The supply of new housing responds to changes in price with a time lag, which can lead to periods of excess building and , as in Ireland of late, a chronic excess demand for residential property, particularly in areas where people want to live. Housing completions did rise significantly in percentage terms last year, by 33%, but such was the collapse in house building in the period 2007-13 that the recovery in 2014 left actual completions at 11k.This added just 0.5% to the existing housing stock (around 2 million) and as such is below the depreciation rate. Moreover, it compares with a figure of 25k that has become the consensus view on the annual supply required over the next 5-10 years.
House prices rose by 22% in Dublin last year and by over 10% elsewhere in Ireland which indicates a clear price signal. Completions in the first quarter of 2015 amounted to 2.6k , representing a 26% annual rise, but the pace of growth slowed sharply in q2, to 9%, with a supply figure of 3k. So completions over the first half of the year came to just 5.6k and our model now indicates an annual figure of less that 13k. The official completions data is based on connections to the electricity grid so the total can also include properties previously partially or largely completed as well as new builds, which adds a further uncertainty to any annual forecast.
Housing demand projections tend to put the figure for Dublin (city and county) at around 30% of the national total, implying an annual supply requirement of 7k-8k. That ratio was met last year although the actual supply in Dublin was only 3.3k, no doubt also augmented by previously unfinished developments. Still some way to go then to match forecast demand, particularly as the Dublin figure in the first half of this year was only 1.4k , less than a quarter of the national total, with apartments accounting for 0.5k of completions in the capital.
In our previous Blog ( ‘Irish Mortgage Regulations impacting the housing market’) we concluded that the new LTV limits were affecting mortgage lending and housing transactions but were not having a dramatic impact on prices. There is also evidence that the pace of rental growth is accelerating and the implication is that only a sustained and substantial increase in supply will bring the housing market into broad balance. The latest completions data suggests that will take some time.