Housing Crisis Ireland:Will There Be a Housing Crash?

By David Tait

Editorial Manager

While a housing crash in Ireland appears unlikely, Ireland continues to grapple with a severe housing crisis that looks unlikely to end anytime soon. A significan supply shortage and unprecedented demand underscore the urgent need to stabilise the Irish housing market.

Will There Be a Housing Crash?

While many in Ireland are hoping for a housing crash, reminiscent of the 2008 crash, the current outlook suggests it's improbable.

Let's examine the factors at play:

What Are the Factors that Could Cause a Housing Crash?

1. COVID Pandemic
   The pandemic shifted spending habits, leading to increased savings and a higher demand for housing over other goods and services.
2. Inflation and Interest Rates
   Rising inflation has prompted central banks to tighten monetary policies. While rate hikes often follow financial crises that could trigger a housing crash, Ireland's market is showing signs of a gradual slowdown rather than a sharp decline.
3. Housing Unaffordability
   The increasing difficulty for individuals to afford a deposit could lead to a slump in the housing market if demand wanes and sellers are unwilling to lower prices significantly.

What Are the Factors that Could Prevent a Housing Crash?

1. Housing Supply Shortage
   This is the strongest argument against a housing market crash. The severe undersupply of homes in Ireland keeps upward pressure on prices.
2. Increased Demand
   Counteracting the decreased supply is a robust demand for housing, which helps prevent a sharp fall in prices.
3. Gradual Slowing
   Higher interest rates are leading to a slower rate of house price growth, suggesting a gradual market adjustment rather than an abrupt crash.

Given the primary issue in Ireland is a fundamental shortage of housing, a 2008-style housing crash is unlikely. Tighter financial regulations introduced since the last crash also provide a buffer against similar events.

Is There a Housing Crisis in Ireland?

Yes, there is a widely acknowledged housing crisis in Ireland. It's a complex issue with multiple contributing factors and has been ongoing for a significant period.

Here's a breakdown of the key aspects:

A housing crisis exists when the cost of buying or renting a home outstrips the average income.

Let's look at the current figures in Ireland:

• Average Monthly Take-Home Salary (CSO): €3,115 (based on average weekly earning of €850.05).
• Recommended Maximum for Rent/Mortgage (Housing Agency of Ireland): 35% of monthly disposable income.

What Caused the Housing Crisis in Ireland?

Most experts trace Ireland's housing problems back to the latter years of the Celtic Tiger, around 2007.

During this period of economic prosperity, the State significantly reduced social housing construction. The concept of homeownership also shifted, becoming more of an investment venture.

This effectively transferred the responsibility of affordable housing to the private market, a plan disrupted by the ensuing real estate crash which initiated Ireland's housing crisis.

Irish renters and prospective homeowners face a “triple quandary” of:

• Expensive Housing: Continuously rising housing prices make it difficult for new entrants to save for deposits. High rental costs further impede savings for homeownership.
• Holiday Lets: The availability of rental properties is exacerbated by platforms like Airbnb, as landlords often prefer higher income from short-term holiday rentals.
• Lack of Social Housing: An insufficient public housing system severely impacts those who are homeless or at risk. In March 2022, over 13,000 people were estimated to be homeless in Ireland.

A housing crisis is essentially when the cost of housing, whether renting or buying, becomes unaffordable relative to average income. Affordable housing has become a rarity in Ireland.

What Is the Housing Crisis in Ireland?

A housing crisis in Ireland occurs when the cost of housing—whether renting or buying—becomes significantly higher than the average income that can reasonably be deemed adequate to meet it.

In essence, affordable housing has become a rarity for a large portion of the population.

This definition is supported by several key indicators and consequences:

• Unaffordable Rent: The average cost of renting a home far exceeds the portion of average monthly income that the Housing Agency of Ireland recommends allocating to rent.
• Unaffordable Homeownership: The average monthly mortgage cost for a new home is also substantially higher than the recommended percentage of average disposable income, making it very difficult for individuals and families to purchase property.
• Severe Supply Shortage: There are simply not enough homes being built or available to meet the current demand, driving up prices.
• Impact on Living Standards: This leads to widespread issues such as:
  1. People struggling to save for deposits due to high rent.
  2. Many having to live with family longer than desired.
  3. Challenges for essential workers to find suitable accommodation.
  4. Increased pressure on public services as the housing situation worsens.

What Affects House Prices in Ireland?

Beyond the abovementioned, several other factors influence the housing crisis in Ireland including:

• Income: Higher individual and household incomes enable greater investment in properties and higher mortgage affordability, driving up prices.
• Population: A growing population increases demand for housing, pushing prices upward when supply is limited.
• Interest Rates: Lower interest rates reduce borrowing costs and make mortgages more affordable, increasing demand and prices. Conversely, higher rates dampen demand and can lead to lower property prices.
• Social and Cultural Factors: Trends like a shift from buying to renting, marriage rates, and birth rates can also influence house prices.

Are There Any Other Causes to the Housing Crisis in Ireland?

Beyond the straightforward supply and demand issues, several other factors contribute to Ireland's housing challenges.

The construction sector itself faces hurdles. There's a shortage of skilled labor, which significantly impacts how many homes can actually be built. Costs are also a major concern, with rising prices for materials and land, alongside regulatory requirements, making it more expensive to develop new properties, especially affordable ones.

There are also delays in the planning process. Complex approvals and occasional legal challenges can really drag out much-needed projects. This is sometimes made worse by a lack of essential infrastructure like water and transport in areas where new homes could theoretically be built.

What’s the Government Doing about the Housing Crisis?

The Irish government is actively implementing various policies to address the housing crisis. Beyond the overarching "Housing for All" plan, specific initiatives aim to make homeownership more accessible.

Here are some key programs:

• First Home Scheme: This helps buyers by taking an equity stake in a new home, reducing the initial mortgage burden for individuals.
• Local Authority Affordable Purchase Schemes: Local authorities play a key role here, offering homes at reduced prices in exchange for a shared equity agreement.
• Cost Rental Schemes: For renters, these emerging schemes provide homes where rent is directly linked to the cost of building and maintaining the property, rather than market rates.

Additionally, measures like the Vacant Property Tax and Derelict Sites Levy are in place to encourage owners to utilize empty properties, aiming to bring more supply onto the market.

How Can I Survive the Housing Crisis?

While awaiting new affordable homes and vacant property tax policies, here's advice for navigating Ireland's housing market:

For renters

• Check Rental Websites Frequently: Regularly monitor Daft.ie, Rent.ie, MyHome.ie, and Property.ie. Set up alerts for suitable properties.
• Know Your Preferences: Clearly define your desired areas, budget, deposit amount, and whether you prefer furnished or unfurnished properties.
• Prepare Paperwork: Have copies of ID, payslips, and other relevant documents ready in a folder for viewings.
• Research Average Prices: Before a viewing, check average house prices for the area, local news, transport links, and facilities.
• Stick to Your Budget: Aim for housing costs to be around 30% of your monthly income. Adjust if necessary, but establish limits to ensure you can still afford other necessities.
• Always Visit Properties: Insist on seeing the property in person before agreeing to rent. Pictures can be misleading.
• Know Your Rights: Read contracts carefully, demand a receipt for deposits, and if sharing, try to meet potential roommates and ensure separate leases if possible.

To Afford Housing (General Savings Tips):

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:

• Compare Utility Providers: Find the best energy, broadband, and bin collection deals.
• Utilize Public Transport: Reduce transportation costs by opting for public transport.
• Explore SEAI Grants: Check eligibility for free energy-efficient home upgrades.
• Apply for Government Subsidies: Investigate fuel allowance or household benefits plans.
• Save on Groceries: Implement smart grocery shopping strategies.