Will There Be a Housing Crash in Ireland?
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Though it’s unlikely that there’ll be a housing crash in Ireland, the current housing crisis has continued to rage. With a significant supply shortage and a large number of homeless, something certainly needs to be done in order to stabilise our housing market.
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Will There Be a Housing Crash?
It’s looking unlikely that there will be a housing crisis in Ireland. However, many in Ireland have been feeling uneasy that there may be an imminent housing crash like there was after the 2008 housing bubble burst. Here are some of the main factors that might contribute to a housing crisis in Ireland.
What Are the Factors for a Housing Crash?
- COVID Pandemic
The COVID pandemic impacted people’s spending habits significantly and more people are saving money. This has also meant a higher demand for housing instead of other goods and services that were not available. - Inflation and Interest Rates
With the rise in inflation, central banks have been tightening their monetary policies to help deal with the higher prices. Often when the central bank rates rates, this is in response to a financial crisis that could provoke a housing crash. - Housing Unaffordability
With fewer people being able to afford a deposit on a new home, the housing market could experience a crash due to no one being able to buy and no one wanting to sell at such low prices. This could lead to a general slump in the housing market.
What Are the Factors Against a Housing Crash?
- Housing Supply Shortage
The housing supply shortage is the biggest current argument against a housing market crash at the moment. Since we need more houses than are currently available, the pressure is really on pushing the prices up rather than down. - Increased Demand
In a counter to the decreased supply there is also increased demand for housing. This is also responsible for keeping the prices growing rather than sharply falling, necessary for a crash. - Gradual Slowing
As a result of the higher interest rates, the housing market in Ireland is starting to show a decline in house price growth, but very gradually. This means that rather than a crash, the increase in prices.
Since the main issue in Ireland at the moment is with the supply of housing, it’s unlikely that we’ll have a housing crash like the one in 2008. Unfortunately, due to that crash, we always live in fear of something similar happening, however we now have tighter financial regulations to help counteract this.
What is a housing crash?
A housing crash is where there's a sharp drop in the price of houses. This can happen for a variety of reasons and the risks are always present, but after 2008 there have been regulations in place to avoid the effects impacting people too much. A housing crash can force homeowners into negative equity - where they owe more on their mortgage than the value of the property itself.
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Is There a Current Housing Crisis in Ireland?
To determine if there is currently a housing crisis in the country, we just need to have a quick look at the numbers. Since the definition of a housing crisis is having the cost of buying or renting a home higher than the average income, we look at what these current numbers are below.
- What Is the Average Monthly Earning?
The most recent numbers from the Central Statistics Office (CSO) place the average weekly earning at €850.05. That is €3,683 a month which becomes €3,115 after taxes as the take-home average salary. - How Much Is the Maximum for Your Mortgage?
The Housing Agency of Ireland recommends a maximum amount to pay towards rent or mortgage of 35% of your monthly disposable income. As the balance of the funds needs to be applied towards other necessities such as food, electricity and gas, transportation, etc. - What Is the Average Cost of Rent?
The average cost of renting in Ireland is now €1,447 a month. - How Much Is a New Home?
A recent report by the Irish Examiner places the average cost of a new home at €323,000 and the average mortgage rate at 4.46%. - Use a Mortgage Calculator
Using a mortgage calculator with the minimum 10% home value deposit payment and the maximum 30-year mortgage brings the average mortgage cost for any new home buyer to €1,466.03 (including interest payments).
We break down these numbers for each situation in the tables below.
| Description | Detail |
|---|---|
| Monthly income available for rent | €3,115 x 35% = €1,090.25 |
| Average Monthly Rental Cost | €1,544 a month |
| Is rental cost higher than monthly income? | Yes |
| Conclusion | There is a housing crisis in Ireland for Rental properties |
| Description | Detail |
|---|---|
| Monthly income available for mortgage | €3,115 x 35% = €1,090.25 |
| Average Monthly Mortgage Cost | €1,466.03 a month |
| Is rental cost higher than monthly income? | Yes |
| Conclusion | There is now a housing crisis for purchased property due to the higher interest rates. |
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What Caused the Housing Crisis?
Most experts agree that the housing problems in Ireland started in the latter years of the Celtic Tiger, at the start of 2007. The economy was going well at the time, so the State essentially stopped building social housing. On top of that, they turned the concept of buying a home into an investment venture, somewhere people could place their savings and make money from it.
Whether this was voluntary or not, this essentially shifted the responsibility of affordable housing over to the private market. What the Government hadn’t planned for was the ensuing real estate market crash which started Ireland’s housing crisis.
What Factors Are Causing the Housing Crisis?
Irish renters and prospective homeowners now face the triple quandary of:
- Expensive Housing
Since housing prices have continued to grow, this has contributed to the ability for new entrants to get on the property market. These higher prices have made it harder to save up for a deposit to put down on a property since the loan that you get on your mortgage is still usually only 10% of your chosen property’s price. Expensive renting also impedes people’s ability to save for a property since they have to pay a substantial percentage of their income on rent. - Holiday Lets
The availability of rental property has been further exacerbated by holiday rental companies such as Airbnb. Many landlords prefer to use properties for holiday rentals or short term lets due to the higher income the properties can then generate. Nearly 15 years after the housing bubble (which had caused another housing crisis) collapsed and prices fell and then rose again, there is still no proposed solution in sight for the current predicament. - Lack of Social Housing
Worryingly, the situation is not just being felt by prospective homeowners and renters, but also those dependent on social housing. An insufficient public housing system will detrimentally affect those who are homeless or at risk of being homeless. In March 2022 the number of homeless people across Ireland was estimated at over 13,000.
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What Is the Housing Crisis in Ireland?
A housing crisis occurs when the cost of housing, be it renting or buying, becomes higher than the income reasonably deemed adequate to meet it. In short, affordable housing has become a rarity.
What Affects House Prices in Ireland?
There are many factors that affect the price in a housing market besides supply and demand. Many other factors that are unrelated to general market conditions will change the way that house price behave in the housing market:
- Income
Income for individuals and households has a big impact on house prices. As people have higher income, they will be more likely to invest in second homes and holiday properties, and will also be able to afford higher mortgages. - Population
Population has also been a driver of prices due to the higher demand. If there aren’t enough houses for a larger and larger population, this will bring the price up even more. - Interest Rates
Interest rates are another factor that determine housing prices. When interest rates are lower, the costs of borrowing are also lower and mortgages become less expensive. However, as interest rates go up, and mortgages become more expensive, then there will be less demand for them and this will drive down property prices. - Social and Cultural Factors
House prices can also be affected by social or cultural trends. For example, a housing market can experience a shift from buying towards renting if it’s more fashionable. Marriage rates and birth rates can also have an impact on the price.
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How Can I Survive the Housing Crisis?
While we wait for these new affordable homes to be built and vacant tax policies to be in place, the most important advice for renters is to check all the major rental websites frequently (Daft.ie, Rent.ie, MyHome.ie, Property.ie). On some of the websites, you can also register for an account and set up alerts to let you know when suitable properties have been added.
What Can I Do To Afford Housing?
Whether you are a property owner or renting a home, if your average income is under the recommended threshold of 35%, look to make savings or cutbacks in other monthly expenditures, such as:
- Compare the market and find the best energy provider for your home.
- Compare other utility bills like broadband and bin collection.
- Help the environment and use public transport instead of a private vehicle.
- Examine recent SEAI grants and see if you qualify for free energy-efficient upgrades to your home.
- Apply for other government subsidies like fuel allowance or the household benefits plan.
- Read up on Energia’s tips for saving on your grocery shopping.
How Can I Save as a Renter?
As the price of rent in Ireland continues to rise, we list here a few additional tips to help renters move into an affordable home during this housing crisis:
- Know What You Want
Have a clear idea of what you want. Which areas would suit you for work or schools, what your budget is, how much of a deposit you can afford, furnished or unfurnished etc? - Have All Paperwork Ready
Have any relevant paperwork such as copies of ID, payslips etc. prepared and ready to go in a folder that you can bring with you at all times. Alternatively, keep one set of papers at work and another at home so you can quickly go from either place to a viewing. - Check Average House Prices
Don’t go into a transaction blind. Before heading to a viewing, whip out your smartphone and check average house prices for the area, news reports on the area, and nearby transport and facilities. Also, remember to ask about parking availability if you have a car. - Stay Within Budget
The general rule for housing is that you shouldn’t spend more than 30% of your monthly income on it. Due to escalating prices, you may have to budget for more, but establish limits. It makes no sense to get a nicer place if you can’t afford to eat or travel to work. - Visit the Properties
Always visit a property and insist upon seeing inside it before agreeing to rent it. Pictures can be old or deceiving. - Know Your Rights
As a renter, you should read contracts carefully. If you leave a deposit, demand a receipt. If you’re going to be sharing an apartment, it’s best to try and meet your new roommates beforehand. Also, make sure that you each have your own separate leases or you could be stuck with paying all the rent if anyone ups and leaves.
Frequently Asked Questions
How to solve the housing crisis in Ireland?
To solve the housing crisis in Ireland, Dr Rory Hearne at the University of Maynooth proposes the following seven actions to solve Ireland’s housing crisis.
- New National Housing Plan
He estimates that 30,000 new affordable homes need to be built every year for the next 10 years. - Qualified Workforce
Put in place the necessary workforce with the skills to build to deliver such quantities of new homes. - Change in Philosophy
Shift back the mentality of seeing a property to its initial use, like a home, not an investment. - Protect Renters
To help renters, legislate the possibility of lifetime leases, freeze rents, and other enforcement mechanisms. - End Homelessness
Provide support services and homes to the homeless without any preconditions to be met. - Lower Vacant Sites
Implement a punitive vacant site tax to stop vulture fund investors from amassing properties. - Go Green
Exceed climate targets set by the Paris Agreement. The new homes should have a net-zero carbon footprint and ensure all homes are energy-efficient by 2030.
What’s the government doing about the housing crisis?
With such a big and complex problem, here are a few of the policies put in place by the Government to try and appease the housing crisis in the country:
- Set up the CCPC to protect consumer rights.
- Set up various help-to-buy schemes to make housing affordable to all citizens.
- Present a mortgage interest relief plan.
- Set up the Housing Assistance Payment Scheme (HAP) for renters.
- Set up the rent-a-room programme for both renters and owners.
- Presented the Housing for All plan to build 300,000 homes by 2030.
What happened in 2008 to affect the housing crisis?
The financial crash in 2008 had a lot to do with mortgages and mortgage delinquencies. Before 2008, mortgage lenders were lending very liberally to people without properly checking their ability to pay back the loan.
The subprime mortgage crisis was caused by a surge in mortgage delinquencies and people failing to make their payments. This triggered global financial prices and a housing market crash.
Since 2008, mortgage lenders have been very cautious about lending, often requiring a very large deposit before offering a loan.
The CSO’s Housing Output Graph shows a clear picture of the quantity of housing being built at its peak, 90,000 new homes in 2006. The economic crash of 2007-13 put new constructions to a halt. In 2014, only 11,000 new dwellings were built, much lower than the quantity of housing needed in the country.
This sudden stop in construction created a 6-year backlog in new-builds which Ireland has never recovered from, leading to a massive shortage in homes.
Although some experts have variations on the cause, critics tend to blame the Government for failing to protect renters from the situation.
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