Irish property: the boom that shows no signs of slowing

“We’ve been saving for the last two years,” says Críomhthann McCarthy, 32, a youth worker from County Tipperary in Ireland. He and his partner of four years, Aileen Sheehan, 35, each live with their parents while they try to save for a house.

“We’re racing against inflation in house prices while our savings are deflating against house price inflation,” he says. “If you look too closely, it looks a little hopeless.”

Ireland has traditionally been a nation of homeowners and property has made one in eight households a millionaire on paper. But getting on to the property ladder is out of reach for many now — and for an increasing number of people, simply securing a place to live is getting harder.

Even by the standards of property markets in similar developed nations, Ireland has seen a surge in house prices over the past five years — just over a decade after a previous boom-bust cycle brought on an economic crisis.

But unlike other hot global property markets that are facing a rapid cool-down as interest rates rise and recession looms, Ireland’s boom shows no signs of slowing: it is still facing a housing shortage that is driving up prices, whether it is to buy or to rent.

House prices rose nearly 10 per cent nationwide in the year to October, down a percentage point from the year to September, according to the Central Statistics Office, with the median price of a property in the year €300,000. In parts of the west of Ireland, property prices rocketed more than 16 per cent. Property prices nationally have increased 130 per cent since early 2013, the CSO says.

At the same time, Ireland has seen “an extraordinary collapse in the stock available to rent” in the past 18 months, according to Ronan Lyons, a Trinity College Dublin professor and housing expert, in a report for property site Daft.ie.

He found just 495 homes available to rent in Dublin on July 1 and only 35,000 nationwide, virtually half the level available in 2016.

However, nationwide rents rose by an average of 14.1 per cent in the third quarter this year compared with the same period in 2021, according to Daft.ie — the highest increase since it began tracking rents in 2005.

The government says the €4bn a year housebuilding programme it launched in 2021, called Housing for All, is working and is on course to exceed its construction target this year.

But population figures suggest Ireland is going to need to double its ambition. Ireland’s population has risen to 5.1mn, the country’s highest level since 1841 and an increase of 7.6 per cent compared with the last census in 2016. Ireland has also taken in more than 62,000 Ukrainian refugees.

“Preliminary Census 2022 figures suggest that underlying housing need in Ireland over the coming three decades is likely to be in the range of 42,000 to 62,000 homes [per year], not far off twice the underlying level of 28,000 new homes per year that underpins Housing for All,” wrote Lyons.

Ireland risks locking a generation out of home ownership and into unaffordable rentals, while condemning record numbers to homelessness. According to official figures, Ireland had an unprecedented 11,397 people in emergency shelters in October, but experts say rough-sleepers, couch-surfers and other “hidden homeless” are not included, meaning the true problem is even greater.

“We had accelerated house building from 1997-2009 and a massive drop back since,” says Rebecca Moynihan, a Labour senator and the party’s spokesperson on housing. “We don’t have additional stock and we have an exploding young population . . . This will probably get worse before it gets better.”

For a nation that has transformed itself in recent decades from a poor, rural, church-controlled backwater to a rich, socially progressive outward-looking state, the housing crisis is a chastening reality check that blights its open-for-business image.

Taoiseach Leo Varadkar admits multinational investors regularly raised the housing problem with him when he was trade minister, a role he held from 2020 to December 17, when he took over as premier for the second half of the coalition government’s term as part of a long-scheduled reshuffle.

One senior figure at a major tech company in Dublin — one of the industries that is powering Ireland’s economy and on which it relies for a corporate tax bonanza — admitted housing was a serious problem for staff. The company, they say, tried to ensure workers could “have their best experience” in places like Greystones or Balbriggan — quiet commuter towns on the coast, 30km south, and 45km north, of Dublin city centre respectively.

Housing is an especially sore subject in Ireland because lending for property fuelled the country’s Celtic Tiger boom from the mid-1990s. That ended up crashing the entire economy more than a decade later and requiring a €67.5bn IMF and EU bailout in 2010.

Now, a lack of housing is creating a new rift in society. In a country where people used to emigrate to escape poverty and seek work, as many as seven out of 10 young people are considering moving abroad because they cannot afford somewhere to live — an embarrassing failure for one of the EU’s better-off nations.

Stevie Wilson, a 23-year-old artist, is contemplating moving to Spain because of the problems her generation face in finding affordable housing. “I don’t think that unless I move country I can ever hope to own [a home],” she says.

Seeds of a crisis

Ireland used to be far better at building homes. Up until the property crash of 2008, Ireland had the highest rate of house completions among 19 EU countries surveyed, nearly three times most other states.

Indeed, in the early decades of the Irish Free State, formed in 1922, the government was the country’s largest homebuilder, delivering 112,144 social homes between the early 1930s and mid-1950s. That was more than half of all new housing built.

It helped clear people out of unsafe inner-city slums, according to Michelle Norris, a housing expert and professor of social policy at University College Dublin.

But the seeds of today’s crisis were sown with the country’s decision to sell off social housing to tenants without replacing it at the same rate, say economists and experts who have studied the problem.

“We always had quite a strong tenant purchase policy. But in the 1950s, 1960s and 1970s, we were building enough council housing to replace it,” says Rory Hearne, a lecturer in social policy at Maynooth University and author of Gaffs, a new book on Ireland’s housing crisis. “The problem was when we stopped replacing it.”

As Dara Turnbull, research co-ordinator at Housing Europe, a federation of public, co-operative and social housing providers across the continent, put it: “About two-thirds of all the social housing that we built in the history of the state is now in private hands. That’s it. That’s the whole story.”

Before the 1970s, Ireland did not have much in the way of private property development as the state was in the driving seat. But private financing then became “very effective” at creating supply, boosted by bank lending and fairly lax planning regulations, Norris said.

Housing output rose by 177 per cent between the boom years of 1996 and 2006, according to Norris, when house prices also rose nearly 300 per cent. The Celtic Tiger was driven by reckless lending and a property splurge; by its twilight, Ireland was building some 90,000 houses a year.

But in the austerity period that followed, social house building collapsed by 90 per cent to fewer than 760 units in 2013 and 2014, versus 8,763 in 2007.

Instead of the government leading the provision of low-cost housing for the worst off, private housing projects from 2000 were required to include 20 per cent of social housing within their developments.

As social housing stock fell — owing to developers not building as much as the government coupled with the sale of council homes — people had to be accommodated within the costlier private rental sector.

“Now, a third of all people in the private rentals are people who should be in social housing and receive a social housing subsidy,” Hearne says. He reckons that meant €1bn a year was going to private landlords to subsidise social housing.

Light-touch regulation of the short-stay market is compounding the problem, Hearne says, noting that Airbnb had more than 15,000 properties listed in Ireland, more than 10 times the number of long-term rental properties available.

Photos shared on social media in recent months capture the public’s frustration: queues of would-be renters chasing overpriced properties snaking round an entire block in a Dublin street is a tangible reminder of how little there is available to renters.

As demand has surged, so have rents. Between 2010 and the second quarter of this year, average rents rose by 82 per cent in Ireland, bank lobby group the Banking and Payments Federation Ireland noted in a recent report, far outstripping an EU average of 18 per cent.

“The idea that social and affordable housing is radical is bananas,” says Sian Ní Mhuirí, 33, who earns an above average industrial wage in the children’s animation industry. “Housing has become a source of investment, speculation or retirement, not a basic human right.”

Political promises

The housing crisis has become the most urgent political issue in Ireland. Irish voters see housing as the government’s biggest failing, giving Varadkar a political impetus to boost progress before elections due by early 2025.

According to a Red C poll last month, 84 per cent of people considered the government was performing poorly on housing. Almost 60 per cent thought they were doing very badly.

Nationalist party Sinn Féin has become Ireland’s most popular political force by zeroing in on the housing problem. It promises to dramatically accelerate homebuilding, cap bank rates and abolish local property tax.

Sinn Féin also wants to use a leasehold model. Eoin Ó Broin, housing spokesman for Sinn Féin, argues that the government could contract construction of homes on public land — eliminating site servicing and development costs, resulting in cheaper houses, with the state keeping ownership of the land.

But the condition would be if owners of those homes wanted to sell them, the properties would be offered only to other people who qualified for the housing scheme, rather than being put up for sale on the private market. That would create “a sub-market of privately owned, privately traded, permanently affordable homes,” Ó Broin says.

Ireland also has nearly 170,000 vacant properties and Ó Broin told the Financial Times that a quarter of the 20,000 social and affordable homes needed could come from repurposing vacant and derelict properties.

Even voters turned off by Sinn Féin, a pro-Irish unity party that was once the political wing of the republican paramilitary IRA, acknowledge it has done its homework. “The success or failure of this government . . . of the next government will be on housing,” Ó Broin says.

Varadkar has made clear housing is top of his to-do list, telling national broadcaster RTÉ he “genuinely” believed progress had been made in the government’s first two-and-a-half-years, “but it isn’t enough”.

He said he would sit down with experts to see how to accelerate implementation of Housing for All and try new tactics to “dramatically increase supply” and exceed 2023’s targets.

Varadkar has also urged young people not to emigrate for housing, saying the grass often looked greener abroad. Nonetheless, he has described the country’s housing crunch as “an emergency”, “a crisis”, “a social disaster” and “a drag” on foreign direct investment.

His housing minister has a more optimistic view of progress. “Of course there are ongoing challenges to the delivery of housing,” Darragh O’Brien said in comments to the FT. “But the plan is taking hold.”

He cited official data showing the record numbers of homes completed in the first nine months of this year — higher than any year since 2011, when the national statistics office began collecting such data. “I expect the government’s target of 24,600 homes in 2022 to be exceeded, with some commentators forecasting up to 28,000 completions this year,” he added.

O’Brien said there was “no silver bullet”. But new approaches, such as state-backed “cost-rental” tenancies — rentals to people on middle incomes above the threshold for social housing that exclude building and maintenance costs and are at least 25 per cent cheaper with no profits for developers — “means prices are not driven by market movements, making it more affordable”.

But the government also has to reckon with inflation that is driving up the cost of construction and higher interest rates pushing up the cost of finance.

Dermot O’Leary, chief economist at stockbrokers Goodbody, says higher rates “are causing an issue for build-to-rent apartments which has really been the major driver of growth in supply in the last two years. That’s under threat now”.

Lorcan Sirr, a senior lecturer in housing, planning and development at Technological University Dublin, says Ireland has “engineered a situation whereby the provision of social housing and private housing is pretty much dependent on rising house prices”.

Housing starts were 17 per cent lower in October compared with September, and a drop of 31 per cent compared with a year earlier and 63 per cent from the most recent peak, in May 2021. That will delay completions just around the time, in the run-up to the next election, that Varadkar will be wanting to tout progress.

O’Leary says there was also a 41 per cent drop in planning permissions granted in the third quarter compared with June-September last year, driven by a 66 per cent plunge in approvals for apartments.

“[The government] will overachieve in terms of their output targets this year, so they can argue we’re going in the right direction. But I can see the difficulties coming down the tracks,” O’Leary said.

The cabinet last week proposed a shake-up of the planning system that it says will help speed up housing construction, but O’Leary says that was “not a panacea to the supply problems . . . particularly in the short term”.

For Sirr, a social contract based on home ownership — the model Varadkar calls Ireland’s “homeowning democracy” — is under threat. The country’s home ownership rate is at 1971 levels, according to official data.

“It’s a financial reality that if you want to get anywhere in Ireland or be safe and secure in your dotage, you need to own property,” Sirr says. “[The government] has a huge plan to turn us all into renters, it looks like.”

Whereas once people would have paid off a mortgage by the time they retired, more people will face the challenge of keeping up rent payments after they stop work.

McCarthy, the youth worker, still dreams of buying a home. But he plans to vote for Sinn Féin in the next election. “The government now are doing everything they can but they spent decades not doing everything they could,” he says.

Other young people may not stick around until 2025. “When I’m older, I do want to live in Ireland,” says student Maria Puzone. “But my parents don’t own their own house . . . Rents are so high, it’s unfair on us . . . This is affecting our whole future.”