A surplus of newly constructed houses sitting vacant on the market has led builders to cut back on the construction of homes.
Goodbody Stockbrokers housebuilding tracker recorded a dramatic deceleration in the output of new housing units in the period from April to June of this year. The number of new homes built in Dublin dropped by 19%. In contrast, the commuter belt around the capital’s saw a growth in homebuilding by 50% in the second quarter of this year.
Homebuilding Down, Apartment Construction Up
While homebuilding appears to have slowed down, apartment building is on the rise. In a recent report released by the real estate advisor CBRE, Dublin was ranked 10th among European cities for attracting high-level investment in rental properties. This includes apartment developments designed for a wide range of families.
The agency reported that Dublin attracted €2 billion of investment in what the agency called multifamily housing. This designation includes multiple separate units in one building or several buildings within a complex.
CBRE’s research indicated that there was potentially about €6.3 billion of capital ‘looking to deploy’ in the Irish market. According to their findings, more than 40% of real estate investment this year has been concentrated in the Dublin area.
Goodbody economists found a 28% growth in apartment output in the second quarter of 2019 compared to the same three-month period last year. Large build-to-rent investment funds have purchased entire blocks of apartments and other investors have put up funds to build new apartments.
Obstacles for First-time Homebuyers
Affordability has become a growing constraint for potential homebuyers. Rising house prices over previous years have put homeownership out of reach for more and more buyers. Central Bank limits mortgage borrowing to no more than three and a half times an applicant’s income and requires a 10% minimum deposit from borrowers. This coupled with rising home prices has locked many potential buyers out of the market.
The inability of potential buyers to secure credit and qualify for mortgages to purchase a new home has led many to the rental market where rental prices have increased dramatically due to an imbalance in supply and demand. The most recent rental price report produced by Daft.ie showed average rental costs across the country at an all-time high of €1,366 in the first quarter. The report highlighted that there were only 2,700 homes available to rent nationwide on 1 May – the lowest recorded number since figures were first compiled in 2006.
The rising inventory of unsold new houses has prompted Goodbody’s economists to lower their home competition forecasts for 2019 from 22,000 to 21,000 units. The report recorded an 8% fall in new home sales in Dublin in the first quarter and a more dramatic fall of 21% in sales for homes costing more than €500,000. Homes priced below €250,000 also experienced a sharp fall in sales.
Interestingly, the report found new home sales grew in homes priced in the €325,000 to €400,000 range in Dublin – a price range the economists considered affordable for typical first-time homebuyers. Rapid growth in this price bracket was also seen outside the capital. Goodbody says these figures demonstrate that house hunters are only buying properties they can afford.