A graph charting instances of house prices being discussed at dinner parties across Northern Ireland would show a very large spike around 2007 followed by a deep trough in the years after the boom rediscovered gravity. Indeed, the subject became almost taboo as the downturn unfolded.
As almost everyone knows, Northern Ireland experienced the biggest residential property slump in UK history, with prices decreasing by 57 percent from peak to trough.
In recent years though, normal service has been resumed, with the housing market again becoming a palatable topic of conversation over steak and chips on the dinner party circuit.
The latest Northern Ireland House Price Index showed an increase in average prices of just over four percent between the end of 2016 and the end of 2017, which equates to £5,700, or an increase of £475 per month. House prices here have now risen by 33 percent or £33,000 since their low in Q1 2013, with the standardised price of a house standing at £130,482 at the end of last year.
Average house prices are still more than 40 percent below their over-inflated peak, and currently sit around the same average price seen in late 2005. It is clear that, whilst no longer off the table as far as dinner party discussion is concerned, Northern Ireland’s house price recovery is still a work in progress.
Indeed, whilst dinner party discussions have tended to have a one-dimensional focus on house prices, a true housing market recovery is much wider, and requires an upturn in transactions, house-building and associated activity.
Over the past year, prices may be up, but transactions are down slightly and are still just over half what they were in the ‘Go-Go years’.
Last week, we also saw the latest figures on housing starts and completions, as well as mortgage activity. These were littered with multi-year highs. However, context is everything, these multi-year highs are coming off multi-decade lows. People at dinner parties, as well as some commentators, are in danger of getting carried away.
In relation to mortgages, Northern Ireland has seen activity rise for the last six years, with 2017 marking a 10-year high. First-time buyers have been responsible for over two-thirds of this growth and now, unlike for the UK as a whole, dominate the home loan market with 60 percent. A decade ago they accounted for less than one-third. Last year, mortgages to this group rose by 20 percent to 9,700 loans. Like house prices, this is back to levels last seen in 2005. This sounds impressive but perspective again is important. In the 25 years to 2006, the average annual number of mortgages advanced was close to 14,000 – over 40 percent above last year’s total. Prior to the housing downturn, the last time there were fewer than 10,000 first time buyer loans was back in 1980.
Relative to the first-time buyer revival, the recovery in the home mover market has been somewhat disappointing. Last year, loans advanced to this group rose by nine percent. Not bad, but this comes off a very low base. While home mover activity hit a 10-year high of 6,300 loans last year, perspective is once again important. Outside of the last decade, 6,300 home mover loans represent the lowest volume of mortgages since 1981 and compares with almost 18,000 in 2006. The legacy of negative equity, or simply the lack of sufficient equity, has meant many households are choosing or forced to stay put. For many, extending is the new moving.
Prices may have pushed back above 2005 levels, but housebuilding activity remains very subdued. 2017 marked a seven-year high for both starts and completions with 6,500 units finished. Though this is still less than half ‘the feast’ that occurred in the seven years to 2007. Indeed, last year’s total is only 1,000 more than 2015’s 38-year low. Outside of the last seven years, the last time Northern Ireland was building fewer houses was at the start of the 1980s – and comparing anything to the 1980s is rarely a good thing. Since then, the population has grown by over one-fifth (+344k). Arguably the foundations for a growing economy are not being laid.
So, it is clear that the multi-year highs conceal a range of challenges in the housing market; for instance transactions and house building being at historically very low levels. There is also a significant issue in relation to access to the housing market for young people – albeit that there were signs of some modest improvement last year.
Rates of home ownership amongst individuals aged 25-34 years and 35-44 years were relatively stable over the period 1996-2006. However, in the decade that followed, rates of home ownership amongst 25-34-year-olds plunged from 63 percent to 35 percent. Meanwhile the older cohort of 35-44-year-olds posted a decline from 77 percent to 57 percent. The corresponding rates of home ownership for older individuals all exceed 70 percent, with almost three-quarters of 55-64-year-olds owning their own home. This issue has become a political hot topic which both the Conservatives and Labour are likely to throw more money and initiatives at in the years ahead.
The other big dinner party topic discussion is Brexit, and it will have a bearing on the housing market. It has already, through the exchange rate, led to significant increases in the cost of building materials, therefore pushing up the prices of new homes. Brexit will also impact on the private rented sector, if, as expected, many EU nationals leave the UK. Since 2004, the Northern Ireland economy has become more reliant on EU nationals, and so has the private rented sector. What happens on this front will be closely watched by landlords.
The reality is that the housing market is much more complex and important than a superficial dinner party discussion. It is fundamental to a good functioning society and economy. Some of the legacy issues, such as negative equity, are working their way out of the system, but others such as homeownership amongst the young very much remain. Dealing with this effectively in the years ahead should be a key policy priority. Plenty of food for thought.