Census confirms Irish Housing stock per head is falling

The Irish housing market seems to lurch from feast to famine, often prompting Government intervention, in turn exacerbating rather than ameliorating the volatility. For some time now it has been clear that the market has moved from one of excess supply to one of excess demand, and the 2016 Census data confirms that annual supply  fell to such a low level over the past five years that it was barely offsetting the obsolesence rate , with the result that the housing stock has only marginally increased, against a background of  a rising population and a recovery in household income.

The stock stood at 1.995 million according to the 2011 census and some of this will become obsolete over time. A commonly used figure in Ireland is 0.5% annually, implying the loss of around 10,000 housing units a year. Yet completions ( itself a less than perfect proxy for actual new supply)  fell well below this in 2012 and 2013 and although  they have picked up the figure for 2016 was  less than 15,000.  Indeed, total completions between the 2011 census and  April 2016  amounted to some 51,000, implying little or no change  in the net stock. In the event the Census revealed a figure of just over 2 million,  a rise of less than 9,000 over the five year period.

The population was not static, of course, rising by 174,000 or 3.8% over the five years , with the result that the housing stock per head of population actually fell, a reversal of the normal trend.The number of households also rose substantially, by over 48,000, which alongside the absence of any meaningful increase in housing supply resulted in a 47,000 fall in the number of vacant properties ( excluding holiday homes). The latter figure stands at 143,000 nationally, or 9.1% of the housing stock, although this masks huge variations across the country, with the ratio being much lower in and around Dublin, including 4.7% in Fingal and only 3.6% in South Dublin.

One ‘solution’  to the supply issue is to simply wait and rely on the market to function, on the basis that rising prices will bring forward new builds. The evidence does point to this happening, although it may well take a few years for supply to match annual demand, let alone eat in to the cumulative excess that has arisen over recent years. There is also  a case for the State to fund housing on a much larger scale, on the basis that large numbers will never afford their own home, although euro fiscal rules are a constraint. Unfortunately, the policy response has been to either address the symptoms of excess demand ( by seeking to control rents for example) or to boost demand further by giving subsidies to certain types of buyers. The former does seem to be having an effect in that data from the CSO shows rents rising by just 1.5% in the three months to March. Moreover,Dublin apartment prices  actually fell in the three months to February, which if maintained is unlikley to encourage supply.



Population Pressure on Housing greater than thought

The CSO produced another set of surprising data today, at least to some, with the publication of preliminary figures from the recent census. The population had been estimated at 4.64 million as at April 2015 , implying an average annual rise of around 15k since the 2011 census. Consequently the 2016 census figure , at 4.76 million, was much higher than generally expected, with the total increase over the past five years at 170k, or around 35k per annum. The natural increase (i.e. births minus deaths) was put at 198k, with the residual, net migration, at just -28k. In other words there has been a net outflow from Ireland over the past five years but it is now seen as much lower than previously estimated; the CSO had put net emigration over the four  years to April 2015 at 100k. So the numbers emigrating may have been lower than thought  and/or immigration may have been higher, with the latter more likely, given past episodes of population underestimation.

This Blog has pointed to growing capacity constraints in Ireland, particularly in and around the capital, and these figures only serve to underline the point. On housing, the census reveals that the housing stock rose by just 19k over the past five years so what limited new construction we have seen has barely managed to offset depreciation.

The CSO points out that the growth in households (3%) has lagged that of population growth as a whole (3.7%) , indicating that the availability of housing is an issue. The census reveals that the vacancy rate of housing nationally , excluding holiday homes, has fallen to under 10% from 11.5% in 2011 and 12.5% in 2006. In the past houses were built in areas that people did not want to live so the vacancy rate varies wildly across the country, from well over 25% in Donegal and Leitrim to single digits in Dublin and surrounding counties. Indeed, if one excludes holiday homes (small in number) the vacancy rate in South Dublin is 3.9%, and below 6% in both Fingal and Dun Laoghaire Rathdown.

Trying to suppress the symptoms of excess demand for housing ( by, for example, capping rents) is not sensible in economic terms and the only solution is to build more.  Moreover, these figures imply that the consensus estimate for housing demand of 25k per annum is now too low, as net emigration  has been overestimated, and indeed may already have turned to net immigration.