The week in housing 02/04/21
House price surge
The biggest piece of news this week, notwithstanding the announcements around public health restrictions, was the release of the latest Daft.ie house price report. Those interested in housing, both in Ireland and internationally, have been watching with great interest as we try to get our heads around how Covid and the associated economic impacts will affect housing markets. News reports and anecdotal evidence were already pointing to price increases, and the Daft report confirms this. Prices are up 7.6% nationally. In Dublin they have increased by 6.9%. Prices in many parts of Lenster outside of Dublin have increased remarkably, with prices in Kilkenny up more than 18% , for example. It is also worth noting, as Ronan Lyons points out in his introduction to the report, that this comes after a period of cooling in the previous two years.
There are four notable points here. First, despite the economic uncertainty, the housing market has remained resilient. True, transactions are down, but then we have all been locked up in our houses. They key point is that people appear to be willing to spend as much if not more on housing. Second, demand seems to have shifted away from Dublin (to some degree). This is a trend which is well established internationally at this stage. It is likely that this is mainly driven by a desire for space, i.e. larger houses are much more affordable outside Dublin. What is interesting about this is that Covid is (hopefully) not here for the long term and yet the lockdown experience appears to have shifted people's long term housing plans. Are households betting on work form home remaining post-pandemic? Third, the daft report supports my fears that rent levels will start to rise more rapidly, probably around Q3 2021. There are two sides to this. On the one hand, rents tend to track house prices and therefor house price trends give us an indication of where rents might go. On the other, one of the main drivers of demand in the PRS is the difficulty households experience in accessing homeownership. With house prices trending higher, and households financial circumstances likely worsening, it seems like many will find themselves trapped in the rental sector. This will intensify demand which, coupled with the intensified supply shortages due to reduced construction levels, will likely see rents rising once again.
This certainly seems to be the view of global investors. I've spent the last couple of weeks reading reports form international property consultants on the PRS sector (which they refer to as either 'Build to Rent' (BTR) or 'multifamily'). The view across the board is that there is very strong investor appetite based on the view that the post-pandemic world will be characterized by a structural supply and demand imbalance, continued affordability problems, and reduced income for many would be first-time-buyers. This, combined with the all-important low interest rate, is leading to huge interest in the PRS sector and is accelerating its shift from being 'alternative' to 'core' in the world of real estate investment.
Events
The ever enterprising Rory Hearne has publicized details of the Home conference, which takes place on the 22nd and 23rd of April. And I am organizing this event bringing together qualitative researchers on the PRS in the UK, Australia and New Zealand. Not to be missed!
What I am reading
As mentioned above, I've been reading reports by international property consultants on how Covid-19 has impacted PRS investment. Some highlights include this report from CBRE analyzing what will happen post-pandemic in the Canadian context, and this in depth analysis of the US market from Freddie Mac.