdown of Dublin versus outside of Dublin and the regions, is that reflective of the base from which it was coming from? Or is it got to do with maybe supply on the ground? - So if you think back to the late 2010s, Dublin was already and has been for some time the most expensive market in the country, but it was seeing faster inflation than the rest of the country in the late 2010s. In the 2020s so far, it has seen far less inflation. So if you go from the first half of 2020, which you kind of think it was the pre-COVID level, prices in Dublin are up, definitely, they're up by 22% on average, but outside Dublin, they're up by 44% on average. So there's twice as much of an increase in percentage terms outside Dublin as in Dublin. And I'd say listeners and viewers can probably figure out what's going on there. It's that the move to hybrid working has freed up people to look in markets whether they previously wouldn't have looked. And that is about affordability, where people can look more directly at cheaper housing markets. Sometimes those are in Dublin, so that the cheaper markets in Dublin have seen bigger percentage increases. But by and large, it's really more of a Dublin versus the rest of the country story, where people are looking at the Southeast, they're looking into Northwest, they're looking at the Midlands, and prices in those places have increased significantly. Some parts of the country have seen 60% increases since COVID. - I think the term cheaper is really a relative term, actually, even when we're looking outside of Dublin, I can see that myself not just living in Galway, but actually spending my days speaking to estate agents up and down the country. Post COVID, there's been a huge impact, but there's still really no certainty as to how long people will continue to choose rural Ireland, and if it is indeed a choice or if the trends we're seeing reflect the availability of homes or the price of homes. But in terms of availability, that seems to be the one consistent right around the country. There is every local estate agent that we speak to all around the country, either they're in an area where they have just seen no new home supply whatsoever, or where there is some supply of new homes, it's very limited, but all are reporting consistently the stock of secondhand homes, the pipeline of secondhand homes, it's just not available. And again, is that reflected in the data that you're seeing? - Absolutely, so what we've done in this report actually is trying to separate out more clearly, between the newly built and the secondhand segments of the market, because they are doing quite different things, that the newly built segment is doing quite well. Arguably, I think people would like to see more homes built in Dublin for owner occupiers. There are lots of homes getting built, they're predominantly socializing with a little bit of rental, and there's nothing wrong with either of those segments, absolutely, they're also, but if you look at those who need it, but if you look at the geography of the homes being built for owner occupiers, it's principally outside Dublin. Now, it's principally in the county's surrounding Dublin, but if you look at the secondhand segment, the secondhand segment pre-COVID, say 2015 to 2019, on average, there would have been about 25,000 homes in the secondhand segment at any particular point in time. We're now dealing with 11 or 12,000, so it halves during COVID, it recovered a little bit, so it went down to about 10 or 11,000, it recovered up to about 17 or 18,000 in late 2022, but with the increase in interest rates, the secondhand supply has come right back down again. It was below 11,000 a couple of months ago, it's a little bit above 11,000 now, but really that's kind of small change in the grand scheme of things. As I said, even in the late 2010s, the market was tight on supply and it had 25,000 at any particular point in time, we're now talking about half that. - So, unfortunately, I don't think that will come as a surprise to anybody who's actually looking to buy or indeed rent a home in Ireland right now, but just in terms of the supply, I obviously am aware that you look at the data, but do you draw conclusions? Do you interpret that data? So in terms of the secondhand homes, we've been told for quite some time that building new homes outside of Dublin and particularly in some of the rural areas and some of the market towns that we might see outside of the main urban regional centers, that's just not viable. Has that changed now? We're seeing house prices increase. Does that, is that likely to have an impact on new homes viability? - So, unfortunately, not really, as in the increases, it's like the worst about worlds increases in prices are good only if they help bring about new supply. And we'd rather not have to achieve that to bring about new supply. And but as you say, it's viable in Dublin, it's viable in Dublin because the average price in Dublin is about 450,000 euro. It's true that, say, in Lietrum prices have gone up from maybe 150,000 to 200 or 220,000, but they're still way below what you call replacement cost, even with no profit margin in all land costs, just your labor materials. Yes, people are building in Lietrum, but the dominant form of building in places like I don't pick it on Lietrum, particularly, but as an example, the dominant mode of building now is one of them that's typically your building on family land or something like that where you don't have to worry about the profit margin or the side cost. And you're not really worried about the resale value because you're going to be living there for 10 plus years. And so we're kind of stuck in an equilibrium where we don't have... It's not about cost... Sorry, it's not about prices going up more. We shouldn't want prices to go up to try and balance things out. We should want cost to go down, but that's a much harder sell politically. It's a much messier thing to solve. So you're talking about kind of like a three or five year plan to bring costs down by 20 or 30%, which would be the kind of thing that would have a big impact on new supply. Now, you and I could have had this chat six, seven years ago, and I would have said that, and I would have said it is a priority for government. And if they had supposed, I was right, I suppose they had listened and suppose they were able to do it, they would have been able to bring that about by 2018 or 2019 or 2020. The challenge is because it's so politically me, right? It's like, okay, we're gonna reduce building costs. Is that not just good for builders? That they've only really in the last year or two recognized this as a major issue. And there's still a little unclear as to how they go about bringing down costs. But ultimately, that's the real solution. We will see, I think, a change in trend in the secondhand market over the next two years or so as people roll off their fixed rates, and it's no longer obviously such a bad thing to trade up or trade down. But on the new home side, it's effectively heavily dependent on government funding or government rebates in the form of help to buy or first home scheme in order to have the numbers in construction that we have. - And when you talk about bringing down the costs, we hear a lot about that we're still actually in some way the industry is still dealing with the impacts of COVID. We know geopolitical situation has definitely made things more difficult in terms of material costs. In terms of actually bringing down the cost that would have an impact on the delivery of projects, the viability of projects and the end affordability of homes, how much of that is within the control of policymakers? - You know, if you look at the cost of materials that go into building a home, and if you compare that in Ireland to other places in Europe, it's really, it's broadly similar. That's not the thing that drives the difference. It's not the 30, 40% of materials, it's the 60, 70% in labor. And that's not just say, oh, wages are high, we should go wages, that's not a winner for anyone really. It's about labor productivity. It's about yes, you pay X in wages, but what do you get for that? And it seems that say if you compare Dublin to Belfast or if you compare Dublin to Amsterdam or Brussels or other cities like that, that we're paying quite a lot for what we get. And again, that's something that requires detailed study. It's not like I can say, okay, here's, do these three things, these three simple hacks, and you'll guess your 50% upswing in construction activity. It's a lot more complicated than that, but that is where the solutions lie. It's in labor productivity in particular. And that may be a combination of better training for construction workers and getting a new core to construction workers in, but it also may be to do with the way in which we build and the way in which we require homes to get built. So it could be that modern methods of construction that could also be about the specifications we have, that some of them may add unnecessary costs compared to, again, compared to Amsterdam or Brussels or other places. - I think the specifications is an interesting one because certainly in the wake of Grandfella and others there has been some, there has certainly been a suggestion that we might be over correcting in terms of some of our building standards. When you look at modern methods of construction, I don't think anybody would want to see something going in at a lower quality. And that's certainly not the case. In fact, what we've seen consistently is that it's a consistent quality. So therefore, arguably a premium quality, but maybe the value isn't well understood across the industry. And is that something that maybe lies with insurers, lies with the financiers, mortgage providers, or mortgage providers, will they be willing to embrace innovation in the industry in the way that it needs to be embraced? - I think for me, the key thing is people build homes in every country. We've got lots of peers we can learn from. An argument arose maybe 10 years ago between a developer and a local authority around the use of sprinklers in apartments, because it turns out to have a big impact on the design. Whether you have open plan apartments, or whether you have apartments that have corridors and fire doors throughout. An open plan are much nicer, if they're much kind of airier, brighter, light travels further. And with the local authorities, we're saying, well, we can't have that because we need the fire doors, and we need the corridors there for protection if a fire happened. But if you look at other countries in Europe, they use sprinklers. Why do they use sprinklers? Do we know something they don't? Or are we sticking to a particular way of building just because it's the one that's comfortable or familiar? And there it's about learning from our peers and learning from the research. Does the research show there's any kind of loss of protection if you go from one to another? Or is it even safer using sprinklers as opposed to fire doors? That's an example, but there's maybe a hundred different decisions like that, where we can learn from other countries that also have to build homes every week of the year, every year, year on year. And I feel that we're kind of a little bit closed. We're very open when it comes to things like learning about tax codes or whatever it might be. We tend not to think of housing as somewhere where we can learn from our peers. And I think that's one thing I'd like us to do more of. I'd like the policymakers to do more. It's to think about how is it the case that a country like Amsterdam can build a home for about 30% less, sorry, it's the city. Like Amsterdam can build a home for about 30% less than a city like Dublin. Similar sizes, similar wage rates, but what is it that they're doing that's different? And maybe we can't match that exactly, but maybe we can take some of the things that they do and apply them in our case. And that's really beyond the scope of economists that it's into quantity surveyors and architects and engineers, but they're the groups that will be the ones actually solving this, not the economists. - And thank you, Rhona. Finally, I don't want to delay much longer, but just unconscious that we've just had a local election. We will within the next maximum, eight to nine months, have a general election. All candidates are addressing housing. They appear to understand the scale of the problem. They want to do something. Is there anything that are local elected politicians? Is there anything that they can do in terms of genuinely impacting on the housing market, both for rental and supply and new homes supply? - Well, I'd say two things. The first is that every local authority should be pushing as hard as possible up into the national system to say, it is simply not appropriate for the national system to be trying to limit the construction of new homes in the time of a housing and acute housing shortage. If you look at the eight local authorities in the greater Dublin area, their 2020s development plans have one third fewer homes being allowed than the 2010s iterations. And that just seems crazy in a country with a housing shortage. The second thing is that's an easy one 'cause local authorities will go, yes, we can say it, but maybe they will, maybe they won't. But they should, as a group, individually and as a collective, the local authorities should be pushing up and saying we need to be able to allow homes to get built. But the second thing is it's not all identity at homes. It's not all suburban estates at three and four beds. The bulk of the need for housing that we have in this country over the next two, three decades is housing for smaller households, pre and post-family households. And that will be rental. It'll be student accommodation. It'll be independent living and assisted living for older cohorts. So we need a much greater diversity of housing. And that's something with the local authorities themselves have a little bit more power over. So rather than demanding that everything be three and four beds and in fairness, I'm not accusing all of them of doing that. Many of them are already aware of this. But getting that diversity of housing that matches our diversity and how we live. - And just in terms of the diversity of homes, our national development plan promised us a day-driven approach to policymakers to support housing. Has that happened in your opinion? - Certainly the housing supply targets that were developed I think three to four years ago now were wildly out. They were wildly out at the time. I think politically they needed the excuse of the census to say, oh, we got it wrong because the census gave us information we didn't know but we knew at the time they were wrong. They're still wrong and they're way out. So I'm still waiting to say, still waiting to be able to agree with that statement. But this is a data-driven and evidence-driven approach. And I have a concern that the review that's happening is a very conservative review of the housing supply targets, but hopefully I'm wrong. - Time will tell. Finally, Ronan, just for those who are thinking of buying or selling a home in 2024, is there anything positive from the latest data that they might be able to see some sort of future for themselves in terms of buying or selling and what their likely prospects are for 2024? - Obviously, supply is tightly availability is tight, especially with the second, people looking to buy a second-hand home. In the new build space things are much better than they were three or four years ago. It's not only helped to buy, it's also the first home scheme and there's more of these homes getting built all around the country. I think the fundamental rules are unchanged. If you're in the right time in your life in terms of either usingly or typically now as a couple in terms of your career, your income, if you're reasonably secure in that and you're looking at a home that will do you for 10 plus years, don't worry about whether the market will be up or down 5 or 10% a year from now. Pick a home that will suit you into the medium term, given that it's the right time for you to buy in terms of your own income. None of us has perfect foresight. But with those two conditions in place about your own income and about the home that you're choosing, I wouldn't worry about the ups and downs of the markets because you'll have a home that's your own. - Great advice. Thank you so much to Ron and Lyons, economist at Trinity College Dublin and author of the DAFT report. My thanks as always to Katie Talen and to the production team at Hear Me War Media, also a huge thanks to our short sponsor DAFT.ie, Ireland's most visited property website. And thank you indeed for tuning in. We'll catch you on the next episode of the property roundup. In the meantime, please be sure to check out all of the other Irish and international real estate and construction shows here on iPropterRadio.com. (upbeat music) (upbeat music) (upbeat music)
