New supply data implies housebuilding consensus may be too optimistic.

Annual house price inflation accelerated  to 13% in April, the strongest pace for three years, bringing the increase from the cycle low to 76%, albeit still leaving prices nationally some 20% below the previous peak. Credit does not appear to have played a significant role in this recovery, at least to date ( net mortgage lending has only recently stopped falling and new lending appears to account for only half of transactions) and analysts have emphasisied more fundamental factors on the demand and supply side of the housing market.

In that model  housing demand has exceeded supply for some time now with the implication that prices will continue to rise ( absent a shock to employment or a steep rise in interest rates) until housing supply has picked up to a level which brings balance to the market. Supply, as in new housing completions, is picking up from historically low levels and in time is generally expected to approach and then meet estimates of annual housing demand. For example, the ESRI expect completions to exceed 23,000 this year and to reach 37,000 by 2020.

That expectation was based on completions data from ESB connections which put the annual figure at over 19,000 last year, although some thought that overstated the actual flow of new properties. Fortunately, the CSO has now started to publish completion figures on a quarterly basis, based on a range of sources , and they imply that completions may be much lower than generally expected over the next few years. The new figures, dating back to the first quarter of 2011, show completions of  57,000 over the past seven years, against an ESB total of over 90,000, a difference of 33,000. Last year’s total is now put at under 14,500, or 5,000 less than the ESB figure, and for this year the CSO figure  for q1 is 3,500. The latter may have been adversely affected by the weather but a full year figure of 17,000 or so seems much more likely than  anything approaching 25,000.

The implication is that the housing stock has been growing at a slower pace than previously thought  and that the stock  per head of population , a key variable in many demand/supply models, is still falling ( it started to decline in 2011) and will continue to decline for the next few years. Indeed, new population projections by the CSO highlight that demographic pressures will remain a feature of the Irish market; the population is projected to grow by over 300,000 by 2021 on a high net migration scenario or by 1.3% per annum, against a housing stock still growing by  well under 1%.