Data


The ESRI published a report this morning concerning housing supply projections up to 2021. Along with the Housing Agency housing supply report published in April 2014 and the CSO regional population projections published in December 2013, it suggests the need to create substantial new supply in the Dublin region and the other principal cities — no surprise to anyone who has been trying to buy in the region or is on the social housing waiting list.

To summarise: housing need projections

The ESRI report details projected housing supply need until 2021. It argues that there will be an increase in household demand of 180,000 units, but because of oversupply in many parts of the country only 90,000 new units will need to be built, some 12,500 per year. 56,000 (60%) of these need to be in Dublin, 8000 per year. 26% more will need to be in the Dublin commuter counties of Meath, Kildare, Louth and Wicklow. Overall, 86% of all new build will need to be in the Greater Dublin region. However, in many counties, the report suggests that new supply will not be needed because of existing oversupply. Indeed, Donegal, Kerry, Mayo, Tipperary, and all the Upper Shannon counties of Leitrim, Sligo, Cavan, Roscommon and Longford are projected to still have oversupply in 2021.

The Housing Agency report analyzed housing need for 272 towns and cities across the country for the period 2014-18. It argued that there was a need for 80,000 new units, or 16,000 per annum. 37,500 units (47%) would need to be built in Dublin, or 7,500 units per annum.

Both reports use a fairly standard housing projection model using housing stock, population projections, household size, vacancy and obsolescence.

The CSO regional population projections gave a mid-term estimate of population numbers in 2031 using two scenarios. The projections predicted that Dublin population would grow by between 96,000 and 286,000, and the Mid-East region by 77,000 to 144,000. In the upper scenario the Greater Dublin region would therefore see its population grow by over 400,000. In contrast, in the lower scenario, the Border region population would increase by just 18,000 and the West by 17,000. Although these figures relate to population, they will clearly need to be housed and these figures suggest the need for substantially more housing stock over the next 17 years.

There is pretty good harmonisation between the ESRI and Housing Agency reports, both suggesting that c.8000 houses need to be built in Dublin per annum to meet demand.  The overall national required rate of between 12,500-16,000 per annum is actually quite modest.  Typically over the past forty five years new build has been 20-30,000 per annum, rising to 40,000+ post 1998.  12,500 is in fact lower that the lowest build rate going back to when DECLG records start in 1970.  In other words, this is by no means an excessive ambition.

So why do we need supply in Dublin given the crash, oversupply, emigration, etc?

In short, the oversupply of the boom for houses in Dublin as a whole was relatively small, and there wasn’t one in South Dublin. There was, however, a reasonably large overhang of apartments. However, since 2008 the three main drivers of housing demand have been growing: natural increase, in-migration to the city, and household fragmentation. These have soaked up the oversupply. On the other side of the equation housing supply has been minimal. In 2013 only 1360 units were built in the four Dublin local authorities (only 8301 nationwide, over half of which were one-offs and generally not for sale on the open market). In short, over the past seven years we’ve moved from having excess supply to excess demand in Dublin and some other urban locations.

So if there is demand why isn’t there supply?

Good question. Housing supply is shaped by a number of factors: demand, available zoned land, planning permission, building costs (materials, labour), regulatory conditions/costs (taxes, levies, fees, etc), finance (for developers and consumers), and ability to make a profit.

In theory a lot of the right criteria for creating supply exist. There is an excess of demand. There are 6400 acres of zoned serviced land available in the four Dublin authorities for 132,000 units. There are a lot of outstanding planning permissions still in effect and LAs want to give permission for developments that meet development plan/zoning criteria. Material and labour costs of significantly lower than the boom time.

And yet, supply does not seem to be coming on stream and there seem to be blockages across the board. With respect to land, it may be the case that owners are not bringing it to development because they bought it in the boom and can’t afford to develop at present house prices. With respect to planning, it may be that developers are seeking permissions that contravene development plans or are trying to alter existing permissions. The property industry also say that the system needs streamlining and simplifying. They also make the case that there are too many taxes and disincentives attached to building such as development levies, VAT, stamp duty, building reg costs, etc that amount to a sizable proportion of any sale price. Finance is a critical issue. Developers need a sizable amount of upfront cash to secure development loans, yet many are bust from the boom or do not have such reserves.

So what are we to do?

The government needs to quickly evaluate each of the potential blockages and work out solutions that are fair and do not undermine good planning and build quality or excessively boost profit at the state’s expense. By quickly I mean weeks, not months and certainly not years. The longer that supply is constrained the more demand there will be on existing stock and house prices will continue to rise. The Construction 2020 strategy is full of task forces, review groups, consultation exercises and very short on actual policy and implementation. We need supply coming on stream as quickly as possible in the Dublin region and some other urban locales (though certainly not in many parts of the country). Construction 2020 thus needs to be fast tracked. After all, 2020 is meant to be an end date, not the date ground is broken.

Rob Kitchin

There is no official data regarding negative equity in Ireland in general, nor its geographical distribution.  By mid-2012, once house prices had fallen to 50% of their 2007 values Davy Stockbrokers estimated that more than 50% of residential mortgages were in negative equity.  Consequently, any house bought from 2000 onwards is likely to be in negative equity.

Negative equity is a significant issue because it creates a spatial trap that restricts mobility. Because the value of the property is less than was paid for it, owners cannot sell and move to another property without realising a loss.  This trap has three consequences.  First, it restricts labour market mobility.  Second, it keeps families in homes that may no longer be suitable to their needs.  Third, it restricts the pool of properties available to the market and limits any recovery to first time buyers, those prepared to realise a loss, those whose property is not in negative equity or have investment capital.  All three have social and economic consequences causing hardship and stress and slowing the recovery of the wider economy.

Negative equity is not evenly distributed because it is determined by the price paid relative to present prices and this is largely shaped by when the house was bought.  So where might this spatial trap be operating most perniciously in Ireland?

This is not an easy question to answer given publicly available data sources.  We have been looking at proxy measures and present one here, though it should be noted that it only captures one kind of property in negative equity – houses that were built post-2001.  It does not include secondhand houses in negative equity, nor buy-to-let properties in negative equity (though the latter can be estimated using a same method).

Our solution is to use two Census 2011 variables at the Small Area level. The first variable is the ‘% of housing units built post 2001’.  The second variable is the ‘% of outstanding mortgages in an area’ (i.e., the property has been purchased not rented privately or from a local authority or voluntary body).  These variables are not perfect, but when combined do give us, we think, a reasonably good proxy.

The figure below is a density smoothed scatterplot of the two variables for all 18,488 Small Areas in the country.  Each Small Area has approximately 80-130 households.  We have divided up the scatterplot into four quadrants, one of which is subdivided based on the clear pattern of points, to create six categories that denote different levels of negative equity (category 1 has very low rates of both post-2001 build and outstanding mortgages), which we have then mapped from the country and for Dublin.

negative equity

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Map_NegativeEq_Dublin

It is important to note that all the Small Areas potentially have some households in negative equity, but that some areas have greater concentrations than others.  In broad terms, categories 5 and 4 are likely to have similar levels of private residential negative equity, but we have left them separate to denote their different characteristics.

When these categories are mapped the pattern that emerges is perhaps what one would expect.  The areas with the highest concentrations of negative equity are in the outer suburbs of the cities and the fringes of commuter towns.  These areas experienced high rates of newly built properties and new household formation all through the boom, but especially in the latter years when the inner suburbs became too expensive for first time buyers and those trading up to a family home.

This pattern is very clear around Dublin, Cork and Limerick, but is slightly different around Galway, where a number of rural Small Areas are highlighted where there was a lot of one-off housing and small nucleated settlement.  This pattern is repeated for many smaller rural towns.

Owner occupiers in these areas are more likely to be spatially trapped, though as noted any individual household in any part of the country could be suffering such a fate.  It is also likely that the same areas will have higher concentrations of mortgage arrears, given that negative equity and mortgage arrears are related.

Whilst further research is needed to refine this analysis it does give a proxy measure of one kind of negative equity in the absence of detailed data from mortgage providers.  We would be interested in any feedback about the approach taken.

Rob Kitchin

Following on from my earlier post on developing scenarios for Ireland’s future, last week saw the publication by the CSO of new regional population projections for Ireland. The latest CSO projections present how the population of the regions may evolve under different scenarios by making assumptions about future trends in migration (both internal and external) and fertility.

In the context of regional development in Ireland, this latest release from the CSO is crucial as all current regional planning policy together with the settlement strategies of all local authorities are currently based on population targets (including those of ‘Gateways’ and ‘Hubs’) originally derived from the previous set of population projections issued by the CSO in 2008.

The CSO projects that, if internal migration patterns return to the traditional pattern last observed in the mid-1990s, the Greater Dublin Area (GDA) will continue to see its population significantly increase by just over 400,000 by 2031 which will account for two-thirds of the total projected population growth in the State over this period. As observed in the post below, this pattern appears  not only to be re-emerging but rapidly intensifying as the Government increasingly focuses its attention on a FDI led job creation strategy which favours agglomeration economies i.e. Dublin and to a lesser extent Cork and Galway.

Chart

In a marked change from the 2008 release, which projected that the population of Dublin would decline by just over 100,000 and that of the Mid-East increase substantially by over 350,000, the population of Dublin is now projected to increase by between 96,000 and 286,000 depending on the scenario applied, while the population of the Mid-East is set to increase more modesty by between 78,000 and 144,000. These trends would have profound implications for spatial planning, housing policy and infrastructure delivery in the capital.

While all regions are projected to experience net population growth, apart from Dublin and the Mid-East all regions will lose population to internal migration and population growth will be primarily driven by natural increase (i.e. birth rate). This will be most noticeable in the Border region with, under one scenario,  projected births of 123,000 and a population increase of just 18,000, and the West which shows projected births of 97,000 and a population increase of  just 15,000. In fact, under some scenarios the Border, West, Mid-West regions are projected to experience population decline regardless of the internal migration pattern applied.

Overall, the CSO projections paint a familiar picture with Dublin and the Mid-East gaining a higher share of the national population (particularly of younger and more highly educated persons) with everywhere else generally losing share. These demographic trends present a key national and regional development challenge and far-reaching questions for planning practice*. Depopulation and changing population structure implies severe impacts on every domain of urban and regional development, including local authority budgets, infrastructure and amenities, housing market and housing mobility, labour market and employment, residential composition, and social inclusion and cohesion – the entire basis of regional planning policy.

More generally, current and projected population trends highlight the urgent need for a new National Spatial Strategy and to transition beyond the current ‘performance of seriousness’ in relation to balanced regional development.

Gavin Daly

 *See Daly, Gavin and Kitchin, Rob (2013) Shrink smarter? Planning for spatial selectivity in population growth in Ireland. Administration, 60 (3). pp. 159-186. ISSN 0001-8325

The activities of the two main enterprise promotion agencies, IDA Ireland and Enterprise Ireland, play a key role in regional development processes in Ireland. In order to drive regional economic development, the IDA Horizon 2020 strategy aims for 50% of FDI projects between 2010 and 2014 to be located outside of Dublin and Cork.

 The IDA End of the Year Statement 2011 suggests that this target has proven very difficult to achieve. In 2011, 72% of investments occurred in the Greater Dublin Area and Cork alone (up from 63% in 2010). The Forfas Annual Employment Survey reports provide a bit more detail. In 2011 employment in foreign companies in Dublin increased by 4,018. Dublin’s 6.1% growth rate was the second highest after the Midlands region (9%) and substantially higher than the third-placed South West Region (4.7%).

One problem with the Forfas publication is that it only provides the net employment gains/losses. An assessment of regional employment dynamics against the IDA targets requires figures for job creation and job losses. In addition, a dynamic analysis would benefit from a distinction between job creation in existing firm and newly established firms.

One year ago Van Egeraat et al. (2012)* conducted such an analysis as part of their assessment of the performance of the National Spatial Strategy (NSS). Focussing on the position of NSS Gateways, the study identified an increasing level of concentration of foreign firm employment in a select number of Gateways. In the period 2006 to 2011, Cork enjoyed an 8.5% growth in foreign firm employment while employment in foreign firms in Galway was stable (- 0.3%). Dublin, although experiencing a fall in foreign firm employment of 6.2%, was still among the better performing Gateways. As a result, the combined share of national employment in foreign firms attributable to these three Gateways increased from 50.3% in 2006 to 53.2% in 2011. More importantly, in relation to newly established firms, Dublin and Cork together accounted for 69% of all jobs in newly established foreign firms, with the Dublin Gateway alone accounting for 46%.

 As part of a recent study of industrial concentration processes in Ireland we investigated spatial concentration dynamics in 2012. We used the cruder spatial scale of Irish counties. Individual investments can have a strong impact on annual figures, particularly in small counties, but the results for larger counties are robust.  Growth rates of employment in foreign firms in both Dublin (6.1%) and Cork (4.6%) were higher than the national rate (3.9%). Combined, the two counties accounted for 78% of the net gain in employment in foreign firms. In a single year, Dublin’s share of national employment in foreign firms increased by 2.3 percentage points to 40.1%. Cork’s share increased by 0.8 percentage points to 17.3%.

Part of this new employment is created through expansions by existing firms in current operations. These operations are not locationally flexible in their investment decision. Therefore, from a dynamic perspective, focusing on future spatial distributions, the spatial pattern of investment by new operations is of particular significance. Results need to be interpreted cautiously due to the relatively small number of newly established firms in a single year but we identify one clear dynamic: the concentration of foreign firm employment in Dublin. With 24 new foreign operations, creating 1,147 jobs, County Dublin accounted for 71% of all employment in new foreign operations in Ireland in 2012. Financial services and computer consulting services firms show a particular preference for County Dublin.

Dublin's share foreign

We were also in a position to analyse the other side of the story: the spatial pattern of foreign firm employment losses. Foreign firms in Cork accounted for 16% of national employment losses in 2012, roughly proportionate to the county’s share of foreign firm employment in 2011. Foreign firms in Dublin on the other hand accounted for a disproportionately high share of foreign firm employment losses (46% compared to a 38% share in foreign firm employment in 2011). The data paints a picture of a very dynamic Dublin region, characterised by a disproportionately high level of employment loss in the foreign sector but even more disproportionate employment creation in the foreign sector.

Share losses foreign

The distribution of employment created by agency supported indigenous firms is more in proportion to the existing stock of employment. In 2012, Dublin and Cork experienced slight increases in their share of employment in agency-supported indigenous firms (0.5% and 0.3%, respectively). However, both counties accounted for a disproportionately small share of employment created by new agency-supported indigenous firms established in 2012. Dublin accounted for a mere 14% of jobs created by new indigenous firms, compared to a 40% share of indigenous firm employment in 2011. Cork accounted for 10% of indigenous jobs created in 2012, compared to a 12% share of the stock of indigenous jobs in 2011.

Share indigenous

Taken as a whole, the data paints a picture of an increasingly concentrated foreign sector. Foreign companies, notably in internationally-traded services, show a clear, and increasing, preference for the national capital.  The indigenous sector appears to provide hope for job creation outside Dublin. This indigenous sector should receive more attention in our strategies for counteracting un-balanced regional development.

Chris van Egeraat, Dept. of Geography and NIRSA, NUIM Chris.vanegeraat@nuim.ie and Rutger Kroes, Wageningen University, The Netherlands and NIRSA

 *Van Egeraat, C., Breathnach, P. and Curran, D. (2012) Gateways, hubs and regional specialisation in the NSS, Administration, 60(3), 91-115.

After Thursday’s post looking at the house price register to gauge the level of market activity in Dublin, I’ve also now had a look at the mortgage draw down data produced by the Irish Banking Federation and PwC.  Their database runs from Q1 2005 to Q2 2013 and claims to include 95% of the Irish residential mortgage transactions; the data is not geographically disaggregated.

Thursday’s post revealed that the number of sales in Dublin had been steady year-on-year across quarters, with the exception of Q4 2012 when there was a spike in sales due to the ending of mortgage interest relief.  In other words, there has been little noticable difference in the volume of housing sales during 2013 compared with 2010.

The IBF PwC data reveals a similar pattern of purchasing, including the Q4 2012 spike.  If we compare Q2 volumes from 2010-2013, the volumes are Q2 2010 – 7,827; 2011 – 3,551; 2012 – 3,225; 2013 – 3,229.  In other words, there was a large drop from Q2 2010 to Q2 2011, and then the same volumes for the next three years.  For reference, draw downs in Q2 2013 were only 5.9% of those in Q2 2006 (53,499).

mortgage downturn - all

This pattern is consistent when we remove buy to let, re-mortgaging and top-up mortgages (though these were more prevalent in 2010) so that we only examine first-time buyer and purchaser mover figures.

mortgage downturn - ftb mp

As with the house price register data, the mortgage draw down data does not suggest that there is a pick up in the housing market to any great degree.  There was a brief surge in Q4 2012 due to MIR ending, but the market has since reverted to the same state of play as 2011 and 2012.

So that’s two pieces of hard evidence – one generated from Revenue data (inc cash sales) and one by the banking industry – that cast doubt on property sector rhetoric that there has been an upswing in the housing sales.  That’s not to say that there has not been an increase in market activity in terms of viewings and multiple bids on some properties, but that this is restricted to a select group of properties and is not translating into an overall increase in sales.

Rob Kitchin

There’s been an awful lot of rhetoric recently that the housing market is picking up in Dublin and that trading is brisk relative to what it was a couple of years ago.  Most of that rhetoric is coming from the property sector backed up with ancedotal evidence.  The question is whether this is reflected in the hard data of the house price register? Here is a graph of the number of housing unit sales per month since January 2010 for Dublin.

house price sales 2010 2013

What the data shows is that housing unit sales are relatively consistent over the past three and a half years, except for a brief surge at the end of 2012, with December 2012 seeming to be anomaly (probably based around the ending of mortgage interest relief).  The first six months of 2013 are very similar in pattern to 2010.  In fact, in the first six months of 2013 only 328 more units have been sold than the first six months of 2010.  The data does not suggest then that there has been a bounce back in market activity to any significant degree.  What it shows instead is a relatively steady turnover of property.  Market activity in terms of increased viewings on properties, but not in sales, may well reflect a relatively restricted pool of some kinds of properties (family homes; which the property sector is saying is the case).

In general terms, the sales figures reveals that the market is still a very pale shadow of the height of the boom.  The Dublin housing market consists of 527,665 units (in 4 Dublin LAs according to Census 2011).  Normal market turnover would be 5-7% units (higher in a boom), meaning that we could realistically expect in a normally functioning market 2200-3100 sales per month.   So far in 2013 the average monthly sales is 593 (1.3% turnover).

The Dublin market may be stabilising at the bottom of the bust in terms of price falls, but it shows little sign of sales recovery, and it is a long, long way off of being a normal functioning market.

Rob Kitchin

S02642751Paper examining the residential preferences of creative and knowledge workers in Dublin (by Philip Lawton, Enda Murphy and Declan Redmond) published in Cities  (Vol 31, April 2013) available on the UCD Research Repository. Click here for PDF

Abstract. The desire for ‘vibrant’, ‘bohemian’ neighbourhoods forms a focal point of the amenity preferences of Richard Florida’s ‘creative class’ thesis. Here, a vibrant street culture, which includes cafes and restaurants spilling on to the pavement, is implied as being of key importance in the selection of a residential area for creative and knowledge workers. Drawing on quantitative and qualitative data, this paper examines the residential preferences of the ‘creative class’ in Dublin, Ireland. The results illustrate the continued importance of classic factors in residential decision-making, including housing cost, accessibility and travel-time to place of employment. Moreover, the results also illustrate how changes in the life-cycle, including the decision to have a family, have a direct influence on their residential location choice. While there is a tendency for younger workers to select the city centre, older workers predominantly opt to live in suburban areas with good transport connections to the city centre or their place of employment.

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