Census 2011 revealed that there were 289,451 vacant properties (14.5% of total stock) in April 2011.  Of these 59,395 (3%) were classed as holiday homes.  That means that 230,056 properties are vacant.  In any housing market there are always some houses vacant, termed base vacancy.  In Ireland the Dept of Environment (DECLG) expect 6% of properties to be vacant at any one time.  In other words, given the 1.99m units they’d expect 119,691 units to be vacant.  That still leaves us with an oversupply of 110,365 units (plus 17,900 under-construction units as recorded by the DECLG unfinished housing development survey for 2011). (more…)

Following on from our Census mapping work from last week, we thought it would be interesting to overlay the 2,876 unfinished estates identified by the Dept of Environment through their housing development survey over the vacancy rates at Small Area level calculated from Census 2011.  (more…)

For the first time, the housing stock and vacancy data from the Census has been released at the new Small Area (SA) level.  This new statistical geography, developed by the National Centre for Geocomputation at NUI Maynooth for Ordnance Survey Ireland, consists of 18,488 areas, typically consisting of 80-130 households. (more…)

On Census night April 2011 there were 1,994,845 housing units in the state (up 12.72% from 2006, when there were 1,769,613).  1,649,408 of these units were occupied by the usual resident.  Of the remainder, 289,451 were vacant, 45,283 were absent on the night of the census but usually occupied, and 10,703 were occupied by guests.  Of the vacant stock, 59,395 were classed as holiday homes. (more…)

Here are links to a pair of fascinating accounts of China’s ghost cities.

http://www.youtube.com/watch?v=wm7rOKT151Y

http://news.sky.com/home/world-news/article/16117228

It is estimated that there are 64 million empty apartments in China at the minute with vacancy levels of 70% or more in a number of cities.  One city has been built for 1 million people and has an occupancy of 20,ooo.  Another is a new city designed for 12 million, the vast majority of which is empty.  As is one of the world’s largest shopping mall, with all but a handful of the 1500 units empty (6 years after opening).  Building continues everywhere, fuelling GDP growth (sound familiar?).  The assessment is that China is experiencing a massive property bubble that if and when it pops will have a massive knock on consequence for China’s economy and by implication the global economy.

Rob Kitchin

 

 

The general consensus amongst economists and property specialists is that the housing market is yet to reach its price floor.  Prices have fallen by 40-50% across the country and are expected to fall by c.60% by the time they are fully unwound.  There has been some speculation that the market might recover quite quickly, especially in the cities, with population growth cited as the prime factor to drive such a turnaround.  The hope is that Ireland might mirror the reasonably rapid recovery of the mid-1990s Finnish property crash, rather than the stagnation of the Japanese crash from the late 1980s wherein present property prices are still below those twenty years ago.  My own view is that the Irish crash will be nearer to Japan’s experience than Finland, with property prices unlikely to rise to peak 2007 prices for at least another ten to fifteen years, and longer for some parts of the country.  There are six reasons why.

1.  Still unwinding

As noted, Ireland is experiencing a steady but relatively slow unwinding of the property market, with property prices still falling.  They seem set to keep falling for at least another 12-24 months and possibly longer.  Until the market has fully unwound there will be no correction or growth.  And once it’s unwound there are a number of factors, set out below, that are likely to see the market flatline or only grow marginally for a number of years to come.

2. Oversupply

The property sector have tried to spin the data around oversupply every which way they can to make the issue appear better than it is.  Principally they’ve tried to focus on unfinished estates, arguing that oversupply is brand new, complete but vacant property.  They ignore the stock still being built on these estates and the vacant, brand new and under-construction one-off properties around the country.  They also largely ignore the vacant stock in the rest of the housing stock, principally on the argument that any property that is owned does not represent a problem, despite the fact that it can still be a part of the housing market and affect that market.  The Census 2011 preliminary results reported that there are 294,202 properties around the country that are vacant and habitable (14.7%).  Some of these properties, c.80-100,000 are holiday/second homes.  In any housing market one would expect some vacant stock, usually 3-4% (the Irish government uses a base vacancy rate of 6%).  Even in Dublin, vacancy is running at 7.8%, with a large oversupply of apartments in particular.  What that means is that there are c.200,000 vacant properties in the country excluding holiday/second homes, c.100,000 of which are in excess of expected base vacancy.  That is a substantial oversupply.  When supply exceeds demand prices fall or remain weak.  Until supply and demand are aligned, it is unlikely that prices will rise to any great degree.  For the last two years the property sector has told us that supply is running out in some areas and we need to start building again.  The data – either in terms of oversupply or units available to the market – does not yet support this assertion.  The property sector can try and spin oversupply estimates however they want but the evidence of vacant oversupply all round the country is plainly evident to purchasers.

3.  Weak demand

Demand for housing in Ireland over the past twenty years has been driven by two principle factors – population growth (net natural increase, net migration increase) and household fragmentation.  Basically, population grew rapidly (by a million people between 1991-2011) and the average household size fell.  The effect of the latter process can be quite profound, for example if the population remained the same size but the average household size fell then the population would need to occupy much more stock.  Whilst we do expect the population to grow over the next twenty years, it is tempered by two factors – emigration (there is presently net migration of -34,000 per annum) and age profile (the bulk of natural increase is accounted for by children under the age of five).  Emigration is primarily being undertaken by young adults (aged 20-40) who are at household formation stage; children under the age of five will not be at household formation stage for another twenty years.  Household fragmentation is affected by economic circumstance with children more likely to stay at home, parents less likely to separate, and young adults to share property to keep down costs.  These are often choices, not a compulsion, and until the wider economy recovers household fragmentation is likely to weaken.  One factor used to try and off-set these arguments is to focus on the social housing waiting list as evidence of pent-up demand.  In March 2011 the DECLG revealed that there were 98,318 households on the social housing waiting list.  However, 65,643 of these were in suitable housing, but they could not afford the rent and were receiving rent supplement.    The need for additional social housing stock then is c. 33,000 (still a relatively substantial need), though it’s fair to say that that much social housing stock is in need of replacement, though the State cannot afford such programmes at the moment.

4. Negative equity and mortgage arrears

Properly functioning housing markets require a mobile population.  It is estimated that at least one in three household mortgages in the state are in negative equity.  Regardless of whether they want to trade-up or down, or to move to another part of the country they are locked into their present property unless they are prepared to realise a loss.  The Central Bank estimate that over 50% of investor, buy-to-let properties are in negative equity.  When prices do start to rise at least one in three housing units with mortgages are largely precluded from moving until prices rise sufficiently that they can trade.  Moreover, 62,970 households (8.1% of mortgages) are more than 90 days in arrears on their mortgage payments and a further 36,376 have restructured their mortgages (and so far are not in arrears).  This is a substantial growth on the 26,271 households in arrears in Q3 2009 and looks set to keep rising as households struggle to meet debt commitments, and might well be joined by many investors on interest only mortgages if they are asked to start paying down the capital.  Further, 25% of properties have more than one loan secured against it.  What this all means is that a sizable chunk of potential movers/sellers are impaired and will be absent from the market for some time.

5.  Downward spiral of the economy and accessing credit

The Irish economy has been severely weakened over the past four years and household income and access to credit is much reduced.  Austerity measures are biting through various tax increases and deductions.  Many are living with a radical change in financial circumstance through unemployment (14.4%) or underemployment.  An unstable Europe and general weak global economy is having a deadening effect.  The banks are reluctant to lend for mortgage credit.  What this all means is that even if a household wanted to purchase a property, their own reserves are depleted and their access to credit restricted.  This is unlikely to change until the wider economy recovers and the banks have worked through their corrections.  This is going to take a number of years, probably the best part of a decade or more.

6.  Confidence and caution

Confidence in the property market and the property sector in general is at an all time low.  Few at this stage believe what property professionals have to say regarding the property crash, housing need and construction.  They are seen as self-interested groups who are more concerned in their own bottom-line than the state of the nation.  People view the work of NAMA with deep scepticism and lack trust in the government and local authorities to address issues such as unfinished estates and taking in charge.  Issues around poor construction typified by Priory Hall and disputes concerning pyrite in concrete have weakened confidence further.   Investment purchases by individual households, a key feature of the boom (27% of mortgages in 2007), is likely to be much less prominent giving how badly burnt many investors have been by the crash. Combined with the issues above, it seems likely that confidence will remain weak and that buyers in future will proceed with caution.  Growth when it does occur then will be marginal and hesitant, perhaps after a short dead cat bounce.   Assuming the market falls 60%, at growth rates of 5% a year, which would be a good target to aim for, it will take 19 years to reach 2007 prices.  Even in the cities, where growth is likely to be the strongest, it’s going to take some time for confidence to return.

I would like to provide a more upbeat, positive assessment, but the evidence just doesn’t support that sentiment at this time.  Ireland’s property crash, aligned with the weak domestic and international economy, is severe.  For the reasons above, it’s my view that the market is going to be very slow to recover.  It will though recover as supply and demand align and the economy stabilises and starts to grow again.

Rob Kitchin

The Minister for Housing and Planning, Willie Penrose T.D., has issued a press release and short report on the 2011 unfinished housing estate survey 2011.  The data updates the survey undertaken in 2010.

The headline figures

* 2,876 housing developments of two or more housing units were inspected by the Department in the 2011 survey

* 701 developments have no outstanding building work, though they have issues of vacancy, and 109 developments have not substantially commenced.  There are thus 2,066 unfinished housing developments that still require building work.

* 18,638 dwellings were recorded as complete and vacant, a 4,612 (20%) reduction from the 23,250 recorded in 2010.

* 17,872 dwellings are at various further stages of construction – 8,794 are nearly complete (9,976 in 2010) and 9,078 are underconstruction (9,854 in 2010), a reduction of 1,958 from 2010 (9.9%)

* In terms of activity levels, 1,822 of the 2,066 unfinished sites were mainly inactive at the time of inspection with 245 active (in 2010 429 sites were active, a reduction of 43%)

* Of the 247 estates categorised as the most problematic from a public safety perspective (Category 4), 36 have been re-categorised to the less problematic Category 3.

The good news

* There has been a reduction in:  (1) the number of vacant and unfinished properties – (43,080 to 36,510; 15.25%); (2) 701 estates have no outstanding building work though they have issues of vacancy, and 109 have not commenced.

* There have been some improvements in health and safety and infrastructure (fencing, sewage, roads, paths, lighting etc), though these are not quantified in the report.

In other words, some progress has been made on the ground.

The bad news

* At the present rate of correction in terms of occupancy (6,570 per annum) it will take 5 years for the remaining 36,510 units be occupied.

* There are still significant health and safety issues, only 36 of the 247 worst estates were downgraded.  This is a reflection of the lack of access to development funds and the short period of time the local authority fund has been available to redress these issues.

* There is a marginal reduction in the number of incomplete properties (19,830 to 17,872; 9.9%) and there has been a fall in the number of active sites (43%).  In other words, development work is slow to inactive.

What the data highlights is that the housing market is still very weak (and much of the fall in vacancy will be accounted for in rentals) and that funding for development work and for mortgages is very difficult to access.  It also suggests that rhetoric about there only being 12 months or less supply in many counties (as stated by the CIF) or that we need to build 30,000 units per year for the next 15 years needs to be treated with caution, at least in the short to mid term.  Over the long term, we will need additional social and private housing, but we don’t need to start building it right now until the present level of oversupply is worked off and development and mortgage credit become available.  And there is significantly more oversupply in the country than brand new, unfinished developments.  The Census 2011 revealed that there are 294,020 vacant units in the country, probably about 80-100,000 units are oversupply (on a 6% base rate) consisting of unfinished units, vacant one-off houses, empty investment and secondhand property.

We will be working with the updated spreadsheet over the next couple of days to get a fuller picture of the changes and we will load all of the data up into the AIRO website so that estate by estate, and county by county, comparisons can be made between 2010 and 2011.

Rob Kitchin

With the preliminary results of Census 2011 we can start to undertake some longitudinal analysis of the headline data.  Clearly a key component of the present crisis has been overdevelopment and the subsequent property crash. At a national level, whilst population increased by over a million people between 1991 and 2011 (1,055,550, 29.9%), and households increased by c.680,000[*1] (61.6%), the number of houses built in the same period was at least 869,949 (76.7% increase) (actually more given that some housing was replacement for stock that has subsequently become obsolete).  What this means is that whilst the population and households rose dramatically, house building managed to run ahead of household demand.  And if average household size had not been consistently falling between 1991 and 2011 from 3.46 to c. 2.7, then the level of oversupply would be significantly higher than it presently is.

One of the areas that has come under scrutiny with respect to the property crash has been the Upper Shannon Renewal Scheme area. This scheme, started in June 1998, provided tax relief or incentive allowances for development and covered Co. Cavan, west of the River Erne, all of counties Leitrim and Longford, north Co. Roscommon, east and south Co. Sligo.  Figures 1 provides data on vacancy including holiday homes, housing stock, % vacant stock for 1991, 1996, 2002, 2006 and 2011, and population and household change 1991-2011 for these five counties and the state.  Figures 2-4 graph these data and Figure 5 is house building per annum 1970-2009.  The data aren’t ideal, in that the vacancy rate includes holiday homes, but they still give a good impression of what has happened[*2].

What the data reveal is that development in these counties, like the state as a whole, ran way ahead of population/household growth and other forms of demand (holiday/second home), especially from 2002 onwards as the Upper Shannon scheme worked to accelerate construction activity.  This led to the strange phenomena of increasing population/households, increasing housing stock and increasing levels of vacancy (to over 20% for all 5 counties; base vacancy is usually expected to be between 3-6% in a normal housing market).  In Leitrim, for example, the county in the state with the highest level of overall vacancy (30.4%), housing stock grew faster (8,155; 81%) than population growth (6,477; 25.6%), and nearly twice that of household growth (4,432; 53.7%) and vacancy consequently grew by 3,733 (205%) from 1,820 to 5,553 units.  Roscommon and Sligo similarly built more houses than the population grew, let alone households.  All five counties show a marked increase in the housing vacancy level.  Even allowing for obsolescence and replacement, and demand for holiday homes, it is clear that housing was being built in excess of demand and in response to the tax incentives (as clearly illustrated by Figure 5).  The result is a significant oversupply of stock and a helping hand in the collapse of the banks (see Figure 6 for vacancy levels per ED).

Figure 1: Vacancy, housing stock, population and household change, Upper Shannon Renewal counties 1991-2011

 

Growth in housing stock, Upper Shannon Renewal Scheme, 1991-2011

Figure 3: Growth in vacancy, including holiday homes, Upper Shannon Renewal Counties, 1991-2011

Figure 4: % vacant, Upper Shannon Renewal area, 1991-2011

Figure 5: House completions in the Upper Shannon Renewal area, 1970-2009, ESB connections, Source DECLG

Figure 6: 2011 housing vacancy by ED

Rob Kitchin

*1 we don’t as yet know the total number of permanent households as temporary absent and visitor data has not been released.  What we do have is the total number of housing units (2,004,175) and the total amount of vacant units (294,202).  If we take one away from the other, there were 1,709,973 units that usually have someone resident, which is usually within a few thousand of the reported household figure for Census night.

*2 there is also a slight discrepancy in the stock and vacancy rate data as reported in the CSO data in that 91, 96, 02 all exclude temporary absent properties in the stock figures; 06, 11 include such properties in the stock figures, but not in the vacancy figures – the difference to the stock and vacancy rate including and excluding temp absent properties is very marginal, c. 0.1-0.3%.  In other words, the figures 2-4 would appear all but identical if the slight alterations were undertaken to make the data fully compatible.

To follow on from yesterday’s post concerning the initial Census 2011 results with respect to housing vacancy.  In that post we included a table of data detailing housing unit numbers, vacancy levels and change between 2006-2011 by local authority.  In the Census 2011 preliminary report the CSO has provide two graphs (vacancy at county level, Figure 1 – see below, and increase in housing stock, Figure 3) and a maps of housing vacancy at ED level (Figure 2).  What these figures show is a marked geography to vacancy, with the five Upper Shannon Renewal Scheme counties of Cavan, Leitrim, Longford, Roscommon and Sligo, along with Kerry, Mayo, Donegal, Clare and Wexford, showing significant levels of vacancy (all over 20%). All of these counties had increases their vacancy rates of over 10%, with Donegal, Cavan, Roscommon, Leitrim, Kerry and Clare having increases of over 20%.

Holiday homes are a significant contributory factor to vacancy in for four of these counties.   We don’t have the 2011 figures yet, but in 2006 holiday homes as a percentage of all vacancy was 52% in Wexford,  43.5% in Donegal, 37% in Clare and 36.5% in Kerry (as evidenced by the high rates of vacancy along their coastal fringes – Figure 2).  So roughly between a third and a half of vacancy in these counties is accounted for by holiday homes.  In the other six counties, however, in 2006, holiday homes accounted for less than a third of all vacant houses (Cavan 12.9%, Leitrim 26.7%, Longford 7.4%, Roscommon 15.9%, Sligo 23.1% and Mayo 29.6%).  This pattern is unlikely to have altered much in the last five years.  In other words, other factors are at play in all ten counties.

Seven of the ten counties  increased their housing stock by over 15% between 2006-2011, with the except of Kerry, Mayo and Clare that increased by over 12% (Figure 3).  Only in Cavan (13.9%), Wexford (10.3%) and Longford (13.3%) did population increase exceed 10%.  In other words, house building was exceeding population growth in all these counties.  As Figure 4 shows, many EDs in these counties had decreases in population between 2006 and 2011 and there is a strong match to those EDs with very high levels of vacancy (Figure 2).  These are also the EDs with low population densities (Figure 5).  Issues such as migration and natural fluctuations (ratio of births to deaths) also contribute.  As Figure 6 shows, several of these counties have low rates of natural increase.

Given the decrease in population in some parts of these counties, and the low rates of growth elsewhere in them, the data suggest that there is a significant oversupply of housing stock in them that may take many years to fill given present demographics.  We’ll be able to work out the exact levels of oversupply per county and likely length to fill once the full census results are out next year and we have a bit more information.

There has been some confusion across discussion boards since the Census results were released as to what constitutes a vacant house, and whether these figures include houses that were simply vacant on the night of the census and also houses in unfinished estates.  The CSO state the following: “‘In identifying vacant dwellings, enumerators were instructed to look for signs that the dwelling was not  occupied e.g. no furniture, no cars outside, junk mail accumulating, overgrown garden etc., and to find out from neighbours whether it was vacant or not. It was not sufficient to classify a dwelling as vacant after one or two visits. Similar precautions were also taken before classifying holiday homes.  Dwellings under construction and derelict properties are not included in the count of vacant dwellings. In order to be classified as under construction, the dwelling had to be unfit for habitation because the roof, doors, windows or walls had not yet been built or installed.”

In other words, enumerators visited homes several times and talked to neighbours to see if the house was a primary residence of occupation.  If the house was temporarily vacant on census night it was recorded as such and these figures are not included in the vacancy rate (as per previous censuses).  Houses in unfinished estates were included unless they were at a stage of construction that precluded habitation.  In other words, the 10,000 under-construction houses in the DECLG unfinished estates survey, and one assumes the vast majority of the 10,000 near-finished houses, will not have been included.

 

Figure 1: Vacant dwellings as a percentage of total housing stock by county, 2011

Figure 2: Percentage of dwellings vacant in each Electoral Division, 2011

 

Figure 3: Percentage increase in the number of dwellings by county, 2006- 2011

 

Figure 4: Percentage change in the population of Electoral Divisions, 2006 - 2011

Figure 5: Population density per square kilometer of Electoral Divisions, 2011

Figure 6: Natural increase by County, 2006-2011

Rob Kitchin

As regular readers of this blog will know, some of the contributors to Ireland After NAMA have been involved in debates over levels of housing vacancy in Ireland post the property crash and financial crisis.  We now no longer need to rely on models to predict the level of housing vacancy as the preliminary results of the Census 2011 provide a detailed breakdown for each local authority (see Table below – click on the image to enlarge – or Census 2011, Table 7).

The total stock of houses in the country grew by 234,562 (13.25%) between 2006 and 2011, rising from 1,769,613 units to 2,004,175 units.  The overall level of housing vacancy, including holiday homes, increased by 10.5% from 266,322 units in 2006 to 294,202 units in 2011. The overall level of vacant housing stock dropped slightly from 15% to 14.7%, but is effectively static, with growth in vacancy being matched proportionally by growth in housing units, which shrank markedly from 2008 onwards.

The much quoted figure in the media of 300,000 vacant units then has then been proven roughly right.  Of course, as we have pointed out several times, the real issue is oversupply not overall vacancy.  To calculate oversupply we need to subtract the number of holiday homes and also the base vacancy rate (calculated in Ireland as 6% overall stock; in 2011, 120,250) from overall vacancy.  The number of holiday homes have not yet been released, but it seems likely that oversupply will be 80-100,000 (it was estimated by the DECLG to be c.122-147,000 at the end of 2009) given growth in households between 2006-2011 and the tail off of construction in recent years.

Housing Vacancy in Ireland 2011, Source Census 2011

To look at the county level, there are ten local authorities where overall vacancy is over 20%.  These include Longford (21.8%), Wexford (20.9%), Clare (21.3%), Kerry (26.5%), Leitrim (30.4%), Mayo (24.8%), Roscommon (23%), Sligo (22.2%), Cavan (22.1%), Donegal (28.5%).  Only 10 LAs saw a reduction in the number of vacant dwellings, the largest of which was Fingal that saw a decrease by -425 housing units.  All other LAs saw a growth in vacancy, nine by over 20%: Carlow (32.2%), Clare (21.2%), Kerry (21.8%), North Tipp (24.9%), Leitrim (24.1%), Roscommon (24%), Cavan (24.7%), Donegal (26.4%), Monaghan (23.3%).

Once we have the holiday home figures we’ll be able to calculate a geography of oversupply, but it is clear from these figures that there is a pronounced pattern of vacancy.

Rob Kitchin