Bookshops, dating agencies and estate agents have one thing in common. They need surplus stock. A bookshop with no unsold books on the shelf, or a dating agency with no un-attached people on its records would be as useless as an estate agency with no houses in its window. You’d be fairly shocked to walk into Hodges Figgis only to find their shelves empty because of a failure to restock. Similarly, can you imagine looking at myhome.ie and seeing that there was nothing for sale? This is the image is created when there are predictions of shortages of new houses. The argument is that as demand for property picks up and the completion of new houses falls, there will be an inevitable moment where the country runs dry of new properties.

According to this approach, the only way to avoid some form of Weimar Republic hyper-inflation of house prices is to anticipate increased demand by beginning the process now of bringing new properties on to the market.

Based on the leading indicators (planning permissions, commencement notices and registrations), it is likely that there will be 5,000 houses built in 2012, and roughly the same number in 2013. Indeed, until the economic crisis is over, housing output will not grow beyond the 5,000 figure. Depending on your perspective, the immediate response to this fact is either “why so few?” or “why so many?” Writers on this blog, and others, are asking the latter question. They are also asking whether Ireland needs 5,000 new houses this year; who is building them and who is going to buy them?

We will build 5,000 houses because that’s how many are needed. In 2011, for the first time since the emergence of the property boom, 62% of all new houses were one-off houses. Around 25% of completions were scheme houses and 13% were apartments. In 2012 and 2013, as developers complete housing schemes, the only people active in the new housing market are self-builders undertaking one-off projects.

There is little evidence from either the property market or demographic analysis to suggest that if 25,000 houses are built each year they will sell. Based on current regional and property-type trends in the market, the only new properties which will find a purchaser in the next few years are the right type of property (three-bedroom townhouses, or spacious two-bedroom apartments) built to the best standards (ignore building regulations. The only new houses which are selling have a BER A rating) in the right area (Greater Dublin, preferably within the Canals) and at the right price.

Speculatively building properties in the hope of matching a notional national demand while ignoring these three criteria will simply exacerbate the large surplus stock of empty houses. Put simply, trends in the market show an unsurprising truth – the houses which are not selling are the wrong type built to inferior standards in the wrong location. The 2010 and 2011 SCSI Property reports, based on market activity clearly show the link between quality, type and location, and sale price. The greatest “churn” of transactions is taking place in quality houses in Greater Dublin. Rob Kitchin’s work on demographics show what estate agents already know, that in many rural or depopulated areas of Ireland, demand for property will never return to Celtic Tiger periods and the process of working through the over-supply of the wrong types of property in the wrong areas will be decades-long.

Until over-supply is worked through, those regions will not see a bottom to the market. And if there is no bottom, there is no need for any more supply.

The banking crisis has effectively closed down the mortgage market, but when the crisis ends, the banks are certain to begin lending again; and hopefully the “churn” of properties will speed up as mobility improves. We should not, however, expect a return to Celtic Tiger levels of lending. Having been burned by the Celtic Tiger, there will not be a mortgage for everyone who seeks one, irrespective of income or circumstance. Quality and affordability in new housing should not become an either/or game, and those developers who sacrifice one in the hope of capitalising on the other will only be adding their property to the stock of unsellable buildings.

We should ignore pronouncements on medium-term nationwide annual need for property, and begin to understand that there is no such thing as the Irish property market. There are regional markets and there are markets for specific property types. Those developers who understand the nature of the real demand, and supply to fill it will surely see some success. Because the pockets of activity are so small, the property churn is so slow and purchasers are so demanding of getting exactly the property they want, it does not require 25,000 houses annually to satisfy these small pockets of demand.

I began this post with an image of a bookshop with no books on its shelves or a dating agency with no unattached people on its books. In order to respond to where demand exists, the market needs a supply of unsold new and older houses. But would a bookshop which had a massive stock of  unsold and secondhand copies of the same book on its shelves, that are selling extremely slowly and at half the price of what they were selling for a few years earlier, really order 25,000 more copies of the same book each year?

Dr Peter Stafford is director of policy and public affairs in the Society of Chartered Surveyors Ireland

The SCSI Annual Property Reports 2010 and 2011 are available at www.scsi.ie

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