All over the Christmas period and into the new year there have been rumblings about the property market in Ireland stabilising and the need to start building houses again, especially in Dublin and the other cities.  It’s been in the news again today due to the publication of reports by daft.ie and myhome.ie.  So, after nearly six years of consistent decline in property prices do we need to start building residential property again?

The only reason to start building again is if demand outstrips supply.

That does seem to happening in some parts of Dublin.  The tentative evidence is that: housing vacancy is less than 5% in the city according to the Census 2011; prices seem to have stabilised for family homes (though they are still fluctuating a little – according to the CSO they fell 3% Nov 2011-Nov 2012); and according to Daft.ie, two thirds of properties selling within 4 months in Dublin.

It is not the case for all types of property.  Apartment vacancy is 17-19% in Dublin and apartment prices are still falling (they fell 13% last year).  In other words, there is still a large oversupply of apartments.

There is little evidence that prices have stabilised in the other principal cities, and elsewhere they are still going down, albeit more slowly than before.  There is certainly no need to build anything in rural areas as a large oversupply exists there.

That all seems straightforward.  However, there are three factors that need to be understood in relation to the argument being made.  The first is geographic, the second is demographic, the third is wider economic/property context.

All the way through the boom there was a shortage of family housing in Dublin, especially in inner suburbs such as Drumcondra, Ranelagh, Rathmines, Clontarf and Sandymount.  In these places there are only so many houses and so people compete for them, and land to build new houses on is very small (some old industrial and vacant sites).  The predominant places available for new build are around the edges of the city, not in these areas.  Houses in the outer suburbs and the commuter belt are not selling like hot cakes due to demand.  In this context there seems little immediate reason to build new houses in the Dublin region until the wider oversupply is mopped up.

With respect to demographics, the situation is not quite as some property analysts would have it.  They predict we need 30,000 houses a year based on population growth and household fragmentation.  This prediction is based on the 8% growth in population between 2006-2011 revealed by the Census.  However, the growth in that 5 year period was nearly all in 2006-2007.  Population since then has grown very marginally (c.13K per year, nearly all through new births and babies will not be buying anything anytime soon).  Moreover, the demographic of household formation is presently relatively small (for example, there are 38% less 20 year olds than 30 year olds in the state – 62,000 as opposed 83,000) and these are the group principally emigrating, have high unemployment, and have poor access to credit.  It is true, however, that population growth will be stronger in Dublin than elsewhere as that is where the jobs are principally located.  The evidence at the moment though is that there is hardly an exodus to the city.

Thirdly, there are a whole bunch of extraneous factors that will continue to dampen market activity – negative equity, mortgage arrears, unemployment, access to mortgage credit, unfinished estates, property tax uncertainties, wider economic paralysis, and lack of confidence/caution, so on.  The market might well be starting to stabilise in Dublin, but even there it will be affected by all these factors.

The call accompanying the argument being made by the property sector is that the government needs to do something to get house building going again.  This seems quite rich to me.  For years the property sector have been campaigning for market liberalisation of property and for the state to stay out of building property.  They want a free market when it suits and state-support when they mess it up.  But following their own logic, if the case for new build is compelling then private financing will surely step in to enjoy the profits/yield from development?  Yes, accessing finance is difficult, but if property really is on the rebound surely an entrepreneurial capitalist would look to invest?

Indeed, there is nothing to stop builders/developers building to capitalise on the supposed latent demand apart from finance.  All local authorities have development plans that are framed with regional planning guidelines and the national spatial strategy and there is sufficient zoned land for development.  Moreover, there are a large amount of planning permissions outstanding on unfinished estates and developers can apply for more.

One thing is certain, the State is bankrupt and does not have the finance to underwrite homebuilding.

I agree that over the mid to long term new properties will be needed in and around Dublin, though demand elsewhere will be low.  What we need is a cautious, planned approach to housing underpinned by strong evidence rather than hyperbole (we certainly need a robust demographic and planning model for the Dublin region), that ensures that oversupply is mopped up in the same process otherwise supply will outstrip demand and work to keep the market depressed.

Rob Kitchin

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