The widely accepted narrative about the Irish housing market is that it suffers from a chronic lack of supply, which in the absence of a major demand shock (such as a big hit to employment),results in upward pressure on prices. That certainly seemed to play out in 2024, although prices rose more than generally expected, and by more than forecast in our price model, while the supply of new homes actually fell on the previous year , an outturn significantly at variance with official projections.
Private sector residential rents also continued to rise , increasing by 5% on the CSO data (which captures rents actually paid as opposed to asking rents on new lets). However, this represented a slowing in momentum from the 8% recorded in 2023, and more in line with our rent model. Employment growth in 2024, although strong, was actually slower than the previous year, which acts to dampen demand, and was skewed away from the higher paid multinational jobs and towards lower paid indigenous firms. The fiscal support given to potential FTB’s also plays a part, diverting rental demand, with rent controls also impacting ( maximum annual change set at 2% or annual HICP inflation, whichever is the lower,applicable in large parts of the market).
On the CSO’s index national residential prices picked up momentum in the final months of 2023 and accelerated strongly over the following summer, with the annual change reaching 10.1% in August. Since then momentum has slowed somewhat, with the annual change easing to 9.4% in November, although prices still rose 2.3% over three months, so there is no evidence there of a sharp slowdown.
Dublin prices also accelerated strongly from late 2023 after falling modestly over the previous few months, with some pointing to more increased remote working dampening demand for houses in the Capital. That proved less convincing as Dublin prices rose sharply in 2024, with the annual change in the county peaking at 10.9% over the summer and reaching over 12% for houses in the City. By November, momentum had eased a little, with price inflation in the City at 11.7% and 9.6% in the county.Price inflation excluding Dublin has also eased modestly, to 9.2% in November from a peak of 9.5%.
On the CSO index national prices are now 16% above the pre-crash high recorded in April 2007 and have risen by 160% from the post-crash low in 2013.
Household income growth is a key determinant of housing and mortgage demand and in 2024 disposable income probably grew by around 7%, judging by the data over the first three quarters of the year. This was boosted by another very strong increase in employment, which picked up strongly through the year, rising by an annual 99,000 or 3.7% in the third quarter. Consumer price inflation slowed appreciably, averaging 2.1% last year from 6.4% in 2023 so supporting real income growth.
Government policies are also geared to supporting demand, although it seems obvious that is not an issue, and that support focuses on FTB’s , with the impact very clear from mortgage lending; FTB drawdowns for house purchase rose to over 26,000 in 2024 , to a record 73% of all purchase mortgages, crowding out and offsetting a fall in drawdowns for movers. Total loans for house purchase in 2024 rose marginally to over 36,000, with the average new mortgage rising by 6% to €308,000 so giving a total loan purchase drawdown of €11.1bn, 6.3% above the previous year. Total lending, including top-ups and switchers, amounted to €12.6bn , 4% up on 2023.
Mortgage rates were higher on average in 2024 , so dampening price inflation in our model, but in truth the pass-through from the ECB rate tightening was modest, at 1.7% at the high, reflecting the huge level of excess deposits in the Irish banking system,allowing those lenders to absorb higher market rates, which hit the supply of credit from non-bank lenders. Rates are falling now and that is likely to continue given the prospect of further ECB rte cuts, an expectation evident in the increase in the number of borrowers opting for floating rates, which has risen to 30% of total loans.
Much political and media attention is given to the various initiatives the Government has announced to boost public sector housing supply and spending is now substantial ; €6bn capital investment in housing was announced for 2025, made up of €3.1bn exchequer funding, €1.25 allocated to the Land Development Agency and €1.6bn for the Housing Finance Agency . The private sector builds and funds the majority of housing, nonetheless, and that supply will be determined by the cost and availability of funding and the expected profit on any Development. Consequently expectations on future price and government policy on housing is important, with the existing rent controls and political and social hostility to foreign capital for housing acting as a major dampener on private sector supply. Foreign non-bank capital was a big factor in the pick up in completions in 2022 and 2023, with the latter exceeding 30,000 for the first time, with expectations of a 2024 figure of some 35,000 , with 40,000 seen by some in Government. In the event completions proved disappointing as the year unfolded , prompting the Government to announce a temporary waiver on Development levies and a rebate on Water levies.This resulted in a surge of commencements in 2024, to over 60,000, but not in actual completions, which emerged at 30,300, some 2,500 lower than the 2023 outturn.
This is not only well below the generally accepted annual housing figure required (50,000 is the latest Government target) but also means that the housing stock per head is still falling, such has been the growth in the Irish population, and this metric plays a key role in our price model, acting to constrain price increases when the stock is rising but adding to the upward pressure on prices when falling, as it has been for the past fifteen years.Official expectations about a steady rise in supply over the coming years appears to be based on a structural shift in housebuilding, while the evidence shows the housing market to be cyclical. These projections also have no regard for the trend in residential prices or expectations on price and demand, which would be of course a key factor in any decision on housebuilding from the private sector. Little attention is also given in these projections to the availability of labour as Ireland is at full employment.
Commencements are a reasonable lead indicator of completions in normal circumstances but the distortion last year makes that it less useful in the short term, although implying higher completions over the next few years. On the negative side, planning applications have been trending down, running at an annual rate of under 37,000, but that is less useful as a shorter term indicator of actual supply. On balance we expect perhaps 35,000 completions this year , which may translate into a stabilisation in the housing stock per head.
On the demand side mortgage rates are likely to be lower but in truth it is the availability of housing and not the cost of a mortgage which is the main issue for borrowers, as only those on relatively high incomes can access a loan. The relaxation of mortgage controls , with a LTI limit of 4 rather than 3.5 for FTB’s has also had a big impact, as has the Help to Buy scheme, which is no doubt a factor in price inflation emerging higher than our fundamental model forecast.
The main risk for housing and mortgage demand in 2025 is on the employment side, and to expectations, if a significant trade war develops between the EU and the US stemming from higher tariffs. A modest tariff rise on Irish exports might have a limited impact but it is clearly very uncertain as to what may emerge. Trump has also talked about a lower tax rate on US profits, at 20% from 21%, and 15% for on profits from goods made in the US, but that excludes Corporate tax levied by the various States and would have to be passed by Congress. It is also unclear why that might prompt a significant change in the business model pursued by the US multinationals currently in Ireland.
For the moment we are assuming no major hit to the Irish economy and to employment, which alongside our assumption of higher completions leads to an increase in mortgage loans for house purchase, with a forecast of over 40,000 drawdowns, with a value of €13.4bn.
In terms of prices, the assumption of lower mortgage rates and limited impact from supply leads to another year of steady price gains. Employment growth is likely to slow ,however, as it is constrained by the available labour force, which may increase at a slower pace given the already high participation rate.As a result we expect a 7% outturn for the year on the national index. Uncertainty about the prospects of a global downturn in economic activity, even if not materialising, may dampen expectations ,which would act as a constraining factor on mortgage lending, prices and actual supply.On rents, we expect a 4% national increase in 2024, with slower employment growth impacting demand, while low inflation will kick in in terms of rent control.