The property bubble in Ireland built up from 2000 to 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices.
As elsewhere, prices stabilised in 2007 and the bubble burst during 2008. By 2009 Q1, house prices had fallen by 23% compared with 2007 Q2, and the number of housing loans approved fell by 73%. The fall in domestic and commercial property prices has contributed to a an Irish banking crisis.
Current situation
Newspaper articles have provided anecdotal evidence of declining valuations with respect to the guide prices, and the agreed prices for Irish Residential property, since October 2006. This phenomenon was officially vindicated by the last ESRI report, which indicated that for 2007 as a whole, property prices have fallen every month. This has come on the back of annual increases in the cost of residential property every year since 1993.
An IMF report in 2000 contended that Irish property prices were unlikely to continue to grow strongly for long, since it would go against all evidence collated in other countries that had seen rapid price appreciation. House prices went on to triple between 2000 and 2006. Nevertheless, demand for residential property has fallen since the beginning of 2007, and this has resulted in price decreases for March 2007 of 0.6%, and for April 2007 of 0.8%. This has led to an expectation of a drop in house prices on a quarterly basis for the first time since 1994. Houses in the commuter belt around Dublin fell earlier, due to a combination of increased supply within the Dublin Urban area, increasing interest rates and continuing infrastructural issues in rural communities. Prices in large urban areas are static, though demand has dropped noticeably. Construction employment has dropped according to Live Register statistics for May 2007.
Since 2000, approximately 75,000 housing units have been built every year as detailed by the Department of Environment, Heritage and Local Government . However, a significant proportion of these new homes are unoccupied. Economic commentators give a figure of approximately 230,000 vacant properties. Of these up to 115,000 or so may be holiday homes.
Figures exist for completions because the ESB provides information on the number of properties newly connected to the electricity network and from data supplied by Local Authorities and from The Dept of the Environment and the CSO.
Currently (2005) there is enough zoned land to accommodate 460,000 new homes, though as housing density figures continue to rise each year existing land has the potential to provide an even greater number of housing units.
There had also been reported cases of mortgage fraud where borrowers over-estimate their income to enable them to borrow more. There is a worry that these people "could fall into serious debt if Ireland had a property crisis like that in Britain in the late 1980s." This experience has resulted in the "sub-prime residential mortgage fallout" in the United States.
In December 2006, the Irish state-owned broadcasting organization, RTE, broadcast an investigation in a Prime Time documentary which unearthed evidence of financial details of prospective customers were being sold by mortgage brokers to auctioneers. Such information would enable auctioneers to maximize the price attained from prospective buyers. This issue, and further allegations in this area, are currently being investigated by the Irish Office for Data Protection.
As of July 2007, estate agents in Dublin were reported to be offering incentives such as six months worth of mortgage payments to prospective buyers, in an attempt to avoid lowering the recorded sale price.
Contributing factors
Increased prosperity
Since 1994, the Irish economy has benefited from considerable inward investment from the multinational sector. Irish education standards were perceived as high relative to those existing in other English speaking countries. Improvements in the technical education area as a result of EU investment also played a key role in upskilling the Irish workforce. The combination of high education standards, and high capitalization ratios in the investment projects resulted in considerable improvements in labour productivity in the economy as a whole. This has resulted in increased wage levels in the traded sector of the economy.
Demographics
Ireland's population encountered a boom in the 1960s, and this coupled with a recession in the UK in the 1970s resulted in a baby boom occurring in Ireland from 1965 onwards. This reached its peak in 1979. This boom in the population gradually fed into the labour market from the late 1980s onwards. When unemployment was high, young Irish graduates and labourers worked in neighbouring EU countries, and sometimes illegally in the US. However improving economic prospects at home induced many to return from 1994 onwards. This return migration peaked in 1999. From 2001, migration from other countries has been an increasingly influential factor in the demand for residential housing. From the mid 1990s, increasingly difficult labour markets for graduates in continental Europe, and the requirements of many service companies for graduates with language skills, has resulted in inward migration from Spain, Germany, and France. The accession of new members in Eastern Europe, into the EU resulted in many people from Poland, Lithuania, Latvia, and the Czech Republic also participating in the Irish labour market. However unlike their Western European counterparts, these workers tend to work in jobs that require a wide range of lower level skills, as a result of different standards and proficiency in the English language. Shortages in the health sector has also resulted in a need for qualified personnel from the Philippines, India and South Africa.
Interest rate policy
Property valuations were rising before Ireland joined in the initial launch of the Euro in 2002. This was mainly due to a very buoyant traded sector, and increasing state expenditure. The fact that the Euro interest rates were lower than the interest rates caused Irish property values to increase further. Over time, the scale of residential mortgage debt reached proportions that was of concern to the Irish Central Bank.
The increasing cost of property and the willingness to borrow money to acquire Irish property has resulted in substantial increases in the total level of private sector debt, due to property investment in the Irish economy. This has become of increasing concern to the Irish Central Bank, which has issued many warnings, in an effort to affect consumer behaviour.
Feel good factor
The fact that property valuations were steadily increasing tended to create a systematic feedback loop, where rising prices affected the psychology of market participants, causing further increases in prices. Public sector pay deals like the benchmarking program, tended to spread the feel good factor to the state sector, causing further competition in the market, with people in state jobs competing with workers from the private sector, whose long term job prospects were not as secure.
Rising property values in Ireland, and prosperity acquired from property trading, has been a strong factor influencing Irish people, to invest in overseas property. The main focus of such activity has been the newly admitted members of the European Union. Irish corporate concerns have also become substantial investors in London, Berlin, Paris and American cities.
Planning Policy
Irish planning policy has been the subject of much debate between academics and political parties. A critique of Irish Planning Policy would include references to the lack of systematic planning, insufficient 'joined up thinking', and considerable pandering to vested interests and local concerns. Property valuations have been inconsistent across the state. The most influential factors are often the performance of the local labour market and the availability of sufficient quantities of serviced development land. The largest urban areas have experienced the most growth, with the property boom more pronounced in Dublin than elsewhere, especially in the areas beside Dublin Bay, where planning is most restricted and the amount of accumulated wealth is highest. Irish Planning Policy has failed to create high density residential housing schemes near transport infrastructure, with the exception of the Adamstown and Ashtown proposals in the Western suburbs of Dublin. The fact that Dublin occupies a footprint the same as Berlin, with one third the population, and both have equal space devoted to parkland is an example of how low density housing dominates. This causes problems in providing justification for heavy usage public transport infrastructure.
The increase in property prices has also resulted in high prices being paid for development land. Irish property valuations are highest in Dublin, where the valuations are being driven by confidence, the highest salary rates in the Irish economy, and heavy US private sector direct investment. Valuations are most pronounced in locations that are perceived as the fashionable residential locations. This has resulted in the redevelopment of many sites to build apartment complexes in the Dublin 4 district. The valuations in this district have become the most expensive in Ireland. The sale of the Veterinary Surgeon site, in Dublin 4 by University College Dublin (UCD) for a price of €171.56 Million occurred in 2005. This accounted to a cost of almost â‚
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