Population and migration data highlight pressure on resources.

Estimating the Irish population in the years between census counts is tricky. The birth rate is known, as is the death rate, but migration flows are notoriously difficult to measure, so estimates are often revised when the census data is available. That is the case following the 2016 census, with net migration now much lower than previously thought, which also means that the prevailing post-crash narrative has to be revised, along with an acceptance that the economy faces overheating and capacity issues,rather than large scale underutilisation of resources.

That narrative  envisaged very large emigrant flows dwarfing immigration, with a net outflow between 2011 and 2016 of just under 100,000. That figure has been revised down, to 31,000, with net immigration turning positive again in 2015. Immigration estimates for the period have been revised up, by a net 27,000, but the biggest change is on the emigration side, with a downward revision of 40,000.

So fewer people left than generally believed and more entered than initially thought. What about the trend post-census? The CSO estimate that net immigration rose to 20,000 in the year to April 2017, up from 16,000 in 2016, which alongside a natural population increase of 33,000 brought the total numbers in Ireland to 4.79 million. This represents a 1.1% annual increase, following a similar rise the previous year, and on that basis the population will hit 5 million  in another four years, which is  much earlier than the standard official projections.

Pressure on resources has been evident for a number of years now, and these migration and population figures bring some hard evidence on the need for a big increase in Ireland’s economic capacity, in health, education, transport, infrastructure and housing. On the latter, population growth implies the need for a net increase in the housing stock of 22,000 a year, implying a  completions requirement of  32,000 a year ( given obsolesence), just to maintain a constant population/ housing ratio, let alone account for a trend fall in the numbers per household. We are unlikely to hit that annual  figure for another three or four years, implying a very substantial backlog and hence  the need for an overshoot in the annual requirement.




Irish Housing Supply points to further pressure on Rents and Prices

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.