As per our post earlier in the week, the CIF have recently been forwarding the argument that we need to start building again, principally arguing that supply is dropping dangerously low given the massive drop off in commencements and completions of new housing units, and that there is a demographic need to cater for, totally ignoring the issue of oversupply.  In this post I want to focus on potential demographic demand.

If one takes a quick look at the Census 2011 results it suggests that the population is still growing quite rapidly.  Between 2006-2011 the population increased by 348,404 people (8.2%).  If we look at the data in a bit more detail, however, it is clear that during this five year period a fairly fundamental shift occurred.  Basically, the strong growth all happened in 2006 and 2007.  After that, growth slowed markedly.  Whilst population is still growing, it is now at a very low rate.  According to the CSO, population growth in 2010 was 11,400, in 2011 it was 13,600. Nearly all of this growth is through natural increase: a falling death rate and growing birth rate.  People who are very old are more likely to go into sheltered accommodation or nursing homes (freeing up stock) and children under the age of five will not be buying anything any time soon.  In other words, what population growth there is is unlikely to translate into the take-up of housing.

And what of the household formation age and the next few years?  There are two factors at play here.  The first is emigration.  There was net out-migration of 34.5K in 2010 and 34K in 2011, principally of people aged 20-40.  The second is the size of the cohort aged 15-25.  As the figure below shows, taken from the Census 2011 report, this cohort is substantially less in size than the cohort aged 25-40, the group that bought at the height of the boom (2002-2007), when house building was at an all-time high.  The reason for this is low birth rate in the late 1980s and early 1990s.  The birth rate in 1980 was 74,064.  In 1994, the lowest rate and presently aged 17-18, it was 48,255.  In 2010 it was 76,762.  In other words, we now have a relatively small cohort working its way up the population pyramid and this age cohort is now entering household formation age.  Demand for housing is thus going to be much reduced than in the past decade.  It will start to grow again in about 10 years time as the younger, larger cohort works its way up, but we don’t need to start building for them until they reach household formation age.

Age profile for Ireland, 2011 census

 

Beyond the demographics, it is clear that any future housing market is going to be very fragmented, with multiple markets operating that will have contrasting fortunes.  This will be segmented by type of buyer, type of properties, and location.  In highly desirable areas of South Dublin, the market will level off first and start to grow, but probably only for family houses not apartments.  In other parts of Dublin, demand will remain low (and indeed population fell in many part of Dublin over the past five years and in previous censuses).  In the desirable areas, there might well be slight undersupply in the coming year or so, but these places have limited development potential due to a lack of sites, and their surrounding areas do have some oversupply.  Hardly an argument to start building in Dublin again, until oversupply across the city is worked down.  What is clear from the data above is also that the principle driver for take-up is going to be internal migration from elsewhere in Dublin and the country, not population increase.  As for the situation in the rest of the country, just because there is tentative signs that highly desirable parts of Dublin might be starting to reach the bottom does not mean that the end is in sight elsewhere, especially in places where there is high oversupply.

Whilst, the CIF might want to start building again, we need to do some proper demographic modelling of where demand is likely and to also consider the consequences of building in some locations as opposed to encouraging people to live elsewhere in the city where there is oversupply and little demand.  We also need to keep in mind to consider the city as a whole and not just focus on select, desirable locations when we’re assessing the overall state of the housing market.  We definitely shouldn’t be extrapolating from those few locations to make assumptions or pronouncements about the whole city or country housing market as it creates an entirely false picture of what is happening.

Rob Kitchin

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