On Sunday I blogged on what is happening with respect to housing in Ireland, including a breakdown of some key stats, and also did an interview on This Week on RTE Radio 1.  In response, I got the following question via twitter: “So is it a bubble in Dublin then? And will govt. plans to build more houses help normalise?”  These are not really questions that can be answered with 140 characters.  I’ll take each question in turn.

Is a new bubble forming in Dublin?

Having fallen by 57.4% from the peak in 2007 (houses 56%, apartments 63.3%), since August 2012 prices in the capital bumped along the bottom for a few months then started to rise.  Between Nov 2012 and Nov 2013 prices grew by 13.1% to be 49.2% lower than the peak.  It is clear that property prices in Dublin are rising steadily at present (see CSO data and AIRO interactive graph).

Housing bubbles generally form when there is an excess of demand, credit and confidence in prices.  This is not the case in Dublin at present, with the rise in prices being principally driven by two related forces.  First, both residential buyers and investors are seeking to enter the market at its bottom; this way they minimize their cost, maximize any growth in equity, and for investors gain rental yield.  Second, they are competing for a small number of available properties leading to bidding scuffles.  Unlike a normal bubble when there is a large number of property transactions and mortgage draw downs, transactions and draw down in Dublin are presently at 40 year historic lows.  Slowing properties coming to the market are very high levels of negative equity (c. 50% of all properties with a mortgage) and low levels of new build (less than 10% the number built in 2006, and over 50% are one-offs that are not coming to the market).  Ergo, prices rise as demand outstrips supply.

Does this constitute a new house price bubble?  Not in the classical sense and it is only a bubble if prices rise in excess of what one might expect given the wider economy (and given they are still almost 50% less than their peak at best we’re only at the start of a potential bubble).

Will building more houses help normalise any bubble effect/slow house price rises to maintain affordability?

One proffered solution to tempering rising prices caused by a supply shortage is to increase the level of stock.  New supply might come from six sources:

  • new build by the private market
  • new social housing provision through government investment
  • defaulting properties due to mortgage arrears
  • second-hand properties coming onto the market
  • new areas becoming active as market activity spreads
  • completion of unfinished developments

With respect to new supply by private developers and government.  Whilst there is sufficient land zoned in the four Dublin local authorities (2,575 hectares/6400 acres for 132,166 units) and there are still a large number of outstanding planning permissions, the big issue is development capital and perhaps re-jigging planning permissions to cater for high density housing in some cases rather than mostly apartments.  The same issue applies to the government who have little money to invest in capital expenditure programmes, which they have significantly reduced over the past few years.  In both cases, even if development capital was sourced, it would be 12-24 months before new supply was available to the market/social housing waiting list.  As a consequence, new supply from these sources will be limited throughout 2014.

There are significant levels of mortgage arrears nationally (we don’t have figures for Dublin alone).  With respect to principal residential dwellings 141,520 (18.4%) of all mortgages are in arrears and of those 99,189 (12.9%) are more than 90 days behind in payments.  The situation is worse for the buy-to-let sector where 40,426 (27.4%) are in arrears, where 31,227 (21.2%) are more than 90 days in arrears.  Whilst repossessions have so far been small, it is expected that they will grow over the next couple of years.  This will increase housing stock available to the market.  However, their present occupants would still require accommodation having knock-on effects with respect to the social housing waiting list and the private rental market.

As house prices rise and household emerge from negative equity those wishing to trade-up or down, or to move to a new area, are more likely to place their property on the market.  This would create some supply, but may not lead to prices levelling off.  This is for two reasons.  First, part of the reason that house prices fell so much is that the stock on the market was not representative of all stock, but rather distressed assets that owners felt compelled to sell in a falling market, with owners who could afford to avoid selling staying out of the market (typically those who are better off).  Second, the majority of trading that has taken place has mainly been related to lower priced property rather than higher-end stock.  We might therefore expect prices to rise a little simply as function of the nature of stock coming to the market changing, with better stock demanding higher prices and higher value properties starting to be traded more frequently.  This effect would probably be little affected by more supply.

We lack detailed data concerning market activity in Dublin, but industry sources are suggesting that it is most prevalent in the city core and South Dublin.  As competition for property grows in these areas it is likely that other parts of the city will become more active.  The Dublin housing market stretches far beyond the M50 to the outer suburbs and commuting belt.  These areas still have locales with some oversupply.  Moreover, the completion of some unfinished developments would also add some new supply (though the number of such developments in and around Dublin is quite small).  Both the activation of other parts of the Dublin market and the completion of unfinished developments will re-distribute some demand and work to counter supply driven price rises.  Nevertheless, given the desirability of central and South Dublin and limited new supply in those areas in the very short term, one could reasonably expect rising prices to continue in the city core and South Dublin in the immediate short-term.

Two factors that might disrupt this scenario is a tailing off of demand and limited access to credit.  A phenomena that occurs after some house price crashes is a dead cat bounce wherein prices rise quite quickly from the bottom, but then slow and fall again before finding an equilibrium or rising again (this happened in London following the crash at the end of the 1980s).  The reason for a dead cat bounce is that those who have been waiting for the right time to enter the market (both residential buyers and investors) have done so and market demand drops leading to less competition for property, or supply has risen to meet demand.  Given the level of cash sales at present (c.50%), it is possible to envisage such purchases drying up and the market returning to a more balanced status where mortgage-backed sales predominate, thus removing a significant source of competition-driven pricing.  As such, a dead cat bounce could occur in the case of Dublin.

Moreover, access to credit at present is limited.  In the first three quarters of 2013 only 8,711 mortgages nationwide were drawn down.  Caution on behalf of lenders will limit the number of mortgages issued and the value of such mortgages, thus restricting credit-fuelled speculation and associated price rises.

With respect to the mid-to-long term it seems likely that there will be a continued rise in demand that may create supply issues in the Greater Dublin region.  The new revised CSO regional population projections 2016-2031 predict: “The Greater Dublin Area will see its population increase by just over 400,000 by 2031 if internal migration patterns return to the traditional pattern last observed in the mid-1990s.  … The population of Dublin is projected to increase by between 96,000 and 286,000 depending on the internal migration pattern used, while the population of the Mid-East is set to increase by between 78,000 and 144,000.”  These figures are based on projected national increase and internal and external migration and seem reasonable given the dominant economic position of Dublin in the Irish economy.  In addition, household fragmentation will also be a source of demand.  The extent to which such population growth/household fragmentation will affect property prices is dependent on the extent to which housing supply meets demand as and when it is required.

In summary

In the short term there are potentially different scenarios as to what might happen with house prices in Dublin — they might rise steadily, rise and then level off, or suffer a dead cat bounce.  Or a two-speed market might emerge in the Dublin region, with a division in market activity and pricing patterns between the city core/South Dublin and the rest of the city.  Which scenario plays out is dependent on a range of factors that shape supply and demand and how they evolve.  As I noted on Sunday, the market is far from normal at present and in need of a lot of correctives that could alter how the market behaves, and other factors such as the wider macro-economic context could re-cast how the market evolves.  What we really need right now is some decent modelling using detailed housing, demographic and economic data of potential housing demand and supply for the Dublin region and what we might expect to happen to prices under different scenarios.  We also need similar models for the rest of the country, which has a very different set of issues.  Perhaps the government might commission such work?

Rob Kitchin

Many of the posts on this blog have been critiques of the planning system, the construction sector/developers, the banking sector, and government policy or lack of.  A critique of the blog is that it doesn’t do enough to put forward solutions and a positive path forward, especially given widespread unemployment amongst former construction workers and development residing at the bottom of a deep slump rather than being a productive part of the economy.

In this context, a key challenge for Ireland is to re-grow the construction sector back to a normal, sustainable level as a productive part of the economy and to get construction workers back to work without exacerbating existing issues and problems with respect to property.  This is no easy task, but here is my suggested road map.

First, any attempt to resurrect construction activity in Ireland has to take place within a strategic approach to planning and property that strongly guides any development takes place.  The adoption of core strategies and revisions to the Planning Act are a step in the right direction, but are specific tactics, not strategic visions.

To this end, the government needs to put in place a strategic planning and development framework that combines spatial planning (what used to be the National Spatial Strategy, NSS) and sectoral planning (what used to be the National Development Plan, NDP).  The present NDP expires end of 2013; the NSS is hollow and in review.  The proposed Medium-Term Economic Strategy (MTES) 2014 to 2020 will focus on macroeconomic strategy and policy actions for achieving sustainable economic and employment growth, not planning and development.  The MTES needs to be complemented with a new NDP to run 2014-2020 to guide investment, underpinned by a NSS that will ensure coordination across sectors and locales.  In other words, it should consist of joined-up thinking.  The danger is that without a strategic approach, the development that does occur will be ad hoc, poorly linked, weakly leveraged and will slow recovery.

Both the new NDP and NSS need to be based on an evidence-informed analysis of the present state of property (housing, office, industrial, agricultural, etc), planning/zoning, and models of projected demand based on demographics, economic growth, labour market demand, etc.  This requires decent property data (we have some limited housing data; no independent commercial sector data) that have temporal and spatial resolution.

This strategic framework needs to be prepared to be selective.  Rather than trying to encourage growth everywhere, it should aim to grow selectively to create agglomerations and critical mass.  Agglomeration is important for growing jobs and the economy.  Employ a smart consolidation approach elsewhere (focus on quality of life and sustainability, rather than growth).  Limit further one-off housing: it is unsustainable in service terms (utility and service provision) and environmentally (water pollution, commuting, etc) and contra to popular belief evidence suggests weakens rural communities.

Part of the strategic framework should focus specifically on housing and produce a comprehensive housing strategy.  As well as planning for the future, this strategy needs to address all the issues affecting housing at present:

  • vacancy and oversupply in most of the country and pockets of undersupply in specific locales
  • large numbers of unfinished estates and poor build quality (issues of pyrite, etc.) that need to be retrofitted
  • huge numbers on the social housing waiting list, stalled regeneration schemes, collapsed PPPs
  • extensive mortgage arrears and negative equity
  • the lack of mortgage credit and a large proportion of cash buyers
  • the lack of finance for development and the lack of active developers
  • Supply of land.  Land has to be made available sensibly: land bank through NAMA, Site Value Tax/Kenny Report to get derelict/brownfield sites back into productive use, bring on strategic greenfield sites, and limit future land speculation.

Development needs to follow best practice planning principles and should be integrated in nature.  Residential development cannot be simply houses but also needs to be utilities, schools, creches, public transport, etc.  Piecemeal planning undermines formation of sustainable communities.  When housing construction occurs, all the other elements also need to occur at the same time (not several years later).

Second, the creation and delivery of any strategic plan needs to be properly resourced in terms of staffing and finance.

Proper planning requires administrative units capable of delivering: the Department of Environment is severely understaffed with respect to planning; regional planning authorities are shells; local planning authorities are emasculated; NAMA should be part of this coalition.

Development requires finance — there is a need to source investment capital given the Irish banks are not lending.  NAMA should fill the void where possible.  If there is true demand the market does not need stimulating and tax incentives/subsidies should be avoided.  The construction/development sector needs access to finance through loans not incentives.  Do not sacrifice measures such as Part V Social and Affordable Housing provisions of the Planning Act (we need social and affordable housing).

Third, we need new entrants into the sector to replace failed enterprises.

Encourage new developers through loans/grants — many of the older ones are bust, tied up in legal cases, or cannot access investment capital.  We need new entrepreneurs to enter the market who have fresh ideas and energy and do not have any of the bad habits and institutional memory of the old set.

Encourage new, large rental companies into the market and professionalize the rental sector.  The rental sector is under-regulated and is dominated by amateur landlords (70% own 1 or 2 properties).  Encourage cooperative and association housing and make finance available to them for new projects.

Specific ideas to re-grow the construction sector back to a normal, sustainable level and to get construction workers back to work

Invest in capital projects that will stimulate the economy beyond construction jobs (i.e. will provide the conditions that will attract inward investment and indigenous growth)  – public transport, utilities (electricity grid, water system, broadband), public infrastructure (e.g. school building — 1 in 3 schools still have prefabs and the number of children is growing; hospitals; universities, etc), selective road building, etc.

Proactively address the housing issues detailed above.  (1) complete viable unfinished estates and deconstruct the others; (2) address build quality and pyrite-infected homes; (3) restart regeneration projects and revive PPPs with new partners; (4) refurbish existing social housing.

Enable private housing in very select locations where there is a demonstrated demand/projected demand based on hard evidence.

Enable office development in very select locations where there is a demonstrated demand/projected demand based on hard evidence (remember >20% of office space in Dublin is vacant; in some parts >40%; similarly lots of empty retail/industrial space in Dublin and throughout the country).

Curtail speculative development of all kinds where there is no demonstrated need/demand. Under no circumstances create additional supply in areas where there is already oversupply as it will flat-line any recovery and extend related problems.

I am open to suggestions and debate with respect to this road map.  We need these kinds of conversations.  What I do not think is sensible is to have no strategy and plan and to simply try and muddle through and hope that inaction and the present lack of policies and direction will somehow solve our various issues.  They won’t; they are more likely to cause additional problems.

Rob Kitchin

The newspapers at present are full of talk of the resurrection of the housing market and the growth of house prices in Dublin.  It seems that housing market is finally stabilising and that the long waited for market correction is starting to take place.  Moreover, it is being suggested that we need to start building residential units again and to zone more land in Dublin (this is despite the fact that 2,575 hectares (6,400 acres) of serviced residential land is zoned in the four Dublin local authorities for 132,166 units).

The housing market in Ireland is nowhere near to functioning normally.  In fact, it is still largely dysfunctional for several reasons:

  • extensive mortgage arrears and negative equity
  • the lack of mortgage credit and a large proportion of cash buyers
  • the lack of finance for development and the lack of active developers
  • oversupply in most of the country and pockets of undersupply in specific locales (particularly family homes in parts of Dublin)
  • large numbers of unfinished estates and poor build quality (issues of pyrite, etc.) that need to be retrofitted
  • huge numbers on the social housing waiting list and stalled regeneration schemes

The shortage of family homes in some parts of Dublin is just one aspect of a very unhealthy housing landscape.  What we really need right now is not a knee-jerk reaction but a proper housing strategy that guides addressing the various problems facing the Irish housing market and plans future housing provision.

This housing strategy needs to do a full assessment of the issues above, along with suggested solutions that include planning and finance, plus develop models of where new housing might need to be built given expected demand based on trends in demographics, economic conditions and labour market change.  Together, these assessments should be used to map out a plan of action as to getting the Irish housing back in to some kind of order.

This strategy does not need to be years in the making.  With some coordinated action it could probably be prepared in a few weeks using in situ expertise and resources.  What it does require, however, is some government action to spearhead such an initiative.  Without this, how the housing situation unfolds will be ad hoc, uncoordinated, and likely to reproduce and extend the present problems.

Rob Kitchin

I was a bit baffled by the news that housing charity Threshold had, in its pre-budget submission, added its voice to those campaigning for government stimulus for new housing construction.  As quoted in the Irish Times, Bob Jordan Threshold chief executive suggested that “Up to 30,000 new houses need to be constructed annually to meet the ongoing demand for new homes. However, since the recession, housing construction has virtually ceased, with only 8,500 new units built last year.”  The organisation argued that, if left unchecked, the “housing shortage” could become a “full-blown crisis”.

A closer look at their submission reveals that the proposal for the Minister for Finance to consider a stimulus for housing construction is part of a wider and much more targeted set of proposals, which in large part aim to address the current threats faced by tenants in the increasingly precarious private rental sector.  Included in these are proposals to provide a financial package for the purchase and construction of social housing and amendments to Residential Tenancies Act.  Threshold are keen to point out that the problems of undersupply are restricted to particular, primarily urban, areas.  In this context, it is odd if a little unsurprising that the point picked up by the media is the call for new construction.

Another story is today’s papers35Gogh_Old Man in Sorrow offers a more apt corollary to the issues that Threshold raise.  A report from Oxfam claims that austerity policies across Europe are benefiting the top tier of society while impoverishing many households on the lower end of the economic spectrum.  Likening current austerity policies to structural adjustment programmes imposed on poor countries by the IMF since the 1970s, the report (in which Ireland features prominently) warns that:

“The only people benefiting from austerity are the richest 10% who have seen their share of income rise whilst poorest have seen their share fall. The UK, Greece, Ireland, Italy, Portugal, Spain – countries that are most aggressively pursuing austerity measures – will soon rank amongst the most unequal in the world if their leaders don’t change course.”

It is this growth in levels of inequality and the knock on effects this has, rather than simply a lack of construction, which produce the suite of challenges for tenants that are now being flagged by Threshold.

Cian O’Callaghan

After Thursday’s post looking at the house price register to gauge the level of market activity in Dublin, I’ve also now had a look at the mortgage draw down data produced by the Irish Banking Federation and PwC.  Their database runs from Q1 2005 to Q2 2013 and claims to include 95% of the Irish residential mortgage transactions; the data is not geographically disaggregated.

Thursday’s post revealed that the number of sales in Dublin had been steady year-on-year across quarters, with the exception of Q4 2012 when there was a spike in sales due to the ending of mortgage interest relief.  In other words, there has been little noticable difference in the volume of housing sales during 2013 compared with 2010.

The IBF PwC data reveals a similar pattern of purchasing, including the Q4 2012 spike.  If we compare Q2 volumes from 2010-2013, the volumes are Q2 2010 – 7,827; 2011 – 3,551; 2012 – 3,225; 2013 – 3,229.  In other words, there was a large drop from Q2 2010 to Q2 2011, and then the same volumes for the next three years.  For reference, draw downs in Q2 2013 were only 5.9% of those in Q2 2006 (53,499).

mortgage downturn - all

This pattern is consistent when we remove buy to let, re-mortgaging and top-up mortgages (though these were more prevalent in 2010) so that we only examine first-time buyer and purchaser mover figures.

mortgage downturn - ftb mp

As with the house price register data, the mortgage draw down data does not suggest that there is a pick up in the housing market to any great degree.  There was a brief surge in Q4 2012 due to MIR ending, but the market has since reverted to the same state of play as 2011 and 2012.

So that’s two pieces of hard evidence – one generated from Revenue data (inc cash sales) and one by the banking industry – that cast doubt on property sector rhetoric that there has been an upswing in the housing sales.  That’s not to say that there has not been an increase in market activity in terms of viewings and multiple bids on some properties, but that this is restricted to a select group of properties and is not translating into an overall increase in sales.

Rob Kitchin

For the last couple of months there have been a number of media pieces suggesting that the Irish housing market is turning and house prices are starting to stablise more broadly and rise in parts of Dublin.  It certainly seems from government data and industry and buyers that for some types of property (family homes), in some select places (desirable parts of Dublin) house prices have levelled off and are growing marginally.  The proffered wisdom from these observations is that house building needs to start again.

There are two points to note, however.  First, any stabilisation and recovery in the market is highly segmented by type and geography.  Apartments are still in the doldrums, as is just about everywhere outside the M50.  Secondly, and more importantly, concentrating on house price rises and the shortage of family homes in South Dublin deflects attention away from the much more serious set of housing crises in Ireland.  They include:

Oversupply: The 2011 Census shows that there are 289,451 vacant units in the state, with an oversupply of c.110,000 (plus 17,032 under-construction units on unfinished estates) on a base vacancy of 6% and excluding holiday homes.  This oversupply has been very little eroded over the past two years.

Unfinished estates: In 2012 there were 1,770 estates that still required development work, with 1,100 of these estates in a ‘seriously problematic condition’ and only 250 estates (8.5%) active.  These estates suffer from a number of social issues.

Mortgage arrears: At the end of Q1 2013, the Central Bank reported there were 95,554 (12.3 per cent) private residential mortgage accounts were in arrears of over 90 days and 29,369 (19.7 per cent) of buy-to-let mortgages were in a similar position.

Negative equity: In 2012, Davy Stockbrokers estimated that over 50% of residential mortgage accounts were in negative equity.

Social housing shortage: the Dept of Environment reports that 98,318 people on the social housing waiting list in 2011 (65,643 of whom can’t afford the accommodation they are in).

An over-reliance on unaffordable private rental stock: In November 2011, the Department of Social Protection reported that 96,100 households were receiving rent supplement.  Much of the rental stock is sub-par in standards.

Stalled regeneration: Regeneration projects have largely halted leaving hundreds of families living in substandard and unhealthy accommodation whilst they wait for projects to restart.

Pyrite-infected homes: The government recognises that there are 74 estates, consisting of 12,250 units, whose foundation hardcore is contaminated with pyrite, though it seems clear that there are other infected estates.

Build quality: There are a number of estates affected by build quality issues, the highest profile of which has been Priory Hall.

These are all serious issues which are largely being ignored by the government and media beyond acknowleding occassionally that the issues exist.

Housing policy and the market in Ireland is largely broken.  New housing in South Dublin is not going to fix it and rising house prices is not evidence that things are getting better.

I’m not saying that there should be no new housing in South Dublin.  If there is sure-fire demand, then fine, the market and investment capital can supply.  Nobody is stopping anybody from developing such housing, certainly not the government.

Government investment, however, needs to targeted at sorting out the issues above, much of which has the potential at creating construction work and economic growth, whilst addressing serious social need.

What would be really nice to see is a comprehensive, integrated housing policy that puts together a five to ten year action plan that recognizes that all these issues are interrelated and need to be tackled in concert rather than in a piecemeal, ad hoc fashion.  Now why can’t the media and property professionals focus on persistently arguing for the need for that?  A cynic might think that it’s not property supplement friendly.

Rob Kitchin

Both the Irish Independent and The Irish Times have, in recent months, discussed a supposed shortage of housing stock, and associated price-rise, in South County Dublin. While, when taken at face value, there may be some form of truth to the claims, there is a need for extreme caution in focusing the wider debate on one particular geographical location, particularly in light of such uncertain economic times. In line with recent posts on this blog, the role of the media is of significant importance in influencing these discussions. To take just one example, in the last number of days The Irish Times ran with the headline: House prices in south Dublin up 12.2%, survey shows’. Through reading this article, however, it became apparent that what was being referred to was asking prices as opposed to selling prices. This may seem relatively harmless, yet it has some important repercussions. In another piece later the same day, Michael Noonan, in response to the previous article, mentioned the need for 30,000 new dwellings per year and commented as follows: “Dublin as in many other areas is giving the lead and south Dublin is giving us a strong lead according to one survey prices are up 12%… These things can change very rapidly.”

Such rhetoric raises some important questions. Should there be a rush to build more housing in South County Dublin? Is it in the interests of good planning to maintain housing levels in this area and further pursue a completely disjointed approach towards the delivery of housing more generally. While it may also be argued that this shift is indicative of a more general turnaround in property prices throughout the country, there is a much wider debate to be had. When viewed another way, the rise of property values in one specific geographical area of Dublin could be looked as being indicative of a severely imbalanced social, economic and political system.

Eastern Docks, Amsterdam

As I have argued before, is now not the time to put in place measures that might actually promote more socially balanced cities? As highlighted by Michael Noonan in the above-mentioned article, there is an assumption that market forces will lead to families departing from apartments to houses. However, and not withstanding the importance of wider debates about one-off housing etc., within the larger urban areas, a key challenge lies in dealing with issues such as suburban sprawl, high levels of vacancy within central areas, and the promotion of more socially-balanced cities.

While we should be careful not to place those cities often cited as having a high quality of life, such as Amsterdam, Vienna or Copenhagen, on a pedestal, it is of note that, relatively speaking, they each have a history of strong centres and suburbs as well as more balanced social structures. The relationship between these various factors is, I would argue, a much more important debate to be had. The current obsession with house prices in one particular part of the country does little more than to replicate the same problems of the boom years. Mainstream media can play a key role in ensuring that such rhetoric is challenged and debated at every turn. I would go as far as to say that it has a duty of care to do so.

Philip Lawton

A new paper on housing and the Irish crisis has just been published in New Political Economy by Julien Mercille: “The Role of the Media in Sustaining Ireland’s Housing Bubble”.  It seems to be open access to download from the journal page.  There is also a short piece about it here.  This is the abstract:

This paper examines Irish mainstream media coverage of the housing bubble that burst in 2007 and plunged Ireland into economic and financial crisis. It is shown that news organisations largely sustained the bubble until the property market collapsed. As such, news stories reflected the views and interests of the Irish corporate and governmental sectors, which had adopted neoliberal policies during the ‘Celtic Tiger’ years (1990s to 2007). A political economic conceptualisation of the Irish media outlines four factors explaining why this is so: (1) news organisations have multiple links with the political and corporate establishment, of which they are part, thus sharing similar interests and viewpoints; (2) just like elite circles, they hold a neoliberal ideology, dominant during the boom years; (3) they feel pressures from advertisers, in particular, real estate companies; and (4) they rely heavily on ‘experts’ from elite institutions in reporting events. The last section presents a detailed empirical analysis of Irish media coverage (newspapers and television) of the housing bubble that confirms the above claims. It is shown that prior to the bubble’s collapse, the media made little mention of it, remained vague about it or tried to refute claims that it even existed, thus sustaining it.

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

Following on from yesterday’s post regarding the 2012 National Housing Development Survey concerning unfinished estates we took a further look at the data and have produced an interactive data visualization of the comparing counties spreadsheet.  This spreadsheet concerns the 2,973 estates surveyed, not the 1,770 estates that the DECLG say now constitute unfinished estates.  Because we don’t have data that relates specifically to these 1,770 estates we can’t disentangle them from the 2,973 surveyed. With respect to the types of property, the data refers to all units started and planned for, rather than simply started.  We have tried to tidy up the infrastructure data so that it relates to units actually started as opposed to those started and planned.  We have also set out the rates of occupancy, vacancy and construction per county, and the extent to which planning permissions have expired.

unf est data viz

Eoghan McCarthy and Rob Kitchin

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