Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

April 2017

Dublin’s student housing crisis

A couple of weeks ago, Dublin City Council sent back two planning applications for student accommodation near the new DIT Grangegorman campus in Dublin 7. Combined, the two private developments would have added about 1,000 new purpose-built student units.

In justifying its decision, the Council made two interesting – ok, baffling! – points. The first was that it feared an “overconcentration of student accommodation” in the area. It is as if, when agreeing to locate DIT on one site, nobody thought that these 20,000 students would need somewhere to live.

That is, to me, baffling enough. But follow this logic through. Economists are obsessed (rightly so, in my view!) with the concept of opportunity cost: what happens if you don’t do something is as important as what happens if you do something.

This is particularly important if we think about the fear of displacement. I should point out that I’m a local resident myself and neither I, nor anyone I’ve talked to, is worried about this if student accommodation is allowed to go ahead.

However, some local residents, according to media reports at the time of the decisions, fear the area will become overwhelmed with students. Again, this fate was largely sealed once it was decided to locate DIT on the site.

I studied the dynamics of the purpose-built student accommodation sector closely last summer and part of that work involved understanding how students live currently. It’s seems reasonable, based on the evidence, to allow for the about one third of Irish students living at home with their parents – this is about twice the UK fraction.

But the important stuff is what happens the other two thirds, not the ones who stay at home with Mammy. Currently, the typical student lives in a three- or four-bedroom house with a number of other students. Each has a budget of €500 a month – and closer to €600 if you live in Dublin.

This means that, once DIT is ready to go, a group of four students will have a budget of between €2,000 and €2,500 a month to rent a family home. How many 1- or 1.5-income households could compete with that?

In short, I can’t think of a way to displace local residents from Dublin 7 more rapidly than to put DIT there and not allow student accommodation to be built.

It gets worse, though. The Council goes on to question the need for student accommodation at all. It asks the developers to justify why they are building student accommodation at all, “rather than standard residential accommodation”.

Before we get into the numbers, think about that for a second. A private company does their market research. They are fully aware that DIT itself plans to provide student accommodation and they are acutely aware that their competitors are also at work building homes for students.

Nonetheless, they crunch the numbers and are happy that they will easily fill 500 new units. Not only this, they go off and raise capital to do the same. Raising capital means convincing quants people, probably in London or New York, that they are not going to back a loser. This will include articulating the need.

After all that process, the company have their funds, happy that not only have they vetted their own numbers but so have people who are putting savings on the line. Then, after all that, the Council turns around and questions why are they doing this in the first place!

We need to stop questioning the motives of those who want to develop. Their motives are pretty obvious: they spot a need and want to meet that need, in doing so making a profit. It doesn’t really get any more or less sinister than that.

But Dublin City Council’s response makes even less sense when you look at the numbers. The city is already grossly understocked when it comes to purpose-built student accommodation. In 2016, there were roughly 76,000 students in the city, of which 42,000 were “non-local” (from outside the city).

Only 11,000 of these students could be accommodated in purpose-built student accommodation, however. The other 30,000 “non-locals” (including Dublin’s many international students) had to find homes in the private rental market. This means 3- and 4-bed houses which could have accommodated families on lower incomes.

So, even in 2015, Dublin – and Ireland as a whole – desperately needed new student units. But the picture looks far worse as we scroll forward. Basic demographics tell us that the 18-22 year-old population will rise by 30% between 2014 and 2029.

On top this, you need to add in net migration, rising enrolment rates and a growing share of international students. Taking these into account, the total number of third-level students in Ireland is set to rise from 168,000 in 2014 to between 200,000 and 250,000 by 2024.

Focusing just on Dublin, and allowing for the fraction living at home with their parents – and even allowing for half of all students to still live in the wider rental sector – Dublin needs at least 30,000 new purpose-built student units in the next few years.

That’s 60 blocks similar to the ones the Council just sent back to developers. And we wonder why rents in Dublin 7 have risen by 75% in recent years!

It’s particularly concerning to hear the Council talk about “standard residential” vs student homes. Dublin has in recent years had a chronic shortage of each of the following: office space, hotel rooms, student accommodation, and apartments.

Starting with office space, and now spreading to hotel rooms, these problems have been righting themselves. This is what a smart city does: harness developers, and the capital they have access to, to meet its needs.

If there is a problem when it comes to the viability of building apartments in Ireland – and there definitely is! – then this needs to be tackled directly. Holding up much-needed student homes as hostage definitely won’t solve the problem.

In fact, it will make it worse. Rents in Dublin 7 will rise even further and locals will feel more displaced.


An edited version of this post was originally published in my column in the Sunday Independent. My view on the scale of demand has changed slightly, but I have left this as is in the interests of transaparency!

Navigating the 2017 housing market

Ireland’s housing market in 2017 is one of many conflicting signals. Depending on who you talk to, there are parallels with all sorts of past experiences. To some, we are still living in the crash, with masses of empty properties dotted around the country the elephant in the room.

To others, the dramatic increase in housing prices tells them that we are in a bubble. To them, the market is like Groundhog Day – and we are Bill Murray, doomed to repeat the same cycle we just exited.

I am not convinced by either narrative, however. True, there are some small pockets of the country where an excess of bubble-era building still swamps out demand. But by far the more important trend over the last six years has been an acute and growing shortage of supply.

It’s worth remembering that, in the bubble years of 2001-2008, Ireland’s cities did not build to excess. The over-hang, once the bubble popped, was to do with the increase in unemployment and emigration. Once this levelled off in 2010, so too did rental and later sale markets.

But if we are not back in 2011, neither are we back in 2001. The market then was characterised by increasingly reckless borrowing and lending. Central Bank of Ireland figures indicate that the typical first-time buyer went from having a 33% deposit in 2000 to less than a 10% deposit in 2006. More than 25% of first-time buyers that year had no deposit at all.

Back in 2014, when Dublin house prices were rising at a rate of 25% per year, I did worry that we were entering another expectations-driven bubble, fuelled by loose credit. And, true, the Central Bank has recently relaxed its mortgage rules, while the Government has decided to “help” first-time buyers.

But the key point is that the rules are there. It is not up to individual banks to decide how risky they should get when issuing mortgages: the Central Bank has given them a maximum level of risk. So what we have is a market where demand easily outstrips supply, in both sale and rental segments, but where credit is limited, reducing dramatically the risk of a bubble.

Strong demand – and weak supply – mean that some of the guessing is taken out of the market. Despite quarterly and perhaps annual blips, it is likely that prices will continue to rise in the coming years, although far less dramatically than in recent years. What does this mean for those thinking about buying or selling? For sellers, the key change is to move away from valuing your house based on what it was worth in the bubble or what your neighbour sold theirs for two or three years ago.

Sellers need to figure out the kind of buyer for their home: Who are they and what do they work as? Knowing whether your home is likely to appeal to a teacher or two law partners or someone downsizing is central. What is their household income? What sort of deposit might they have? This will determine their mortgage and thus the maximum they are willing to pay.

For example, suppose you think your home will be bought by an accountant and a teacher. Together, they earn €80,000 per year, before taxes. They are first-time buyers and, leaving aside money for solicitors’ fees and stamp duty, they have saved up €30,000. Under Central Bank rules, they would be allowed borrow €280,000 – unless they can secure an exemption from the loan-to-income restriction, in which case they could borrow €300,000. Either way, the most this couple would be able to spend on a house is €330,000.

What about buyers? It is tempting for buyers to just employ the same logic in reverse: “Whatever the bank will lend us is our stash and let’s go find something we like.” But the key question for buyers is to know how much an individual property is truly worth – and then tailor the search for a home based on that. This is done by applying an investor’s logic. As a homeowner, you are both an investor and a consumer. And a good investor will want to know what return they’re getting on their asset.

The rule of thumb is that bidders should not offer more than 20-25 times the annual rent for a property, without a very good reason why. A property that rents for €1,200 per month has an annual rental bill of almost €15,000. This translates into a value of between €300,000 and €375,000. The smaller the multiple of the annual rent, the better a deal you are getting for yourself as an investor. Many investors currently are only paying ten times the annual rent for one- and two-bedroom properties.

But going beyond 25 times the annual rent means that you are taking on risk. Remember, as the successful buyer of a property, you have just valued it more than anyone else on the planet. You should be able to explain why!


An edited version of this post was originally published in my column in the Sunday Independent.

What the latest Census tells us: cramming into households

One of my favourite Republic of Telly sketches is Things your parents could say in the 1980s, which included things like “That young Bertie Ahern is a real go-getter – we’re voting for him!”

In one of the scenes, there’s a car with at least five children across the back seat, not a seat-belt between them. The father turns around and says to one of them, “Stand up here between Mammy and Daddy, you’ll see the road better.”

Cramming as many as you could into the back of the car may have been a way of life of the Irish back in the 1980s – but it seems 2010s Ireland is an apple that hasn’t landed far from the tree. The first of the detailed results from the 2016 Census were issued last week and it seems we are still cramming people into homes.

The top-level results of the Census are reasonably well known. There was a strong increase in the population between 2011 and 2016. The increase of over 165,000 people means the annual rate of population growth in recent years has been 0.7%.

This may sound small but, given the strong level of emigration, particularly early in the period, is a sign of just how fast the country will growth now that the flow of migration has turned inward again. (Immigration has risen from 53,000 a year in 2012 to almost 80,000 in 2016, while emigration fell from 90,000 to 75,000 in the same period.)

But, under the radar, there was something of a bombshell in the figures. Average household size – that is to say, the average number of people in the typical household in the country – actually rose between 2011 and 2016. It rose from 2.73 to 2.75.

Now, this may sound like a small change. But Ireland’s average household size has been falling steadily over the last fifty years. This reflects any number of social trends, including increased longevity, a small number of children in each family, and a greater share of adults not having children.

Between 1971 and 2011, average household size in Ireland fell from 4.1 to 2.7. To see why that matters for housing, let’s keep the size of the population the same and just vary the average household size. At 4.1 people per household, a population of 4.5 million needs 1.1m homes. But at 2.7 per household, it needs 1.67m – over 50% more!

It has been obvious that Ireland is on the same journey as other European countries – just slightly delayed. Average household size in Europe has been falling for decades and now averages 2.3. In 2011, household size in Ireland was higher than anywhere else in Europe, apart from the Balkans.

But at 2.3 people per household, a population of 4.5m would need just under two million dwellings – almost 300,000 more than it had in 2011! (And that’s with a static population… Ireland’s is growing by about 15,000 households a year.)

This, then, is the bombshell in the Census stats. Households can only form if there are dwellings for them to form in. And at a time when every social pressure was pushing Ireland towards lower household size, the lack of housing has forced us to cram more in a dwelling.

One commentator last week tried to put a brave spin on the figures, by suggesting it reflects Ireland’s on-going baby boom. Unfortunately, the stats do not back this up. The Census documents 17 different household types, from “One person” to the glamorously titled “Households comprised of unrelated persons only”.

But for practical purposes, these 17 types can be grouped into four headings: the “with children” family types; the “zero kids” family types; the “with other persons” household types – i.e. where unrelated people live with a family; and the “non-family” household types, i.e. where there is no obvious family unit in the dwelling.

The “with children” family types make up over 60% of the population. But their share of both the population and of the number of households actually fell slightly between 2011 and 2016. The same is true of the “zero kids” families, who make almost one quarter of the population.

Just to reiterate that: Ireland’s population grew by 166,000 people between 2011 and 2016 – but families and no-children couples/singles were under-represented in that growth. Neither the “we’re great at having kids” narrative nor the “we’re going the way of Western Europe” narrative applies.

Instead, over 40% of Ireland’s population growth in recent years has come from two traditionally small sources: families who have non-family members living with them, and households where there are no families at all.

These two categories account for about 15% of the population – but made up fully 35% of the growth in the population between the last two Censuses.

This reflects the complete failure of housing supply to respond to new demand over the last six years. Even with a stable population and stable household size, Ireland would need about 10,000 new homes built each year just to offset obsolescence – and this would largely be urban apartments replacing rural cottages.

With falling household size, something we now our population is trying to do, even keeping the population constant, Ireland needs an additional 15,000 homes per year. And again, this will be concentrated in cities and towns and in types other than the three- and four-bedroom house. This includes apartments for downsizers, studios for young professionals, purpose-built student accommodation and assisted living for older persons with care needs.

That means that even if our population were stable, Ireland would need 25,000 homes per year just to stand still. When you add in not only the natural increase – a further 15,000 a year – but also likely inward migration, it is clear that Ireland needs at least 40,000 and closer to 50,000 new homes per year.

The country has been getting one third of the new homes it needs. The Census is the wake-up call that until we understand how to build apartments better, we won’t be able meet our needs any time soon.


An edited version of this post was originally published in my column in the Sunday Independent.

Housing, planning and the cluster economy

Fifteen years ago, the Irish Government published a National Spatial Strategy. Complete with gateways and hubs, it was supposed to be a cornerstone of Ireland’s development over the coming two decades – and indeed, if successful, well beyond that.

However, within a few months, it has been trumped, as the same Government announced its own plans to “decentralise” its Government. (As the OECD has noted, the so-called decentralization was no such thing: no powers were to be returned to local authorities. What happened instead was the fragmentation of central government.)

Particularly once government finances took a turn for the worse in 2008, ambitous plans for future decades had to take a back seat. Indeed, the fraction of government spending devoted to “voted capital”, i.e. infrastructure, is lower now than at any point since 1980. Even in the grim, fiscally austere mid-1980s, the country was investing more in its future.

The recent and dramatic improvement in economic conditions in this country, however, has finally convinced the government to have another look at planning for growth. The aim for the new National Planning Framework is to coordinate Government policies that relate to national and regional development. This will include housing but also water, transport, communications, energy, health and education.

Those crafting the new policy would do well to heed the lessons from other countries. I’d like to highlight three: relating to transport, to utilities and public services, and to housing.

Infrastructure – in particular transport infrastructure – has been shown to have long-lasting effects on the spread of people and jobs. To give one albeit extreme example, the US network of federal highways has allowed cities to grow, but in doing so it has depopulated the urban cores. This is in part due to the nature of highways in that country, which do not stop at ring-roads but penetrate to the heart of cities.

A second key lesson for Irish policymakers is making the link between where people live and the infrastructural services they consume. In practical terms, what do every 1,000 new residents translate into, in terms of hospital beds, school places and utility networks?

Ireland is constrained here on two fronts. The first is the lack of a meaningful property tax – its rate of 0.18% is less than one-fifth the standard rate in other countries, depriving local authorities of the revenues to invest. And the second, political poison it turns out, is the lack of a water charge. This has turned some parts of the country into “one in, one out” in terms of planning permissions, as the water infrastructure simply can’t cope.

The final point relates to housing. Economists, particularly those who focus on water, are very exercised by one number, what they term the elasticity of housing supply. In everyday language, this is how supply responds to new demand. If a region needs 10,000 new homes – due to job creation or demographics or some other factor – how many of those 10,000 new homes are built and how fast?

Given supply of new housing takes time, how the price of housing is changing across regions gives a good picture of the underlying demand for housing. And the figures from the latest Report, out today, are telling, if not surprising.

House price increases are back with a bang in Dublin, the area around it and in the other major cities. In Dublin and the four other major cities, prices have risen by roughly 55% from their lowest point nearly five years ago.

Dublin’s commuter counties, and other counties well connected to the capital by transport infrastructure – see point (1) above! – have also seen increases of 50% or more. But in those parts of Munster, Connacht and Ulster outside the cities, prices have increased by less than one third. And, unlike the urban centres, house price inflation in those parts of the country appears to be easing off, not hotting up.

What this means is that Irish people are similar as their counterparts in other high-income countries. They like to cluster and that means cities will drive future growth. I can understand the temptation for the National Planning Framework to become another Spatial Strategy, with cherrypicked market towns around the country somehow going to act as a counter balance to Dublin, Cork and the other major cities.

But the truth is that country rises and falls together. What is good for Dublin or Cork is also good for the market towns and rural Ireland. It is clear from the housing market that there is substantial unmet demand for new homes in and close to Ireland’s biggest cities. As a country, we need to make sure supply can meet this demand.


An edited version of this post was originally published in my column in the Sunday Independent.