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.