As Ireland’s housing market continues to recover since the crash in 2008, is there a mini property bubble beginning to develop in Dublin?

According to the Central Statistics Office the national residential property price index has increased by 7.8% during the year to March 2014.  This compares with an increase of 8.1% in February and a decrease of 3.0% recorded in the twelve months to March 2013.

The market in the capital is also notably stronger. There was an enormous 14.3% rise in the market price reported by the Residential Property Price Index in Dublin during the year to March 2014. Specifically Dublin apartment prices were 16.6% higher when comparing March 2013 and 2014. With a few consecutive months of growth in the Dublin residential market it raises concerns over a prospective property bubble in the capital.

Creation of property bubbles is generally caused by an excess of demand, an excess of credit and a confidence in prices. At present this is not the case in Dublin as the price rise is being fueled by two correlated causes.

Firstly investors and buyers want to start at the bottom of the market to minimize cost, maximize potential growth and for investors to gain rental yield. Secondly there is only a small pool of properties that fill the previous criteria so there is great competition and many bidding battles. Contrasting with a major property bubble, like during the boom, there isn’t a large number of property transactions and mortgage draw downs. In actual fact transactions and draw-downs are at their lowest in 40 years in Dublin. At the moment prices are rising as demand surpasses supply. This is caused by a slow in the amount of properties coming into the market and very few new developments.

So to answer our question “is there a mini property bubble beginning to develop in Dublin?” not in the classical sense of a bubble. Prices have to exceed what could be expected given the broader economy. As the current property prices are hovering around 50% less than their boom counter parts, at best, we’re only at the start of a prospective bubble

July 2014

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