Lots and lots of comments on this interesting blog entry:
As far as I can see (and I’ll admit my brain is a bit fried at this stage on a Thursday), you’re evidence for a property overhang is based on an assumption that we were adequately stocked heading into the boom. This is not the case. I don’t have figures to hand, but if I recall correctly even by Census 2006 we still had a ratio of population to dwelling units below or just about at the European average. So if we’re overbuilt, I would say it’s by not more than 100k units.
Furthermore, a confounding factor in your regional comparison is the differential demographic trends across the country. Dublin households are at present more hourglass in their Demographics – you’ve got old Mrs Sheedy in Churchtown who’s 85 years old living in a semi-detached on her own; then you’ve got young families in the endless new estate jungles of the commuter belt whose kids are all still in primary school.
Still a much more important driver to housing demand – and hence whether we have too many or too few – will be net migration trends. Population growth through immigration has a much more immediate impact on household formation than increases in the natural birth rate (obviously), while the reverse is true for emmigration.
I cannot say for sure if this is true, but I strongly suspect there are important differences between migratory trends across the regions. I’m betting Dublin will prove to be more transitory (and hence quicker to deflate housing demand) than the rural areas.
So I think the problem is not too many houses, but houses that are still way too dear. The fiction of semi-detatched relics in Clonskeagh worth 750k is not just an issue for the balance sheets of banks, it is an intergenerational wealth transfer issue, and crucially a competitiveness issue.
Coming to your conclusions, I disagree on both counts. Creating an adequate, transparent and efficient system of obtaining planning permission is all the government ever needs to do on the supply side.
On the demand side, what we really need is a residential property tax charged on the assessed value of the dwelling. This will bring some sanity to the aforementioned 750k semi in Clonskeagh, while pricing in the overhang in Longford and Leitrim to encourage a better population balance.
Anyone from America knows this is the best way to get retirees moving out of expensive city locations (“Couldn’t afford the property tax”).
But other attempts to “deliver balanced regional developed” are a recipe for further competitiveness erosion and inefficiency (remember decentralisation?)
Great comment, thanks for taking this head-on as I was trying to give a picture and this really needs a going-through on the details.
You’re right, I did assume all was well in 2002. I understand your comment but I offer a couple of related points for the contrary.
(1) Ireland fits more people into each house than other European countries, hence the smaller stock. That’s slowly changing over time, but it’s still the case.
(2) Even at 40,000 units a year, we’d have been building 150% the EU average on a per capita basis (p.101 http://www.forfas.ie/media/ncc090108_acr_2008.pdf) and almost twice our previous long-run output of about 20,000 (http://www.daft.ie/report/Daft-Rental-Report-Q4-2007.pdf). Surely that output would be more than enough to build enough to match demand.
For the above reasons there are also economists out there who believe we were over-stocked by the time 2002 came rolling around. Hence my taking 2002 as a sort of mid-point between both camps.
On the second and third points, different demographic trends and property taxes, I’m not sure how this refutes the analysis given. I agree with you in principle on both points but all that will do is affect Dublin’s steady state price and the rate of transactions, rather than steady state output… or have I misunderstood?
Yes, the “how many paddys can we cram into a house” coefficient is indeed hard to calculate, but my feeling is we Irish don’t like living on top of each other any more than the Germans or the French. (Well, at least, I don’t!). We may have done it in the past, but only because we were too poor to build enough houses to live in.
The demographics and property taxes comments were not designed to refute your analysis per se, just to add some flavour to the debate. My only point on the demographics, really, is that it makes inter-regional comparisons of what the output should and will be over the medium term difficult.
Basically, I agree that the issue of when, where and how soon we will start building again is a fascinating one.
I think too you are the first to really start asking this question!
John
,
Your estimate of 200k overbuilding between 2002 and 2008 is exaggerated.
Between 2002 Q2 and 2008 Q1 (the six years following the 2002 census), the number of households in Ireland increased by 288k, slightly lower than your estimate of 300k.
However, in those six years the number of houses built was 458k, a lot lower than your estimate of 500k.
That leaves a surplus of 170k.
However, from that you must deduct the number of old houses that became obsolete in that time, i.e. old houses that fell into disrepair or were abandoned as they were far below modern standards of comfort. The various census indicate a continuing large fall in the number of households living in pre-1919 and pre-1940 built houses. I estimate (and so does the Dept of the Environment) that about 10k to 12k houses (mostly very old houses) become obsolete each year. This reduces the surplus to the range 98k to 110k.
In addition, from that you must deduct the number of new second/holiday homes built in those six years. Unfortunately, there are no definite figures for this. However, CSO figures in their Household Travel Surveys indicate that the number of people resident in Ireland, who holiday in their own holiday home in Ireland, more than doubled in this period. Plus, of course, holiday homes rented out to foreign tourists. So, although I can’t be certain, I estimate the number of new second/holiday homes built in those six years at about 30k to 50k. That reduces the surplus to the range 48k to 80k.
Even the upper end of this range (80k) is well below the 200k you estimated. It also knocks on the head the idea that there are 350k ’empties’ in Ireland waiting to be unleashed on the market. Its nonsense. There might be 350k ’empties’, if you include every ‘tumble-down shack’ in Athlone, every ‘cottage by the Lee’ , every house built circa 1900 with a stone floor and draughts blowing in from every direction. But, if we’re taking about modern high-quality centrally heated houses of the type people of today might want to live in, there are nowhere near 350k ’empties’. As I said above, its probably in the range 48k to 80k and falling as house completions have dried up. If, as some claim, there actually are 350k ’empties, then why aren’t they showing up on Daft? The most recent Daft survey shows the stock of houses for sale falling. So, where
have the 350k ’empties’ disappeared to?
As for future housebuilding, it depends entirely on future population growth. If net emigration resumes, obviously the requirement for new houses will be much less than in the past decade. If it doesn’t, and both net immigration and population growth continue at a high level, then the requirement for new houses will be much the same as in the past decade. Right now, nobody can possibly know which of these two scenarios will prevail over the next decade.
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Graham ,
Ronan,
Lots and lots of comments on this interesting blog entry:
As far as I can see (and I’ll admit my brain is a bit fried at this stage on a Thursday), you’re evidence for a property overhang is based on an assumption that we were adequately stocked heading into the boom. This is not the case. I don’t have figures to hand, but if I recall correctly even by Census 2006 we still had a ratio of population to dwelling units below or just about at the European average. So if we’re overbuilt, I would say it’s by not more than 100k units.
Furthermore, a confounding factor in your regional comparison is the differential demographic trends across the country. Dublin households are at present more hourglass in their Demographics – you’ve got old Mrs Sheedy in Churchtown who’s 85 years old living in a semi-detached on her own; then you’ve got young families in the endless new estate jungles of the commuter belt whose kids are all still in primary school.
Still a much more important driver to housing demand – and hence whether we have too many or too few – will be net migration trends. Population growth through immigration has a much more immediate impact on household formation than increases in the natural birth rate (obviously), while the reverse is true for emmigration.
I cannot say for sure if this is true, but I strongly suspect there are important differences between migratory trends across the regions. I’m betting Dublin will prove to be more transitory (and hence quicker to deflate housing demand) than the rural areas.
So I think the problem is not too many houses, but houses that are still way too dear. The fiction of semi-detatched relics in Clonskeagh worth 750k is not just an issue for the balance sheets of banks, it is an intergenerational wealth transfer issue, and crucially a competitiveness issue.
Coming to your conclusions, I disagree on both counts. Creating an adequate, transparent and efficient system of obtaining planning permission is all the government ever needs to do on the supply side.
On the demand side, what we really need is a residential property tax charged on the assessed value of the dwelling. This will bring some sanity to the aforementioned 750k semi in Clonskeagh, while pricing in the overhang in Longford and Leitrim to encourage a better population balance.
Anyone from America knows this is the best way to get retirees moving out of expensive city locations (“Couldn’t afford the property tax”).
But other attempts to “deliver balanced regional developed” are a recipe for further competitiveness erosion and inefficiency (remember decentralisation?)
ronanlyons ,
Hi Graham,
Great comment, thanks for taking this head-on as I was trying to give a picture and this really needs a going-through on the details.
You’re right, I did assume all was well in 2002. I understand your comment but I offer a couple of related points for the contrary.
(1) Ireland fits more people into each house than other European countries, hence the smaller stock. That’s slowly changing over time, but it’s still the case.
(2) Even at 40,000 units a year, we’d have been building 150% the EU average on a per capita basis (p.101 http://www.forfas.ie/media/ncc090108_acr_2008.pdf) and almost twice our previous long-run output of about 20,000 (http://www.daft.ie/report/Daft-Rental-Report-Q4-2007.pdf). Surely that output would be more than enough to build enough to match demand.
For the above reasons there are also economists out there who believe we were over-stocked by the time 2002 came rolling around. Hence my taking 2002 as a sort of mid-point between both camps.
On the second and third points, different demographic trends and property taxes, I’m not sure how this refutes the analysis given. I agree with you in principle on both points but all that will do is affect Dublin’s steady state price and the rate of transactions, rather than steady state output… or have I misunderstood?
Graham ,
Hi Ronan,
Yes, the “how many paddys can we cram into a house” coefficient is indeed hard to calculate, but my feeling is we Irish don’t like living on top of each other any more than the Germans or the French. (Well, at least, I don’t!). We may have done it in the past, but only because we were too poor to build enough houses to live in.
The demographics and property taxes comments were not designed to refute your analysis per se, just to add some flavour to the debate. My only point on the demographics, really, is that it makes inter-regional comparisons of what the output should and will be over the medium term difficult.
Basically, I agree that the issue of when, where and how soon we will start building again is a fascinating one.
I think too you are the first to really start asking this question!
John ,
Your estimate of 200k overbuilding between 2002 and 2008 is exaggerated.
Between 2002 Q2 and 2008 Q1 (the six years following the 2002 census), the number of households in Ireland increased by 288k, slightly lower than your estimate of 300k.
However, in those six years the number of houses built was 458k, a lot lower than your estimate of 500k.
That leaves a surplus of 170k.
However, from that you must deduct the number of old houses that became obsolete in that time, i.e. old houses that fell into disrepair or were abandoned as they were far below modern standards of comfort. The various census indicate a continuing large fall in the number of households living in pre-1919 and pre-1940 built houses. I estimate (and so does the Dept of the Environment) that about 10k to 12k houses (mostly very old houses) become obsolete each year. This reduces the surplus to the range 98k to 110k.
In addition, from that you must deduct the number of new second/holiday homes built in those six years. Unfortunately, there are no definite figures for this. However, CSO figures in their Household Travel Surveys indicate that the number of people resident in Ireland, who holiday in their own holiday home in Ireland, more than doubled in this period. Plus, of course, holiday homes rented out to foreign tourists. So, although I can’t be certain, I estimate the number of new second/holiday homes built in those six years at about 30k to 50k. That reduces the surplus to the range 48k to 80k.
Even the upper end of this range (80k) is well below the 200k you estimated. It also knocks on the head the idea that there are 350k ’empties’ in Ireland waiting to be unleashed on the market. Its nonsense. There might be 350k ’empties’, if you include every ‘tumble-down shack’ in Athlone, every ‘cottage by the Lee’ , every house built circa 1900 with a stone floor and draughts blowing in from every direction. But, if we’re taking about modern high-quality centrally heated houses of the type people of today might want to live in, there are nowhere near 350k ’empties’. As I said above, its probably in the range 48k to 80k and falling as house completions have dried up. If, as some claim, there actually are 350k ’empties, then why aren’t they showing up on Daft? The most recent Daft survey shows the stock of houses for sale falling. So, where
have the 350k ’empties’ disappeared to?
As for future housebuilding, it depends entirely on future population growth. If net emigration resumes, obviously the requirement for new houses will be much less than in the past decade. If it doesn’t, and both net immigration and population growth continue at a high level, then the requirement for new houses will be much the same as in the past decade. Right now, nobody can possibly know which of these two scenarios will prevail over the next decade.
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