The Irish Housing Market; Demand Driving Real Investment Opportunity

Let’s start with the bottom line. Houses are homes and we need more homes in Ireland. These much-needed homes don't get built and vacant homes don’t get renovated and returned to the market if the investment case doesn't stack up. At Onate, we’re putting our money where our mouth is.

The rise in demand for housing in Ireland is creating significant investment opportunities in towns and communities all around the country. The state needs to build 36,000 houses annually over the next two decades to keep pace with demand, but in 2019 just 10,800 were built. That represents an annual deficit of 25,200.  

A number of factors are driving the demand; the population is growing, ‘naturally’ and from net immigration. Since 2015, half of Ireland’s annual population growth has come from Irish nationals returning to Ireland. And spending capacity has increased, in part due to the pandemic, as people who have stayed in permanent employment since the virus hit last March have racked up savings. An additional €12.6 billion has been put into bank and credit union accounts. This increased saving has meant more people can afford mortgage deposits, contributing to a surge in mortgage approvals; a total of 3,355 mortgages were approved in January, a 2.8% increase on the same period last year. 

This demand increase has not yet driven prices back to where they were pre-peak. From 1996 to 2006, Ireland experienced one of Europe’s longest and biggest residential price booms with average prices growing 300% through the decade. Following the 2008 recession, Ireland’s house prices fell 55% from their peak.

That prices have not bounced back to the levels of the peak is down in part to the Central Bank of Ireland limiting lenders with residential loan-to-values to 80% for owner-occupiers and loan-to-incomes of 3.5 times salary. Those limits are a long way from 2008, when loan-to-values reached 100% (and sometimes above) with loan-to-incomes above 4.5 times salary. 

These measures to control prices, coupled with continued wage growth, a lower interest rate environment and a relatively Covid-resistant market have meant that house-price affordability is now significantly better than pre-boom. Mortgage payments consumed 15% of household income in 2020. In 2007 the figure was 26%. 

Ireland’s acute undersupply of new residential property coupled with these lending restrictions impacting the prices buyers can pay, has driven rents up at a rate that has outpaced property prices. That means rental yields are up. Significantly. Gross Rental Yields have more than doubled in 14 years.

Strong rental yields like these result in additional demand for property from investors. Alongside owner-occupier demand this extra demand also adds to liquidity, providing a wider pool of potential purchasers. And in the case of assets which have come to market through a foreclosure it greatly assists the speed and ease of such a sale.

All of this adds up to an interesting time for us at Onate to be entering the Irish lending environment. We are here to help unlock the potential built up in the market and facilitate the availability of homes. That means giving property investors flexible, fast access to finance to enable them to acquire residential property and return it back to the mainstream rental or owner-occupier markets. You can read more about how bridging finance helps that process here.