On a recent weekend in the South Dublin suburb of Kilmainham, a lineup formed outside a small, red brick house with a blue door. Listed as a two- to three-bedroom “in need of complete refurbishment” it drew a sizeable crowd: young families seeking a starter home, investors sniffing a deal. By the end of the half hour showing, 120 potential buyers had passed through. One made an offer on the spot.
“Certainly even a well-priced property wouldn’t have got those numbers two years ago,” said Eunan Doherty of estate agent Douglas Newman Good. “2013 has been really busy.”
Six years after a massive crash in real estate felled Irish banks and eroded house values by more than 50 per cent, the property market here is experiencing a surge in activity not seen since the days of the boom.
House prices have jumped 5.6 per cent across the country, driven by increases of 13.8 per cent in Dublin and upwards of 20 per cent in posh city districts south of the River Liffey.
Rents are soaring too, up 4 per cent nationwide and 7.6 per cent in the capital.
The renewed demand for homes comes as unemployment in Ireland has fallen to its lowest level since 2009.
As employment stabilizes, many lucky enough to have sat out the crash in rental accommodations are now looking to get into the market before prices rise too high.
And the influx of technology companies establishing offices in tax-friendly Dublin has brought with it a rush of workers anxious to find rental accommodation in the city centre, estate agents say.
“We’re seeing a lot of young professionals, all wanting to view at the same time,” said Eileen Sheehy, managing director of Sherry FitzGerald Lettings in Dublin.
“Everybody is coming with very strong references, ready to go take the property,” Ms. Sheehy said. “Then there are a lot of very disappointed people at the end. We’ve never seen such a low level of stock on our listings.”
Indeed, the shortage of property for sale is a product of Ireland’s real estate bust, which clobbered the construction industry.
Since the heady days of the “Celtic Tiger,” when cranes dotted the Dublin skyline and construction accounted for a quarter of gross national product, building activity has plunged in this country of 4.5 million. The construction sector is expected to contribute just 6.3 per cent of GNP this year, well below the 12 per cent level considered ideal, according to a July report from state investment agency Forfas. And with banks slow to regain their appetite for development financing, fewer than 8,500 housing units were built in the country last year, down from a record 93,419 units in 2006.
“The overhang of surplus property was already pretty small in Dublin, then you had population growth which ate that up and now you have the problem exacerbated by the fact that nobody’s building,” said John McCartney, director of research for the estate agency Savills. “Why are people not building when there’s such a need for property? Well, it’s a mixture of things, but I think fundamental to it is the availability of financing.”
Meanwhile, with residential property values well below their peak in 2007, a huge proportion of homeowners remain caught in a negative equity trap. A stunning 64 per cent of mortgages drawn down between 2005 and 2012 remain underwater, with the majority of those borrowers under the age of 40, according to a study by Mr. Duffy of ESRI and Niall O’Hanlon of Ireland’s Central Statistics Office. Those homeowners are likely opting to hold onto their properties rather than lock in a loss.
In addition, Irish homeowners hold billions of euros in tracker mortgages, which are tied to interest rates set by the European Central Bank. With those rates at record lows, the incentive to sell is poor. As families grow and prices remain low, many homeowners are choosing to rent out the property they own while taking up a lease on a larger home, estate agents say.
“Rent to rent is big. It’s a trend,” said Ms. Sheehy. “People rent out the property they own and they rent something else because they can’t get the sale price they need for the property they’re selling.”
But even as the market buzzes in Dublin and other city centres, the consequences of unchecked building during the boom are being felt in a much slower recovery outside the capital. Prices are still falling in rural towns where the recovery in employment is slower and an oversupply of properties still exists. In areas such as the Midlands, some houses built on large estates during the heat of the boom still sit empty. Those who did purchase starter homes in these areas are hanging onto them and waiting for a better market, rather than moving into larger properties.
The result is a logjam in the normal cycle of home ownership that could take a decade to be resolved, said David Duffy, an economist with the Dublin-based Economic and Social Research Institute.
“If most of those people in negative equity are under 40, then that’s people remaining in negative equity for a long time. Those are people you would expect as they move through their life to trade up to a bigger house to accommodate a bigger family. That’s not happening and I absolutely think it’s going to be an issue.”