Irish Property Bubble - The Bubble Years

The Bubble Years

An International Monetary Fund (IMF) report in 2000 contended that Irish property prices were almost certainly heading for a collapse in the medium term, since "no industrial country in the last 20 years had experienced price increases on the scale of Ireland without suffering a subsequent fall".

House prices went on to more than double between 2000 and 2006. Nevertheless, demand for residential property fell in early 2007, resulting in price decreases for March 2007 of 0.6%, and for April 2007 of 0.8%. This led to an expectation of a drop in house prices on a quarterly basis for the first time since 1994. Houses in the commuter belt in Greater Dublin fell earlier, due to a combination of increased supply in the Dublin urban area, increasing interest rates and continuing infrastructural issues in rural communities. Prices in large urban areas were static, though demand dropped noticeably. Construction employment dropped according to Live Register statistics for May 2007.

Since 2000, approximately 75,000 housing units were built every year as detailed by the Department of the Environment, Community and Local Government. However, a significant proportion of these new homes are unoccupied. Economic commentators give a figure of approximately 230,000 vacant properties. Of these up to 115,000 or so may be holiday homes.

Figures exist for completions because the Electricity Supply Board provides information on the number of properties newly connected to the electricity network and from data supplied by local authorities and from the Dept of the Environment and the Central Statistics Office.

As of 2005, there was enough zoned land to accommodate 460,000 new homes, though as housing density figures continue to rise each year existing land has the potential to provide an even greater number of housing units.

There had also been reported cases of mortgage fraud where borrowers overestimate their income to enable them to borrow more. There is a worry that these people "could fall into serious debt if Ireland had a property crisis like that in Britain in the late 1980s." This experience has resulted in the "sub-prime residential mortgage fallout" in the United States.

Newspaper articles provided anecdotal evidence of declining valuations with respect to the guide prices, and the agreed prices for Irish residential property, since October 2006. The decline in property prices was tracked by the ESRI House Price Index, which reported prices starting to fall in Q2 2007.

In December 2006, the Irish state-owned broadcasting organization, RTÉ, broadcast an investigation in a Prime Time documentary which unearthed evidence of financial details of prospective customers were being sold by mortgage brokers to auctioneers. Such information would enable auctioneers to maximize the price attained from prospective buyers. This issue, and further allegations in this area, are currently being investigated by the Office for Data Protection.

In July 2007, estate agents in Dublin were reported to be offering incentives such as six months' worth of mortgage payments to prospective buyers, in an attempt to avoid lowering the recorded sale price.

Around this same time the Economic and Social Research Institute(ESRI) issued its Summer 2007 Quarterly Economic Commentary predicting that Irish public finances would fall into deficit in 2007, and house prices would fall by 3%. A research paper by UCD Professor Morgan Kelly, published by the ESRI alongside the Quarterly Economic Commentary, suggested that a correction in the property market could be severe, with prices falling by 5 per cent each year for the next decade; up to 60 per cent could be wiped off the real value of houses over the following eight years to 2015 if the Republic's housing market followed the same pattern as those in other countries.

These reports were met by hostility by the political establishment; on 4 July 2007 Taoiseach Bertie Ahern stated at a conference in Donegal that he did not understand why people sitting on the sidelines, "cribbing and moaning" about the economy, did not commit suicide.

Many bank economists, media commentators, estate agents, property developers and business leaders went on the record to state their belief that the Irish property market was healthy, and that any decrease in house prices was indicative was a soft landing only.

As of November 2011, prices continue to fall. House prices in Dublin is now down 51% from peak and apartment prices down over 60%. House prices have so far returned to year 2000 levels.