‘Demand is hugely outstripping supply’: What estate agents say about the new-homes market

When it comes to the residential market for new homes in Ireland, first-time buyers are having a huge impact. Helped by Government schemes – the Help-to-Buy (HTB) incentive and the First Home Scheme (FHS) – coupled with a rise in savings amassed during the Covid-19 pandemic, demand is high despite growing cost-of-living pressures. There is also a new flexibility in relation to location among first-time homeowners and those trading up or down as new hybrid working practices take hold. The problem for house-hunters, however, remains the ongoing shortage of supply.

“The year to date has been brisk from a new homes market perspective,” says Ivan Gaine, managing director of new homes at Sherry FitzGerald, “clearly the weight of demand across the housing market is hugely outstripping supply.”

Ray Palmer-Smith, new homes director at Knight Frank Ireland, says: “Since January, new homes transactions were up by 19 per cent in comparison with the same period in 2021. This was driven by first-time buyer purchases which were up by 26 per cent, with new homes prices increasing by 7.7 per cent in the year to the end of June.”

Developments are still selling off-plan with buyers keen to secure and exchange on a home up to six months in advance of the anticipated completion for first-time buyers

—  Ray Palmer-Smith

Demand from first-time buyers is particularly strong in Dublin, Kildare, Meath, Laois and Westmeath, he says, adding: “Many buyers are now looking across multiple counties and are more open to buying based on the home and surroundings rather than the commute.”

Regarding supply, “new homes coming to the open market continue to be limited and there doesn’t appear to be any significant increase in stock levels available for private buyers to purchase in the near future”, says Gemma Lanigan, partner at DNG New Homes. There are two factors causing the shortfall, she says: “Firstly, there are many new developments which sit in planning gridlock. In addition, developers and funders prefer block sales on apartment developments and this is also contributing to the shortage of new homes coming to the open market, particularly those new apartments which would be favoured by single buyers or those trading down.”

Building cost inflation also continues to contribute to a reduction in new homes being built, says Judy Sorohan, associate director at Hooke & MacDonald. “The number of properties required on an annual basis remains high – at about 50,000 – but yet we are only on course to deliver around half of that.”

David Browne, director of new homes at Savills, points to the number of judicial review proceedings being pursued against permissions granted under the Government’s fast-track planning or Strategic Housing Development (SHD) process as another “significant factor” hindering supply.

He says: “While measures have been taken to try to address the issue, the negative impact that this is having on specific markets is underappreciated and is a real driver of the prevailing supply crunch.” Planning density requirements also need to be looked at, he says, “with the prohibitive cost of delivery for apartments and duplexes affecting the viability of otherwise potentially solid schemes – this is especially the case for projects outside of the Dublin region.”

Alternative delivery models now being proposed by housebuilders, Browne says, should be considered by policymakers.

“Some changes to the density calculations and adoption of design standards for low-rise medium-density housing could have a hugely significant impact but we need to get on and address those matters now,” Gaine adds.

Many first-time buyers wish to avail of the popular HTB scheme and, as a result, the demand for new homes priced below the €500,000 threshold is particularly strong

—  Gemma Lanigan

Sorohan says many would-be buyers were left disappointed after not securing a new home in the first half of the year. However, she says, despite the rise in the cost of living, “with higher numbers of new homes expected in the coming weeks, I feel many buyers will still be keen to purchase in advance of expected interest rate increases”.

“Areas such as Kildare, Meath and Wicklow are still experiencing good activity and demand where people continue to adopt a work-from-home/hybrid approach with early autumn launches already experiencing swift sales,” she says.

Rising interest rates and inflation represent “a serious headwind for the market”, according to Palmer-Smith. “And while they will have some dampening effect on demand later this year and into next year, we believe that their impact will be blunted by a combination of significant household savings, improved debt-to-disposable income ratios, elevated net wealth, as well as buyer supports such as the Help-to-Buy and First Home schemes,” he says.

New homes agents agree that prices are likely to continue to rise but at a more moderate rate than in recent times.

The Government needs to do the maths on the back of new demographic and employment data and plan for 50,000-plus homes

—  Ivan Gaine

“The cost of borrowing is increasing sharply, albeit from historical lows, while the cost-of-living crisis is impacting savings available for deposits,” says Browne. “While we expect demand to remain strong, both factors point to a moderation of house price inflation from the double-digit growth rate of the past year.”

Waiting lists for new homes in housing developments continue to grow, says Lanigan, with more buyers joining the market daily. “For each new home in a scheme due to be launched, we could have multiple ready-to-go buyers registered as interested and already loan-approved,” she says.

“Developments are still selling off-plan with buyers keen to secure and exchange on a home up to six months in advance of the anticipated completion for first-time buyers and 12 months for downsizers,” says Palmer-Smith.

With higher numbers of new homes expected in the coming weeks, I feel many buyers will still be keen to purchase in advance of expected interest rate increases

—  Judy Sorohan

Agents have seen the effect the Help-to-Buy (HTB) and First Home schemes (FHS) have had in increasing the number of first-time buyers entering the market. The HTB incentive is a Government tax refund designed to help first-time buyers get the deposit they need to buy a newly built home. Potential buyers can borrow up to 10 per cent of the purchase price of a new-build or self-build property up to a maximum of €30,000 for properties valued at €500,000 or less. A total of 24,827 putative buyers applied for the scheme this year, according to Revenue.

“Many first-time buyers wish to avail of the popular HTB scheme and, as a result, the demand for new homes priced below the €500,000 threshold is particularly strong,” says Lanigan. “However,” she adds, “we have seen first-time buyers forgoing the HTB scheme for the right house in the right location which is priced above the threshold.” The scheme has only been planned up to the end of 2022, and the industry eagerly waits to see if the Government will extend the scheme in this year’s budget, Gaine notes.

Another buyer support for first-time buyers of new homes, announced in July 2022, is the First-Home scheme (FHS). FHS is a shared-equity scheme in which the Government takes a stake in the new home in return for a percentage of the property price. First-time buyers can receive up to 30 per cent of the value of their home, or up to 20 per cent if they also avail of the HTB incentive.

“The new shared-equity scheme will certainly help bridge the affordability gap for many,” says Browne, “enabling a significant cohort of the population who have been locked out of the market to purchase their new home.” Lanigan points out that giving more people the opportunity to buy will free up “much-needed” rental accommodation.

The new shared equity scheme will certainly help bridge the affordability gap for many, enabling a significant cohort of the population who have been locked out of the market to purchase their new home

—  David Browne

In Co Dublin, for example, Sherry FitzGerald recently sold 30 new homes at Graydon, a Cairn Homes development in Newcastle, on the weekend of its launch, predominantly to first-time buyers, many of whom are availing of FHS, the agent said.

It should be noted that there are price ceilings on properties that are eligible for the FHS depending on the county or city where it is located.

Many buyers looking to trade up or down are also joining the new homes market, says Lanigan, due to their A Ber rating and consequent lower running costs: “This has always been a factor but due to the current rising cost of living and, in particular, energy costs, it is now more relevant than ever before.”

International and ex-pat buyers have returned to the new homes market, Palmer-Smith notes, as the population grew at its fastest rate since 2008, increasing by 88,800 in the year to April.

“The Government needs to do the maths on the back of new demographic and employment data,” Gaine says, “and plan for 50,000-plus homes across the private, public and rental sectors.

“To deliver anything approaching those targets, a review of the national planning framework is required, to ensure that there are sufficient lands available.”

Sorohan says: “The last quarter of 2022 looks set to be an interesting one. There are varied opinions out there on where the market is going but I think we would all welcome a bit of stability.”