The CIF are at it again. Apparently we need to start building houses again, as reported in the Sunday Indo. As usual, they use a selective choice of data to make their case, principally focusing on the supply side of things and ignoring the already existing oversupply and weak demand. Here is the glaring hole in their analysis.
The Census 2011 reports that there are 230,056 vacant units in the country (excluding holiday homes), of which 110K constitute oversupply on a base 6% vacancy rate. 36,000 of those are either brand new vacant or underconstruction units in unfinished estates. There are dozens of these estates in the Greater Dublin region and a lot of stock for sale/rent. Only South Dublin has a vacancy rate below 6 percent. According to the CSO, population growth in 2010 was 11,400, in 2011 it was 13,600. This was population not households. There was net out-migration of 34K in 2010 and 2011, principally of people aged 20-40 (household formation age), the big growth in population between 2006-2011 was children under the age of 5 (they aren’t buying anything soon). Where is the figure of 25K demand coming from?
There is a reason why only 8,000 units will be built this year – we don’t need any more. Between 1991 and 2011 there was 933K housing units built in Ireland, households went up by 625K, in other words we built 1.5 units for every one household. We need to work off this oversupply before we start building again. If supply and demand were in-line we would not have had a drop of 50% (so far) in house prices. We do need construction – green energy, ICT infrastructure, public utilities, public transport – stuff that will serves domestic and FDI companies and the general public, but not housing (we also don’t need offices or retail space – over 20% of office space in Dublin is vacant). Even if the units are built where is the mortgage credit coming from for buyers?
The CIF is a lobby group for house builders. No great surprise they want to build – they need the money to pay back NAMA/foreign banks on the other houses they built in-excess of demand. If they got their way and built more units then all they’d succeed in doing is continue to flatline the market by adding supply to oversupply. Of course nothing is stopping them from building other than finance and if they really believed their own mantra then there are thousands of sites with planning permission already granted and they can get on with it. The reality is that 1,822 unfinished estates have outstanding building work around the country where the developer is inactive due to lack of finance. Why would developers get finance for new developments when they can’t even finish off existing jobs (and who in their right mind is going to lend for construction given the data above)? Their plea suggests they want the government to do something – like commission house building or provide tax incentives. Hopefully their call will fall on deaf ears. We’re already paying the price for a spectacular property crash. We don’t need that situation made any worse.