Supply, or lack of it, still the big issue A broad range of indicators continue to reflect an on-going shortage in the Irish residential property market. These include data on building activity, the mortgage market, and transaction levels, as well as continued upward pressure on prices and rents. Vast array of indicators continue to reflect subdued housing supply Recent data on building activity indicate some pick up in the construction of residential units. The most up to date figures on completions, which cover to the end of April, show them up 20% compared to the same period in 2015. On the basis of their current ‘uptrend’ in the first four months of 2016, completions are on course to rise to close on 15,000 units this year. This would compare to the 12,600 units completed in 2015. However, crucially, this projected number is still some way short of the estimated housing demand figure of 25,000. In terms of forward looking indicators, house guarantee registrations (tend to reflect developer activity), are on an upward trajectory, increasing by over 40% in the five months to May compared to the same period a year earlier. Commencement notices also continue to improve on a 12- month cumulative basis. However, it must be noted that despite these improvements, both indicators remain very low in absolute terms. Meanwhile, survey data on housing activity, such as the housing component of the construction PMI continues to suggest a solid pace of expansion. This on-going shortfall in supply is also very much evident in the number of houses listed for sale and rent. The most recent data on this available from Daft.ie, which are for March this year, show that there were c.23,900 properties listed for sale, a fall of around 14% versus the same month a year earlier, which itself represented a fall of 16% from 2014 levels. This March number equates to less than 1% of the total private housing stock. In a ‘normal’ functioning property market, the level of stock for sale should be in the region of 3-4% as a proportion of total stock. The quantity of rental stock also continues to fall, with the number of properties available to rent in May down 29% compared to the same period in 2015. The mismatch between supply and demand is also impacting activity levels in the mortgage market. The Central Bank regulations on mortgage lending are also acting as a restraint on buyer activity. In the first quarter of this year, new mortgage lending amounted to €1.0bn, a 2.5% year-on-year fall. However, Q1 2015 was a very strong quarter, skewed in part by activity being brought forward before the new lending rules came into operation. More recent data suggest growth in mortgage activity may have risen on year earlier levels. Prices and rents continue to rise, cost to build coming into focus Not surprising, given the ‘insufficient’ supply backdrop, house prices continue to experience upward pressure, although the pace of increases has moderated. On a national basis, house prices recorded a 6.9% pace of yearly growth in May. This compares to a near 14% rate of growth in May 2015. However, in Dublin where property recorded some slowdown as a result of the new mortgage lending rules, prices there have started to show some signs of acceleration. Although, the rate of annual growth in non-Dublin prices continues to outpace the capital (8.5% vs. 4.8%). Meanwhile, rents continue to rise strongly and are now over 6% above their previous peak. In recent months, the ‘cost of building’ has come more and more into focus. A recent study by the Society of Chartered Surveyors estimated that the “cost to build a house is less than half of the overall cost to provide the house”. Non construction factors, such as acquisition costs, financing and taxation elements make up much of the remaining costs. The government recently announced measures to address some of these ‘non-building costs’ which at the margin may help to reduce housing delivery costs. However, there is no quick fix to the lack of supply in the housing market. In fact, it is likely to be 2018 at the earliest, before housing output rises to the required 25,000 units per annum.