Today’s batch of housing market figures for the third quarter could be summed up as “two up two down”. Two indicators (residential property prices and house completions) posted year-on-year growth. Meanwhile housing starts and the number of residential property transactions are on the wane.
Generation rent. House prices are always one of the most closely watched economic indicators by the general public or at least homeowners and potential first-time buyers. Although the rise of the private rented sector over the last decade means for an increasing share of society, rental prices are more relevant than house prices. Homeownership is not on the radar for as many under 40s as it once was.
It’s activity stupid! From an economist’s perspective, however, activity is a more meaningful indicator of economic health than prices. Residential property transactions have risen for the last eight years to 2018. But this continuous growth appears to have come to an end with the provisional figures for Q1 –Q3 2019. A dip in transactions looks likely in 2020 particularly given the slowdown in the rate of house building.
Starting to fall. 2018 marked a nine-year high for the number of completed dwellings (7,644). 2019 looks set for a similar total but 2020 looks set to be lower. Completions lag housing starts by around nine months. The latter has posted year-on-year declines in each of the last three quarters. During the first nine-months of the year there were just 5,552 housing starts, that is almost one-fifth below the corresponding period last year and the fewest number of units in four years. Planning and lack of essential infrastructure (notably sewerage) are increasingly a factor behind this slowdown in the rate of building.
Under-building under construction. Following a decade of under-building, Northern Ireland was finally getting close to building the required number of housing units per year (estimated 8,500 – 9,000 p.a.). However, with housing starts on the wane again the period of under-building looks set to continue. The significance of this is most likely to impact on prices. Prices are a function of supply and demand. With the supply of housebuilding set become more restricted, this will provide support for residential property prices.
Regional hotspot. In Q3 2019 residential property prices increased by 2.3% q/q which marked the fastest quarterly rate of growth since Q2 2016. Property prices were 4% higher relative to Q3 2018 and are approaching a 10-year high. Local residential property price inflation was above the UK average (+1.2%) and all other regions. But they remain 38% below the ‘freak peak’ of Q3 2007. Northern Ireland’s residential property inflation is expected to moderate going forward. Clearly the deterioration in business conditions in recent quarters will feed through into the labour market and the housing market in due course. Brexit uncertainty provides another economic headwind for the year ahead which could adversely affect housing demand. However, house prices are a function of both supply and demand. As highlighted above, housing supply remains restricted and is failing to keep up with existing demand. This should provide upward support on property prices. Furthermore, it is worth remembering that Northern Ireland remains one of the most affordable housing markets within the UK.