Continued supply of housing required to moderate house price increases and improve affordability – BPFI Housing Market Monitor

6 Sep , 2022  

The latest Housing Market Monitor Q2 2022 published today by Banking & Payments Federation Ireland (BPFI) shows that housing supply needs to continue to increase in order to moderate house price increases and enhance affordability in the market.

Outlining the key findings from the Monitor, Brian Hayes, BPFI Chief Executive said: “With an increase in residential property prices of 14.1% in the year to June 2022, at a national level, the residential property price index is now at similar levels observed at its peak in April 2007 with average prices likely to continue to increase in the coming months. However, as the Monitor explains, it is important to note that the main driver of the significant increase in average residential property prices in Ireland in recent years has been the lack of supply of new homes as opposed to lending growth, which was observed in mid-2000s.  If we look at the latest CBI figures we can see that as of the end of 2021, over 45% of mortgage lending has been issued under the mortgage measures rules since 2015. Furthermore, the share of Private Dwelling Home (PDH) lending with an allowance, i.e., over the Loan to Income (LTI) or Loan to Value (LTV) limits, has declined from 21% in 2016 to 14% in 2021 in value terms.

“Economic fundamentals in the economy such an employment and average incomes are the key factors supporting solid demand for mortgages right now. We can see from CSO figures that employment reached a record level of almost 2.6 million in Q2 2022, with average weekly earnings of about €872, some 21% or €151 more than five years earlier. The increase we are seeing in the average residential property price is also reflected in the average mortgage drawdown value. Our own BPFI figures show that for the first half of 2022 mortgage drawdown values have increased by around 37% compared to the levels observed in the first half of 2019, prior to the pandemic, while volume of activity has increased by around 16% during the same period. Additionally we see that in the second quarter of 2022, the average FTB mortgage drawdown rose by 13% year on year to €263,312, the highest level since the data series began in 2003.”

Brian Hayes continued: “And while construction sector has been experiencing significant challenges in recent years due to the impact of the pandemic, labour shortages and inflation pressures, supply in the residential construction sector has improved significantly during 2022. The latest data from the CSO shows the level of housing output in Q2 2022 is nearly 48% higher than the number of completions in the first half of 2021 and 46% higher than total completions in the same period in 2019, prior to the pandemic.”

 “If the sector continues to build at a rate similar to second half of 2021, the expected increase in supply levels over the next two years should help to meet the demand we are seeing as a result of the strong employment levels and income increases and the Irish banking sector has the capacity to provide further sustainable mortgage lending. Taking all factors into account however is it critical that housing supply needs to continue to increase in order to moderate house price increases and enhance affordability in the market,” Mr Hayes concluded.