Prompted by a colleague, I’ve been browsing the CSO Census report, The Roof over our Heads.  It is full of information from the Census 2011 on households and housing in Ireland.  I’ll probably blog about some of the other material at some point, but I thought it might be useful to point to some of their data on housing vacancy, a familiar topic on this blog.

In the report, the CSO produce an interesting map of all vacant residential address points in the country classified as vacant houses, vacant apartments and holiday homes.  There is little chance of identifying individual properties from this map as it is a scale of 1: 1 million, but by plotting the individual units as opposed to shading in areas we can get a sense of the scale of the issue (which in numeric terms is: 168,427 vacant houses; 61,629 vacant apartments; 59,395 holiday homes; out of total stock of 1,994,845 residential units).

Map of vacant properties in Ireland

Map of vacant properties in Ireland

There is clearly a patterns to holiday homes, concentrating on the coast, as well as the upper and lower Shannon.  Vacant apartments are mainly confined to large urban areas.  And whilst, there is much media talk at present concerning a shortage of family homes in Dublin, the data reveal there is no shortage of apartments.  In fact, there are 16,321 empty apartments in Dublin City, let alone the other Dublin local authorities.  As for vacant houses, they are everywhere.  The few blank spots are mountains or remote areas.

The CSO report also provide some data on towns with the highest levels of vacancy, both including and excluding holiday homes.  The table below lists the seven towns with the highest levels of vacancy excluding holiday homes.  In the case of Tulsk and Ballaghaderreen, two places I have some familiarity with, there is a strong correlation with the presence of unfinished estates.  However, as we have discussed elsewhere, unfinished estates are just one element of vacancy given that there are only 16,881 vacant properties on such estates, meaning there is a high degree of background vacancy in many locations beyond unfinished estates (see our AIRO VacantIreland interactive mapping tool that let’s you examine vacancy at Small Area level and individual unfinished estates).

most vacant towns

Rob Kitchin

The CSO’s residential property price index for June was published yesterday.  After a slight rise of 0.2% in prices nationally in May, the index fell by -1.1% in June.  So after the speculation in the media that property prices might have levelled off, especially in Dublin, it’s back to wondering when they might bottom out.  Last month we argued that we would need 6-9 months of prices staying even or rising slightly before the bottom could be called, that the rise was very marginal at 0.2% and prices were still falling for apartments, and pointed out that as prices have fallen since the peak in 2007 they have gone through periods where the drops have slowed down before falling again (see the interactive graph produced by AIRO).  In other words, not too much should be read into last month’s data as we need a time-series of data before we can talk about a trend with confidence.

There are also other reasons to be cautious about interpreting the data, which are based on mortgage transactions by eight lenders and constitute a three month rolling average.   Here are five of them.

First, because the market is so weak the number of transactions per month is relatively small.  Second, those transactions relate to a market that is not representative of the full range of stock that would be open to the market in normal conditions.  The present market contains a lot of distressed stock and many homeowners are keeping their properties off the market whilst prices are falling.  Third, as yet, the index does not include cash sales which the property sector are suggesting account for up to 30% of the market.  Fourth, due to the first three reasons the CSO itself warns that the index is subject to short-term volatility (“care should still be taken when interpreting monthly figures which may indicate short-term volatility rather than underlying change in longer term price trends”).

Fifth, the data are very circumscribed geographically providing an overview at the national scale, for Dublin only, and nationally excluding Dublin.  The housing market is geographically segmented and becoming more so in the crash.  Areas vary in the type and quality of stock available.  They have varying economic conditions, labour market activity and rates of unemployment.  They have different demographic trends, with some areas experiencing out-migration.  Those looking to buy in different areas have varying access to mortgage credit and some areas are redlined (it is just about impossible to get a mortgage for an apartment outside the four principle cities).  Areas have different rates of oversupply.  Housing vacancy is above 10% just about everywhere except Dublin, Kildare and Meath.  Apartment vacancy is above 18% everywhere and above 40% in a number of local authorities.  As constituted, the CSO index tells us very little with respect to how the market is spatially segmented.  The best data we have for that is the AIRO/DAFT house price mapping tool that provides asking price data 2007-2012 for 2, 3, 4 bed properties for c.1100 areas.  What that data shows is that the range of asking price drops varies from -35% to -65% across the country dependent on the factors above.

So where does that leave us?  Basically, as the CSO itself notes, care needs to be taken when interpreting the RPPI.  Whilst the index provides us with a good long-term overview of the trend in prices nationally and in Dublin, we should be careful not to read too much into monthly figures without putting them into the context of the longer trend and the various limitations with the data.  Moreover, we should be careful about drawing conclusions about local prices from the generalized large-scale aggregations (a classic ecological fallacy issue).  As the AIRO/DAFT data illustrates, National/Dublin aggregated figures are hiding a lot of local variability.  Hopefully, the new house price register might help, though it will not extend back to the peak in 2007 (it will start with 2010).

What is clear from the long-term trend is that prices have fallen substantially from the peak and they are still very fragile and are liable to fall further.  It is only with a run of data where prices are level or rising that the bottom can be called (and the depth of the bottom and its timing will vary around the country depending on the factors above).  Any attempt to call the bottom before then and to talk up the market will be premature.

Rob Kitchin

The AIRO team have taken the data from the CSO’s Residential Property Price Index report and compiled it into an interactive data visualisation.  It provides details on overall price drop, year-on-year drop, and RPP index score for all properties, houses and apartments nationally, Dublin only, and nationally minus Dublin.  Click on the image below to connect to the data visualisation, then just click on the check boxes/drop down menus to change the data, and click on the graph itself to get specific information.

 

Eoghan McCarthy and Rob Kitchin

The latest CSO house price report has been released by the CSO.  What the data show is that “Residential property prices grew [nationally] by 0.2% in the month of May. In Dublin residential property prices rose by 0.2% in May but were 17.5% lower than a year ago. Dublin house prices increased by 0.5% in the month but were 17.7% lower compared to a year earlier. Dublin apartment prices were 16.3% lower when compared with the same month of 2011.  The price of residential properties in the Rest of Ireland (i.e. excluding Dublin) rose by 0.1% in May … Prices were 14.2% lower than in May 2011.

The piece of data that the media are likely to focus on is that Dublin houses have now not fallen for three months in a row, growing very marginally each month.  In other words, prices for Dublin houses seem to be potentially stablising.  Before we get ahead of ourselves my view would be that prices have to stabilise for at least 6-9 months before we can start to call the bottom as the market is still fragile and there have been other periods on the way down where it appeared to level off before then falling again.  Moreover, the year-on-year reduction is still large.  Dublin apartments still seem fragile – they have fallen the most from peak (61%), fell again last month after two months of not falling further.  Nationally, excluding Dublin, seems fragile still and one would expect prices to fall as much as Dublin prices in the long term given levels of oversupply outside the principal cities.  Dublin does have relatively normal levels of housing vacancy (4.9% according to Census 2011) but not apartments (18.6%), so it does seem supply/demand might be coming into line for houses (particularly in South Dublin where vacancy is 3.4%) but certainly not apartments.  There is oversupply of houses and apartments everywhere else, including the other cities.  It should also be noted that the CSO index does not including cash sales and is based on a relatively small number of transactions.

Basically what this means, is whilst the indications are positive for Dublin houses, we should be careful not to read too much into the data until we have a time-series of stabilisation, and the property market remains very fragile.

Rob Kitchin

On Wednesday a single lot of 47 nearly complete apartments in Ballybofey, Donegal, went under the hammer.  The reserve price was €550,000.  The main build is complete and the apartments need to be fitted out.  The developer has gone bust and Ulster Bank called in the receivers to recoup whatever it could from the development.  The units, ranging from 63 sqm to 108 sqm were due to be sold at €200,000+ per unit.  At the sale of price of €11,700 per unit, the complex seems like a bargain.  And yet there was no bidder and the starting price was dropped to €300,000 (€6,300 an apartment).  The auctioneer is now seeking a private sale.

Ballybofey Apartments

Donegal has the sixth highest number of unfinished estates (133) in the country, and the lowest level of completed units occupied on those estates (47.5%), but prime reason as to why there was no bidder was due to a protest by c.100 workers from 20 subcontractors who claim to be owed c.€900,000 for their work on the site (and who also have equipment locked on the site which they can’t recover).  Quite rightly, they expect to be paid for their labour and expenses and to reclaim their equipment.  The bank simply want to salvage whatever money it can and pass on the finish-off and future of the estate to a third party.

The collapse in the construction sector is already making it difficult for many sub-contractors to stay afloat.  Not being paid only adds to the pressure.  And as businesses go to the wall, workers are being added to the Live Register, and family life suddenly changes as household income drops.  Income is taken out of the local economy and other businesses start to suffer.   14% of Donegal workers (8,124) were in the construction industry in 2006 (the national average was 11%).  The Live Register rate for the county has grown from 8,498 in Apr 2006 to 20,994 in Oct 2010 (147% increase) – in the Ballybofey Office it has risen from 705 to 2,580 (265% increase) – much of the growth taken up by out of work construction workers.

This story has been replicated across the country over the past couple of years, most recently with the collapse of Pierse and McNamara construction groups which has seen sub-contractors locked off of numerous sites, including those commissioned by the state.  Yesterday, more than 190 sub-contractors held a meeting to discuss the issue, calling for a change in the law concerning the arrangements and obligations between sub-contractors and those who they are working for.

One thing is clear, whilst the apartments in Ballybofey appear to be a bargain, whoever buys it will potentially be gaining enormously at the benefit of those sub-contractors owed money for their work (assuming that they will be able to sell them on to new owners).  Giving apartments away, however, has costs and consequences that’ll reverberate through the local community for some time to come.

Rob Kitchin and Justin Gleeson

There have been a couple of follow-on stories in the Independent by Charlie Weston about the EBS decision to redline apartments outside of the cities (here and here).  Weston suggests that the decision to redline apartments has been taken due to a feeling that there is excessive oversupply in areas outside of the principal cities and their hinterlands and they therefore represent a particularly risky investment.  Unfortunately there is excessive supply of all kinds of housing just about everywhere, so its still not clear why apartments are singled out.  The lack of any documented evidence-base to back up the claim is, I think, troubling.

I thought I’d have a look at apartments built in the Jan 2006 to April 2010 period (the stock most likely to be available to the market).  For context, in April 2006, there were 139,872 apartments/flats in the state according to the Census (9.5% of stock). Almost 58% of these were within Dublin alone.  According to the DEHLG/ESB house completion data, from Jan 2006 to April 2010 57,032 apartments were built constituting 22.6% of stock built (there is 4 month overlap in these figures at the beginning of 2006), meaning there’s c.  185,000 apartments in the state.  Crudely portioning counties and boroughs into categories of ‘principal cities’ (Dublin, Cork, Limerick and Galway) and ‘rural/non-principal cities’ (see Figure), it is clear that c.80 percent of all apartments (c. 45,309 units) were built in the principal cities and their hinterlands, and c.20 percent were built elsewhere (c. 11,723 units).  More importantly, of the 120,043 units of all types built in rural/non-principal cities only 9.7% of the 06-10 stock were apartments, whereas in the principal cities, apartments represented 34.4% of overall new stock.  What this tends to suggest is that, although apartments are likely to be in oversupply everywhere, the oversupply is perhaps more pronounced in the principal cities and their hinterlands as it seems unlikely that 1 in 3 of new purchasers will want to buy a new apartment.  In other words, perhaps there is a case for the redlining to be abandoned, turned completely on its head, or at least the redlining policy to be further explained.  There certainly seems to be a case for a more geographical nuanced analysis than simply dividing the country into the four principal cities and everywhere else.

Apartments built between Jan 2006-Mar 2010 in principal cities and their hinterlands and elsewhere

Weston also reports that EBS are being encouraged to tighten their lending criteria even further for first-time buyers, a group that would have typically bought apartments, under direction from the financial regulator.  It was felt that the society was lending too much, especially to those on lower incomes.

Rob Kitchin

At the end of last week EBS announced that it would no longer provide a mortgage for the purchase of an apartment outside of the four major cities of Dublin, Cork, Limerick and Galway, or the large commuter towns (such as Navan and Newbridge) (see here and here for story).  It’s not fully clear whether the move also excludes large regional towns such as Waterford, Athlone and Sligo, but it appears that way from the media coverage.  In the case of the cities it will only lend 85% of the value of the property, in commuter towns 80%.  It is also changing its rules with respect to second incomes, reducing the amount it will take into account, and only allowing borrowers to lend 30% of disposable income.  This change in policy concerning the purchasing of apartments is worrying for a number of reasons as it appears to execute a form of redlining.

First, it suggests that apartments are a particularly risky part of the housing the market, especially outside of the major cities.  I can find no data to suggest this is the case and, in the absence of a detailed explanation from EBS, my guess is that they feel that there is a serious oversupply of apartments in many areas, which they anticipate will lead to large price falls from present levels.  That said, there is a demand for apartment living in any town of any reasonable size, in terms of lifestyle choice and cost, and all local markets need a diverse stock to cater for different consumer groups.  Moreover, it seems unlikely to me that someone who can afford to front up 20% of the cost of an apartment represents a serious financial risk for EBS going forward and over the long term the value of the asset will increase (and EBS are protected from a future fall of 20% if the borrowers did get into trouble).

Second, excluding buyers from buying apartments across large swathes of the country potentially creates serious problems for both existing owners and EBS itself (who presumably have lent mortgages during the boom years to the purchasers of such properties) as it will undermine the value of the assets by making them much more difficult to sell.  This will potentially lock a number of apartment owners onto the first rung of the property ladder, unable to sell and move on, and also place them in (further) negative equity.

Third, EBS is a nationalized institution, which one would have hoped means that it would serve the interests of all citizens regardless of where they want to live (assuming they meet financial as opposed to geographic criteria) and also the taxpayer (one assumes that many new apartments are heading into NAMA and if no-one can access a mortgage to be able to purchase them they effectively become worthless).

EBS, Bank of Ireland and AIB, are the only lenders in the market at the minute, and if BoI and AIB follow EBS’s lead, then a significant part of the housing market in many areas of the country will become excluded from buyers and lock-in existing apartment owners for the foreseeable future.  It’s hard to see the justification for such redlining.

Rob Kitchin