Irish Property Market chat II - *read mod note post #1 before posting*

I sold a house in 07. Only now. ( I checked) ..some 17 years later has it returned to its 2007 peak value. In a country where the economy has effectively doubled in size since the 2012 bottom...and salaries are up circa 30 %....population exploded etc . Just goes to show how totally insane it all was back then. ....tulip mania!

That affordability was also based a couple on minimum wage trying to buy a 400k house. According to the CSO, the median price of a dwelling purchased in the 12 months to November 2023 was €325,000, meaning this example house was 23% above the median price.

I doubt there are many developed countries where a couple on minimum wage would be buying property. Ordinarily, people on the lower end of the income distribution would be living in social housing or affordable housing (a.k.a. having their property costs subsidised).

Let's imagine the Help to Buy and First Home schemes were retracted immediately, and we wanted to figure out who could afford a property for €400,000, but let's do so by ignoring mortgage limits (so we are saying a bank will loan you whatever you want) and just base affordability off the proportion of their pay that would have to go on meeting the mortgage repayments. Now, depending on where you go, you'll get all sorts of varying figures (based off gross pay or net pay) on what is a reasonable amount of your income to have going towards mortgage payments, but a lot of people follow the 1/3rd rule (so no more than 1/3rd of your net income should go towards your mortgage or rent).

Naturally, we'd expect some sort of deposit to be paid by the buyer, so let's be a little bit irresponsible and say 5% deposit. So that means our buyers will need a mortgage of €380,000. Let's say that'll have an interest rate of 4.15% (taking Avant's One Mortgage over 30 years at 80 - 90% LTV having a rate of 4.1%, we are adding 0.05% because of the higher LTV). So over 30 years @4.15%, that gives us a monthly mortgage repayment of €1847.19. If that is 1/3rd of the net income, that would make the total net income 5541.57, meaning each member of our couple requires net income of €2770.79. According to the CSO (Table 8.1), the median income in 2022 was €41,823. So, if you are on the median salary as a private sector employee, your net pay would be €2880. So our couple would have net pay of €5760.

So, our house that is 23% above the median price would be affordable to a couple on slightly below the median salary. That seems to suggest property in Ireland is actually very affordable and should really be more expensive.

So why can't our couple on the median salary afford to buy this house? Because a bank won't allow them to borrow 95% of the purchase price and because 4 times their salary is less than €380,000. Now, if the problem with the housing market is just that people can't borrow enough (i.e., there is enough stock, people just can't access the finance to purchase it), the logical solution is to just allow smaller deposits and larger multiples of income to be borrowed. If there is a surplus of supply, loosening credit won't cause an increase in prices, as there will be competition among sellers meaning they can't increase their prices. Now, if we had a deficit of supply, loosening lending criteria would be a disaster, because it would result in some people still being unable to buy (because there aren't enough units), while those who did manage to buy would pay increased prices (because sellers could increase their prices due to have an in-demand "product").

Fundamentally, it all comes back to a lack of number of units in the market, not the price at which the units are available for. Now, that's not to say there aren't some properties for sale that you don't look at and think "who the f**k is buying that place at that price?", but the underlying problem is a lack of supply.

So how do we fix an imbalance in supply and demand? We can either destroy demand, but that's not a great idea when we'd still have a supply shortage of something that is required, or we can stimulate supply. Stimulating supply by reducing prices doesn't really work. So if we want to solve the housing crisis while also driving prices down, there's really only one way to do that and that is by trying to convince a whole lot of people who live here...not to live here anymore. To me, that would seem like a great shame, solving a problem of "this is a place lots of people want to live" by making it a place that people don't want to live in anymore.

No more than 25% of your net income or 33% of your gross income makes no sense, because 25% of net income would always be much smaller than 33% of gross income, so I think you have your figures mixed up.

Guardian (2010) - 28% gross

Journal (2014) - 25% gross

Forbes (2023) - 28% gross (or 35% gross / 45% net for all debt combined)

Homeowner's Alliance (Date unknown) - 35% net

The 28% rule (referring to 28% of gross) is probably the most commonly referenced measure of affordability when it comes to mortgage payments. Using someone on €40000 as an example, 28% would be €11,200 annually, or €933.33 monthly. A private sector worker on €40,000 annually would have net monthly income of €2770. A monthly repayment of €933.33 would be 33.6% of their net income.

33% is affordable, but obviously it would be preferable to be paying a lower proportion (though this goes for absolutely everything, not just property).

And the gap widens if you look at higher incomes due to impact of tax. I personally prefer rule of net income max 25% but people on higher incomes will find it easier to absorb higher percentage as the nominal amount can still be quite high.

But there are other factors such as where you are in your career. If on 40k and near max you will earn I would be more conservative. But if on 40k and on trajectory to 80k it can make sense to stretch things as your growing income will bring down that % whereas ur repayments should stay fairly constant

I think we’d all prefer the lower %age of net income. But the reality is the average rent in Dublin is €2,300 per month now.

So you’d need €9,200 a month net. Or c.€200k a year gross to have the average rental in Dublin be 25% of your net income. And you build no equity in that situation of course.

Holding yourself to artificially low mortgage overheads whilst likely paying 40%+ net income on rent doesn’t make sense for most people.

Even using 25% net income (which is lower than most commentators and financial advisers would advise as the threshold for affordability) and using the current lending rules (4x LTI, 90% LTV), what salaries would our fictional couple require to buy the median house?

The median property price in November 2023 was €325,000 (as per the CSO). In 2022, the median salary was €41,823. In order to buy the €325,000 property, the buyers will need a deposit of €32,500, leaving them with a mortgage of €292,500. With combined earnings of €83,646, they can borrow up to €334,584, so a mortgage of €292,500 is achievable.

So what are the repayments on a mortgage of €292,500? Using the 80-90% LTV bracket on Avant One's 30 year mortgage (the reason I keep using this mortgage is because it is fixed for the full term of the mortgage, so no worries about what happens if interest rates increase next week), there would be an interest rate of 4.1%, giving monthly mortgage payments of €1413.36.

On a gross salary of €41,823, each member of our couple will take home €2880/month, or a combined €5760. So their mortgage payment would be 24.6% of their net income.

So a couple on the median salary can afford a median property affordably. So, what is the big outstanding problem in the Irish market? Well, if we go to MyHome.ie and search for all properties between €300,000 and €350,000 (so median price +/- 7.7%), we get 1,018 results. How many prospective buyers do we imagine there are with salaries +/- 7.7% of the median salary? I'd imagine, conservatively, 5 times that. There quite simply isn't enough property available, regardless of cost.

I'm not a fan of the First Home (Shared Equity) Scheme at all.

I'm not particularly a fan of the Help to Buy Scheme either, but that's more to do with how it has been implemented. Unlike with the shared equity scheme, it's at least related to what you've paid in income tax/DIRT, so conceptually it is sort of similar to the tax relief available on pensions. I think there is a great social good and benefit in facilitating people becoming property owners (for a PPR), but I think it would work better if there was instead a scheme where you could save towards your deposit and get tax relief on the savings. So instead of getting given a 10% deposit, you would get assistance in saving your own deposit. It would probably be a lot more difficult to manage though, as you'd need to put some sort of caps in place, you'd have the complexity of how to clawback the tax relief if the person decided ultimately not to use the saved funds toward a deposit and (perhaps most importantly) it wouldn't help people who can't save anything as a result of exorbitant rents (tax relief on funds you both towards savings being of no use if you have no funds to put towards savings).

The reason these schemes (and others like Rebuilding Ireland) exist is because of the gap between what someone can gather together to buy a property (in terms of the mortgage they can get, with the current LTI/LTV limits combined with their savings, not necessarily what they could afford to service if lending was based purely on % of income) and the costs involved with building properties. In a world with no supply issues, we could change the LTI/LTV limits, as there would be excess supply which would prevent prices rising, and people could borrow more money while still being able to afford the mortgage repayments. The big problem is that because we do have supply shortages, any loosening (or rather, further, after the move from 3.5x to 4x) of limits just means prices rising to absorb the extra money made available.

In order to stimulate supply, we need to either increase selling prices/decrease building costs (to make building properties a more attractive proposition) or incentivise residential property development over other development. I'd absolutely support incentivising residential property development and the expense of commercial development, but not at the expense of infrastructure.

Why are these apartments popping back up for sale after vanishing saying its for cash buyers only and then relisting saying mortgage buyers are fine too ? Fire safety fixes done and relisted ?

https://www.daft.ie/for-sale/apartment-apartment-113-the-oval-cabinteely-dublin-18/5508471

Ironically enough, in terms of yield, Ireland now is almost the polar opposite of Ireland during the bubble. In the bubble, we had yields of 1-3% on "rental" (the renting being incidental to their true purpose, speculation on ever increasing prices being the real reason for ownership) properties, as property values were so wildly out of kilter with reality. Now, we have more normal rental yields, while much of the rest of the developed world have very low yields, as cheap money poured into property and rental yields were secondary.

In a non-shortage environment, mortgage payments would generally be higher than rents, as the rent would be expected to cover interest payments/maintenance/insurance etc. but not capital repayments. The benefit of property investment (rather than savings at market rates) is that you would benefit from asset price rises (in a stable market, there would be gradual increase in property value) and the proportion of mortgage payment going towards interest decreases with each payment (and capital repayment increases) meaning the rent received is increasingly going towards paying down the principle on the loan. Rental yields need to be above mortgage interest rates, but not above total mortgage repayment, in a stable market.

In terms of squaring the circle, it all comes down to supply. We need much more social housing, not just for those who don't work but also for those who work in low paying roles that wouldn't normally become property owners in a normal property market, as well as for roles which are critical to society (healthcare staff, gardai, teachers etc.). We also need a greater supply of 1- and 2-bed properties, as we have more single people and childless couples than in the past. We need to accept that not everyone can live in a 3- or 4-bed semi-detached (or detached) house a 30 minute walk from Dublin city, or more realistically, not everyone can live in a house full stop. We need to build proper livable apartments with storage and facilities which families can live in happily. We need to develop infrastructure so that people living in these apartment complexes have local amenities and also good transport links to get to where they need to. We need to prioritise residential development over commercial development.

But most importantly, I just don't see the issue being fixed any time in the next decade, short of a shock that results in a population decline here. As long as our population is growing (and the rate at which it has been growing has only been accelerating over the past decade), our supply issues are not going to be resolved.

Well yes, the most realistic way of resolving the issue is to see a big increase in the number of people working in the building trades.

But encouraging people to work in the building trades likely means increasing the wages on offer, which will serve to increase prices further.

We could allow poorer quality residential building, but I'd really prefer us not to start lashing up shoeboxes again as a "fix" to the supply issue. More supply now, followed by more issues like pyrite/mica/fire safety/flooding in the future.

More likley "cash buyers only" was resulting in zero viewings and the EA needed some sort of footfall to justify their bread.

Thanks Greyian for your post showing the relative price across different countries. I was able to grab the data and graph them all together going back to 1996

Wouldn't surprise me, fire safety was an afterthought until not that long ago. Question is whether the issues are fixed or whether the EA is trying to wing it.

It will pick up in March, during the winter estate agents hold people off until then unless they really want to sell, I think.

It didn't pick up in March last year. Supply in Dublin peaked in Feb and got progressively worse for the rest of the year.