Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

Are we seeing the first effects of Brexit in the housing market?

Today sees the launch of the latest House Price Report. The report, which covers the period from June to September this year, found that inflation in that three-month period was modest, after a pretty hectic first six months.

During those six months, house prices jumped by almost 10%, as the market reacted to the relaxation of the Central Bank’s mortgage rules for first-time buyers. In the most recent three-month period, however, prices rose by just 0.3%. This is the smallest three-month increase outside of the final three months of the year – when prices recently have tended to ease back – since prices bottomed out in 2013.

Prices are now roughly 9% on average than this time a year ago and, taking a step further back, prices are almost 47% higher than when they reached their lowest point. These are the headlines of the report – but the devil of course is in the detail.

Drilling down into the figures, a few things jump out. Unsurprisingly, Dublin has seen far bigger increases than more rural markets: whereas prices are 61% higher in the capital than when they bottomed out, in Munster, Connacht and Ulster – outside the main cities – prices have risen by 37%.

Perhaps the most noteworthy contrast, though, is between Dublin 1 and Donegal. These are, of course, the epicentres of all that’s good and bad about Brexit for Ireland. Dublin 1 is home to the IFSC. If any one housing market stands to benefit from Brexit, it is the one next to where many of the Brexit refugee firms will end up.

On the other hand, Donegal will lose more than any other part of the Republic if a hard Brexit does indeed happen. Letterkenny is three hours from Dublin and almost six hours from Cork – but just two hours from Belfast and 30 minutes from Derry.

The county, therefore, is at risk of losing access to the two urban hubs closest to it. Prices in Donegal have risen by just 1.9% in the last 12 months and are just one quarter higher than their lowest point. This is in stark contrast to Dublin 1, where prices have risen by almost 90% since they bottomed out in late 2011.

The opportunities and threats of Brexit are confirmed by looking through the prices trends for each of nearly 400 “micro-markets” that make up the foundation of the Reports. Two of the three markets closest to the 2007 peak are the IFSC part of Dublin 1 and the Grand Canal Docks part of Dublin 4.

Both micro-markets are less than 20% from their peak a decade ago. This suggests that – with the current lack of supply set to persist for at least the next three years – they will be among the first to reach those peaks again. The other market closest to the Celtic Tiger peak is Sandycove, the country’s most expensive micro-market and likely target for upper management in the Brexodus.

While Dublin – and the other main cities – have markets where prices look less than two years off their Celtic Tiger peaks, there are many others around the country that are years, if not decades, from the peak. Once again, Donegal looms large.

At the opposite end of the recovery is Bundoran. The coastal town in Donegal is heavily dependent on Northern Irish tourists, among others. Prices in the town are still two thirds below their peak – further away than any other market in the country.

Killybegs, another Donegal town, is the market that has seen the smallest increase in prices since bottoming out. Prices have risen by just 9% in the fishing port, well below the national average increase of 47%.

Often, people speak of a two-tier market but the reality is closer to a 400-tier market. Each area has its own amenities and attractions, drawbacks and idiosyncrasies. But the huge variety doesn’t hide some obvious trends.

Ireland’s cities did not build too many homes in the final stages of the Celtic Tiger bubble – this was the preserve of the country’s smaller towns and rural areas, which were dotted with ghost estates and empty one-offs respectively.

Overlaid on top of this mismatch in oversupply was an urge to urbanize. Urbanization is a much misunderstood phenomenon, particularly in Ireland, it seems. In this country, it appears to have been conflated with sprawl. True urbanization is the opposite: more people living on the same amount of land, an environmentally friendly process that also allows a cheaper standard of living and more variety.

It is this combination of strong demand in the cities and excess supply elsewhere that has driven much of the difference in housing market trends over the last few years. And then on top of that, along came Brexit.

For the moment, we must assume that Brexit happens, in the sense of the UK (including Northern Ireland) leaving the single market and customs union. That process will create significant economic changes for Ireland.

There is little doubt that, in net terms, Ireland losing easy access to its main trading and migration partner will be a negative on balance. However, there was always the possibility that some sectors and some locations would gain, while others lost out.

If the evidence of the housing market over the last few quarters is anything to go by, Donegal has recognised it will be badly affected by Brexit. For Dublin’s docks, however, Brexit appears to herald even more demand. Whether these expectations of the market are borne out remains to be seen.


An edited version of this post was originally published in my column in the Sunday Independent.

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