It’s positively Mexican.
Dr John McCartney, Director of Research at Estate Agent Savills writes in today’s Irish Times that “property prices will have to go up, or costs will have to come down, before we see the resumption of large scale housing development“.
A First Time Buyer writes:
It’s a Mexican stand-off.
Prices will only increase with wages or if the Central Bank relaxes its mortgage lending rules.
Increasing wages would make our economy less competitive and would be detrimental for our FDI [foreign direct investment] and SME [small and medium enterprises] sectors.
Relaxing the CBI rules would increase the available mortgage amounts for borrowers, which would directly result in higher bids on the few properties that are available.
But house prices are already expensive with the result that would-be homebuyers are again having to look to the commuter belt.
Robbie Kelleher, Senior Investment Strategist at Davy’s outlines that the ratio of average house price to average incomes is currently close to 6x – in the past this ratio ranged from between 3x and 4x.
So what about the costs?
We’re told that the reason for the lack of housing supply are the high costs incurred by builders which, at current selling prices, they find increasingly difficult to pass on to potential buyers.
These costs include including labour, materials, professional fees, site acquisition, finance costs, development levies, social housing obligations and building and planning regulations.
Builders say they need to make a profit of at least 15% in order to achieve replacement costs and that, at the prices being achieved at present, this isn’t possible.
The banks are making exorbitant profit margins on variable rates. The ECB has cut its rate to zero per cent and the Irish banks refuse to pass on these savings on to their customers.
The Legal Services Regulation Bill was diluted down and is unlikely to lead to any significant reduction in legal costs.
The Planning Guidelines on Design Standards for New Apartments introduced last December now allows for smaller sized one, two and three-bedroom apartments.
The Part V social housing requirements have been reformed and a rebate scheme has been introduced in respect of levies paid to local authorities in Dublin and Cork, on foot of affordable housing development.
The Urban Regeneration and Housing Act introduced a vacant site levy but it is not in effect until 2017 and not payable until 2019.
The Department of Finance are adverse to introducing tax breaks for the residential property market as they may simply lead to a transfer of tax revenue from the State to developers with no effect on supply.
The definition of Mexican stand-off is a situation in which no one emerges a clear winner.
One thing is for certain there are a lot of losers as a result of our housing crises. But who is going to break the deadlock?