Housing Prices, Yields and Credit Conditions in Dublin since 1945

Abstract

Housing is central to the broader economy, as highlighted by the Great Recession of 2007–2009, yet few reliable long-run series exist for sale and rental prices of housing. Using hedonic methods, frequency conversion techniques, and a detailed dataset of over one million sale and rental listings from newspapers and online, we construct new indices of sale and rental prices from 1945 for Dublin, Ireland as a whole and for six sub-markets within the city. Sale prices rose by an average of 8.4% per year between 1945 and 2018, compared to an increase in general consumer prices of 5%. Market rents are estimated to have increase by 6.3% per year, well above prior estimates (4.4%), a finding with implications for accurately measuring living costs and living standards in Ireland since World War II. There is some evidence of rents converging across markets within the city but sale prices have diverged over the same period. Adjusting for inflation, there have been four major housing market cycles since 1945, with peaks in the late 1940s, the early 1970s, the early 1980s and the mid-2000s. The presence of both sale and rental information allows the calculation of the ratio of sale to rental prices for housing, the housing price ratio, a fundamental barometer of housing market health. We identify three phases in the gross yield on Irish housing since 1945, with downward shifts in the yield in the early 1970s and mid-1990s. An error-correction econometric analysis confirms the predictions of economic theory, that credit conditions in the credit market and user cost drive changes in the yield over time.