Irish House Prices Surge in June
07-26-2014
Dublin Sees Largest House Price Rise Since Records Began
By Eamon Quinn
DUBLIN—Driven by the largest increase in home prices in Dublin since records began, Irish residential prices surged in June, government figures Thursday showed, fueling concerns that severe shortages of properties following the country's real-estate crash are leading to a new and dangerous price boom.
The Central Statistics Office said house prices countrywide rose 2.9% in June from May and were 12.5% higher than in June 2013, the steepest increase for over seven years. In the populous Dublin region, prices climbed 23.9% on the year, marking the largest annual increase since the statistics office started collecting house price data over 10 years ago, the CSO said.
The government has in the past hailed rising home prices as a key sign that the country is recovering from the huge property bust in 2008 that wrecked Irish banks and brought the country close to bankruptcy. But government ministers have also acknowledged that the country now needs to build many more homes, and earlier in July month marshaled the forces of its state-run "bad bank", the National Asset Management Agency, to play a new role in helping to finance housing construction.
Ireland's new price boom appears a paradox because the huge number of housing units built during the boom years that were fueled by now dismantled tax incentives were widely blamed for the country's debt crisis when the property bubble burst. Many building companies and property developers went bust and the banking system appears to be still too fragile to help finance the construction of new homes where they are most needed, in the capital.
Ireland's housing crash was among the steepest in the world, and left prices of many properties 60% below their early 2007 peak. Thursday's data showed that prices are now on average 43.4% lower than their peak of over seven years ago, while prices are 44.5% below the peak reached in the capital.
Analysts say that the Irish housing market is dysfunctional because a desperate shortage of new housing starts and a small number of sales is driving market prices higher in an illiquid market.
Rising prices will nonetheless help the country's damaged banks somewhat mend their loan books, as they face Europe-wide stress tests by the European Central Bank this year. The housing supply ills will probably take longer to solve, however.
"An improving labor market should see the demand for credit pick up in the coming months, but that is only going to push prices up further if the supply of houses for sale doesn't increase dramatically," said Alan McQuaid, chief economist at Merrion Capital.
Write to Eamon Quinn at eamon.quinn@wsj.com