It’s not just Ireland.
obody likes to be told that they are ordinary — especially activists. They try to dramatically persuade the media that every new uncomfortable fact is evidence of a headline-grabbing emergency which only they can cure.
So it is with house prices.
Ours are increasing — which is never comfortable — but we are just like everyone else. The European Commission recently published an overview showing that all of the EU’s house prices have increased around 32pc since 2013.
The rate peaked this year, when nearly one fifth of the increase occurred — despite Covid.
During this last decade, Irish house prices have increased by 85pc. This looks high, but it needs to be understood in the context of our unique housing crisis in 2007. This slashed overall prices by 35pc in just three years. There were falls from peak prices in Dublin of as much as 56pc for houses, and over 62pc for apartments.
Almost 15 years later, Irish house prices are still over 7pc below that 2007 peak. This means much of Ireland’s increase is mere recovery of lost value, not growth in the property market.
The Commission report also contained headline-making claims that Irish housing is “undervalued” by as much as 17pc — though on scrutiny this may emerge as mostly being a quirk of data caused by the scale of our 2007 crash.
Activists attempt to portray these increases as being uniquely Irish, and hence the fault of our government. However, it appears that our recent rate of price increases is ordinary.
Indeed, the 5.6pc annual rise that Daft.ie identified in June puts our rate among the slower in the EU.
Beyond Europe, a similar story is playing out. The US and Australia have seen housing costs increase by 20pc in the past year, with similar or greater increases in New Zealand, Canada, Korea and Hong Kong.
Housing data of this type is examined for two reasons. The first is to try to estimate how long, and by how much, price growth will last. The second is to try to understand the cause of increasing prices, in an effort to intervene and improve affordability.
These two factors are linked because housing has become a global investment vehicle. This has broken the link between supply and demand.
New housing supply is now an investment asset, driving a search for profits. This creates no incentives to make housing more affordable.
The problem is that if these investors are deterred, then housing supply will fall — which will also increase prices.
Returning to the likely future of housing, it seems that Irish prices will continue to grow, but moderately. This is due to our prudent bank lending rules and the large numbers of units starting to come onstream.
This steady growth of prices will not lead to another crash — so long as the Government and Central Bank avoid any repeat of the unwise ‘housing market supports’ that led to the 2007 peak.
Covid may deliver a surprise to housing markets due to persistent patterns of working from home. Housing markets and prices are driven by a surprisingly small number of transactions, relative to the overall housing stock.
Is it possible that internal migration to more affordable peripheral locations may change the balance in markets?
Could this be most pronounced in expensive, larger, urban areas? Will this marginally reduce demand and cost?
Is it also possible that falling demand for retail and office sites may increase availability of urban land for housing, and contribute to more affordable housing?
Together these slowly emerging factors may combine to nudge markets towards a gradual reduction in demand and prices in urban areas.
A ‘nudge’ is what economists call small, voluntary and persistent changes in behaviour that eventually have large economic effects.
Investment is the other factor driving increases in housing prices. This market failure is certainly something governments can intervene in.
Easily said, but difficult to do.
Like all maturing societies, Ireland needs more rental accommodation. Improving the rental sector is the key to reducing house prices.
This moderates and delays demand, especially of first-time buyers, slowly and by small increments. Housing markets are all about interconnected changes. More little nudges.
The best rental accommodation is provided by built-to-let units that are managed by professional landlords. Ideally these operate at scale, both as builders and landlords in a well-regulated market.
Even the US, home of unbridled capitalism, has long recognised the need for antitrust laws to protect society from market failures and excesses by utilities.
The first step is to accept that housing is a fundamental necessity that is best provided by large-scale expert operators. This lets us classify and manage housing as a utility — like transport, power, gas, or water.
We have a lot of experience in how to manage the balance of incentivising utility investment (both public and private), while providing public goods that ensure protection from monopolists.
Could there be lessons for housing from Covid?
Our relative success has come from a combination of large-scale, evidence-led government intervention. However, this success could not have been achieved without a parallel community behaviour.
This week, the hospitality sector reports rapidly growing numbers of cancellations and downsizing of Christmas bookings.
Could we be witnessing the disciplined common sense of the crowd, eclipsing the indecision of a government that appears to be blindly in thrall to drinks industry?
Could this be a parallel to the decisions by many to relocate to less expensive areas, pursuing quality of life while working from home?
Could this eclipse the self-destructive housing-support tendencies of a government that seems blindly in thrall to the building industry?
