The latest Daft.ie House Price Report shows that the surge in inflation is not over.
Two years ago, housing prices were rising but at a very modest rate - by 2.9% year-on-year in the 2023Q1 report.
Even as late as mid-2024, inflation was 5% - hardly a healthy rate of increase by below the average over the preceding decade (6.4%).
However, the signs were emerging even in late 2023 that upward pressure on prices would increase and so it has turned out.
In this latest report, we see that the average price for 2025Q1 was 11.6% higher than a year previously.
Only once in the entire decade since the Central Bank introduced its mortgage rules has inflation been higher - at the peak of the 2017/2018 spike in prices and then only just (11.7%).
Prices Have Increased By 12 Percent In One Year
Now, as indeed then, the driver is urban Ireland rather than rural Ireland. Inflation in Dublin is running at 12.2%, its highest rate since early 2017.
In the rest of Leinster, it has surged relatively quickly from below 4% in mid-2024 to above 13% now. And Galway and Limerick cities are also seeing rates of increase above the national average.
In contrast, inflation in Munster (outside its three cities) has cooled just a little bit, from 10% a year ago to just under 9% now.
And while inflation in Connacht-Ulster has increased in the same period, it is also below the national average, at just over 10%.
This marks something of a turn-around given what has happened over the last decade. Those Central Bank mortgage rules introduced a decade ago capped mortgage debt relative to gross incomes.
Mortgage debt is, of course, directly related to housing prices. But housing prices vary far more across the country than incomes do. Thus, the Central Bank's rules effectively encouraged the reshuffling of demand for homes away from employment centres and down the motorway network.
This regulatory change was important, but covid19 marked a dramatic acceleration in those trends. In the last decade, the like-for-like price of a home in Dublin has increased by about 50%. But elsewhere in the country it has increased by closer to 100%.
Inflation was faster in the early 2020s than in the late 2010s but the same trend is there in both periods: Dublin and its surrounding area saw less growth in housing prices than elsewhere: prices in Kildare are up 84% in a decade (well above the Dublin percentage, true) but prices in Westmeath are up 121% in the same period, to give one example.
What has caused this latest reversal in the rural/urban inflation gap? Why is Dublin driving price increases? The answer, once again, is supply.
Over the course of 2016, as the economy returned to strong growth, the availability of homes in the second-hand market shrank. In the middle of 2015, there had been over 4,700 second-hand homes on the market in the capital. By the start of 2017, that had effectively halved to less than 2,400.
This time around, the picture is very similar. In late 2022, there were almost 4,900 second-hand homes on the market. But by the start of 2025, that had fallen to just over 2,500.
The Total Number Of Second Hand Homes Available To Buy In Ireland Is 9300
Last time around, the market found relief in its traditional way: the increase in prices led to a significant increase in the volume of construction, in and around the Dublin area. This eased market pressures considerably.
By late 2018, availability of second-hand homes in Dublin was over 5,300 and, while almost forgotten now in the aftermath of covid19, prices in 2019 actually fell modestly (by 1.3%), as there was sufficient supply to meet demand.
This time, however, the prospects for additional supply seem much less rosy. The lack of second-hand supply is down to the dramatic rise in interest rates in recent years, which caused existing homeowners to fix for the medium term. That will pass, but slowly.
The ultimate solution remains unchanged from that which was needed a decade ago: a lot more homes need to be built, so that the country's housing is adequate for its households.
But the entire housing system seems reliant on government funding and subsidies, an unfortunate circumstance at the best of times but of greater concern given wider economic uncertainties. Meanwhile, changes in the wider regulatory set-up seems to have delivered confusion, rather than clarity, about how the country will build the homes it needs.
