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House prices could fall by 12% due to Covid-19, according to ESRI study

The ESRI warns that the challenges facing the construction industry may impact supply.

Image: Shutterstock/Albert Pego

HOUSE PRICES IN Ireland could fall by as much as 12% due to the Covid-19 crisis, according to a new study. 

According to an analysis by the Economic and Social Research Institute (ESRI) published today, house prices will fall over the coming 18 months – although the extent of the collapse in the market is not yet fully clear. 

The research suggests that if the economy faces a “sluggish” recovering in the months ahead, house prices could fall by 12% by the end of 2021. 

If Ireland enjoys a v-shaped recovery from the crisis – a rapid decline and a bounce back – house prices could return to the level they are now by the end of next year. 

The think tank states that before the pandemic “house price inflation in the Irish housing market had slowed considerably”. 

It suggests that the drop in prices is “due to the decline in household disposable income and the sharp fall-off in mortgage market activity which will inevitably result from the administrative closedown implemented by the Irish authorities”. 

The ESRI writes:

It is clear that this decline would have been significantly worse if the Irish Government had not introduced the significant welfare payments to address the substantial increase in unemployment. The recovery of housing demand in the Irish economy will depend on how long these payments remain in place and at what stage the authorities decide to remove them.

 

The report also suggests that supply may be crucial in determining how steep the drop is – noting the impact of the pandemic on both the construction industry and on private investment. 

“The workplace restrictions imposed by the administrative closures have stopped all building activities in the state. Even as these restrictions are lifted it is likely that social 14 distancing requirements will remain in place which will curtail supply in subsequent months,” it states. 

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It warns that given the fact that Ireland already faces a major shortage of houses, the impacting on construction may “put additional upward pressure on house prices when the domestic economy recovers exacerbating the affordability issues”. 

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