Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

September 2017

Learning from how other countries do housing

This weekend saw the 40th annual Dublin Economics Workshop policy conference. As has been traditional, the Dublin-based organisation left the city for its weekend of panels and presentations, opting for Wexford town this year. A session on the Saturday brought together a number of speakers on the topic of housing and specifically what we can learn from other countries. Here, I’ll lay out the argument I presented at the session.

My presentation started with a bold statement: Ireland has no shortage of houses. This may somewhat counterintuitive as I, and many others, have been arguing for a number of years that the problem is housing supply. But the key distinction here is between housing and houses.

While Ireland has no shortage of houses, it does indeed have a shortage of apartments. According to the 2016 Census, there are roughly 160,000 more dwellings suitable for 3-4 persons (i.e. “houses”) than households with 3 or 4 persons in Ireland.

Some may think that while this is true in aggregate, the family houses are in the wrong place. But even if we focus on the greater Dublin area, there are 10% more dwellings for 3-4 people than households of 3-4 people.

In fact, Ireland has so many family homes without families to live in them that over 20% of them have “unrelated persons”, as the Census so glamorously terms it, cramming into them.

The shortage of apartments, in other words dwellings with 3-4 principal rooms (rather than 5-7), is all the starker given this surplus of houses. Ireland has almost 900,000 households comprising just one or two persons but only 350,000 dwellings of the right size for smaller households.

Even allowing for a significant chunk of Ireland’s smaller households outside the main cities to live in smaller bungalows, rather than apartments, Ireland is roughly 500,000 apartments behind schedule.

This shortage becomes starker again in an international comparison. The apartment rate is the fraction of all dwellings that are in apartments (blocks of three or more dwellings in the same building). Across the EU as a whole, roughly half of all dwellings are apartments.

In Ireland, just 12% of dwellings are in apartments. The next lowest of our peers is Belgium, where almost 30% live in apartments. In housing terms, we are struggling to catch up with the Shetlands (which has an apartment rate of 16%), never mind Finland (58%).

There is also a perception that Ireland built too much during the Celtic Tiger. Again, this is only partly true. Ireland built far too many one-off dwellings in rural locations. But looking at the period 1996-2015 as a whole, or even any individual year, Ireland never built enough apartments.

In fact, the underbuilding of apartments was probably greater in the Celtic Tiger than in the preceding fifty years. This gets to why Ireland is so poor at building apartments in the first place: it is the only country that had a falling population for most of the century to the 1980s, so it never had to get good at density.

Once we finally started to enjoy a growing population – as we entered the 1990s and ever since – we were caught between a rapidly modernising labour market but a housing sector stuck with an out-of-date business model.

One of the main ways we have squared the circle over the last two decades of population growth has been to sprawl. One quarter of the working population of Leinster outside Dublin travels to Dublin every day, while half the daytime population in Cork and Galway travel from outside also.

In 2016, more than 230,000 people commuted at least an hour each way. This represents a 30% increase – in just five years! This is clearly not sustainable.

Perhaps if Ireland had the same demographic prospects as its neighbours, this would be a passing concern. However, Ireland remains demographically unique. All other European countries are experiencing a population growth slowdown, and in some cases population decline, comparing the 21st century to the 20th.

However, Ireland is the one European country that will experience an acceleration in population growth. A comparison of the period 1850-1980 with the expected population growth 2015-2080 is the demographic equivalent of a cold shower!

For the period from the Famine to the 1980s, Ireland lost 5% of its population on average each decade. Over the coming 65 years, Ireland will add 5% every decade. This population growth – combined with on-going urbanization and decline in household size – means the need for apartments is frankly astonishing.

In order to fill in the backlog of missing apartments, and to account for future trends, Dublin needs an apartment block of 200 homes opening every week from now until the 2080s! The rest of the country (combined) needs six opening every month.

The exact nature of each block will of course vary. The country needs purpose-built student accommodation, high-rise urban, low-rise suburban, key worker and co-living developments, and facilities for older residents, including independent and assisted living schemes.

But the scale of the challenge – especially when compared with the existing expertise of our construction sector – is phenomenal. It was this that led to the title of my presentation: “Is Ireland 25 years into a 100-year housing crisis?”

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

Time to view students as people too

Last month, the latest Daft.ie Rental Report showed just how bad the market is for today’s renters. Rents are now up by 70% in Dublin from their lowest point, in late 2010, while elsewhere in the country they have risen by 45% on average – although this hides significant variation by county.

Not only do rents continue to increase, they are doing so at a faster rate: for the fifth quarter in a row, rents rose by at least 10% year-on-year. It would be a brave civil servant who would argue that Rent Pressure Zones are working.

As ever, prices are just a symptom, though. The underlying cause is a lack of supply. There were fewer than 3,000 properties available to rent nationwide on the 1st of August this year. That’s not only down almost 20% on the same date a year earlier, it’s also the first time ever that fewer than 3,000 homes have been available to rent.

The last time the rental market was experiencing anything like this was in early 2007, when rents were increasing at roughly 11% per year. Even then, though, there was an average of 4,800 properties available to rent at any one time – roughly half those in Dublin.

Now, though, availability in Dublin is close to 1,000. Comparisons with ten years ago also understate the issue: the number of people renting has risen by more than 50%. If 5,000 homes to rent was a tight market 10 years ago, the equivalent tightness today would be 7,500.

This sort of rental crisis is unprecedented and is clearly linked to the homelessness crisis. Healthy housing markets are built on a number of key ingredients. One of these is the presence sensible mortgage rules, which we had through the Building Society system from the 1860s until the late 1980s, and again since the Central Bank rules came in in 2015.

A second key ingredient is a responsive social housing sector. Ireland had this more or less from independence – but it was dismantled steadily from the 1980s on. By the mid-2000s, loose lending was taking the place of social housing.

But we know have a combination of mortgage rules but no social housing. Never before in postwar Ireland have we had this combination, which is what makes the homelessness crisis so severe.

Into this environment step our fledgling households, those starting college for the first time this month. What chance do they have? Many students are already choosing not to study in Dublin, even if a course there offered them the best prospects, because of the cost or the lack of a home. Many more are commuting very long distances to try to make things work.

As a society, we should be happy with neither of these as solutions. Even leaving aside the potential for higher education as a lucrative export industry, we should be trying to ensure that our students have the supports necessary to fulfil their potential.

What is obvious from a quick glance at the figures is that we are failing them, particularly when it comes to their accommodation. In the UK, roughly half of all students who don’t live with their parents live in purpose-built student accommodation, either on- or off-campus.

In Ireland, roughly 35% of students – rather than the 10% seen in the UK – live at home with Mammy. Of the remainder, only a small fraction– a little more than 10% – live in purpose-built student accommodation. This of course puts pressure on the wider rental sector, as students group up and take family homes out of circulation.

What is truly frightening for me, as an outside observer, is how ill-prepared our policymaking system is for the future. We know from demographics that the number of third-level students is set to grow by at least 50% over the coming decade. Factoring in likely increases in enrolment and in net migration, as well as the targeted increase in non-EU students, student numbers in Ireland may double over the coming 15 years.

Suppose we allow for one third of Irish students to stay with Mammy. Even reaching the UK ratio of one student in purpose-built for every student in the wider rental sector would mean a dramatic increase in purpose-built student housing over the coming decade.

The country needs to plan for having 100,000 units in purpose-built student accommodation by 2025. It currently has about one third of that. Put in its simplest terms, Dublin needs to be seeing a new block of 300 student beds opening every months for a decade – while the rest of the country (as a whole) needs to see roughly the same.

But with Dublin City Council already trying to change the rules to make it easier to say no to proposals for student beds, what are the odds that this will happen? Sadly, unless a change in mindset happens fast, we are likely to read grim news on student housing and the rental sector for some years to come.

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

Just how many homes is Ireland missing?

By dint of the timing of the seasons, the new Housing Minister has perhaps avoided of a baptism of fire. Appointed just as the summer recess started, he has had time to find his feet in the new brief without the day-to-day bearing down on him when the news cycle is back up to an hour a day.

That honeymoon is definitely over, though. Since late August, a slew of new reports has shown that the related housing and homelessness crises continues to worsen. Rents continue to rise – and indeed inflation rates are close to record levels, despite Rent Pressure Zones. With a new academic year, many students are struggling to find somewhere to live.

Sadly, a number of homeless people have died in recent weeks, leading to worries about how our country’s homeless will cope with winter. And this week, Davy released a report outlining how underlying housing demand is close to 50,000 a year nationwide. This number is consistent with my own estimates.

In short, once you factor in demographics and obsolescence, as well as natural increase in the population and net migration, it is effectively impossible to come up with a number smaller than 40,000 new homes needed a year. And if I were the Housing Minister, I would be concerned about dereliction of duty if I were assumed anything less than an underlying demand of 50,000 per year.

But this is the on-going future need. Every from now into the foreseeable future, this country needs to build 50,000 homes to meet growing demand. What about the backlog of unmet demand? It is the lack of building in recent years that has created a whole class of homeless families, living in guesthouses and hotels.

A clue lies in Ireland’s demographics. Perhaps the single widest measure of the structure of our population is the average number of people per household. It captures not only the average number of children women have, but also longevity, separation and divorce and delayed marriage.

Since the 1960s, household size has been falling rapidly in Ireland. In 1971, there were 4.1 people in the average Irish household. By 2002, it was just 3 and in 2011 there were 2.73 people in the typical household.

While these sound like relatively small changes, just think about a change from 4 to 2, which is where some European countries like Denmark and Germany now are. Even with the same population, if the demographics change so households are on average two people, not four, the country needs twice as many dwellings!

Thus, a huge source of Ireland’s housing need over the past half-century has been the decline household size. But an odd thing happened between the 2011 and 2016 Censuses: Ireland’s household size actually rose, although only slightly.

The reason is not a baby boom, as you might be tempted to think, but rather a lack of housing. Diving into the Census figures, the growth in households over the last few years has been driven by what might be called “crammers”, in other words, unrelated persons living together because that’s their least worst option.

Think about that for a moment: Ireland’s housing shortage is so acute that it has actually overturned incredibly powerful demographic trends that have been driving the structure of Ireland’s population for over five decades.

This same underlying trend, however, also gives us a clue as to how many homes we’re missing. In the half-century to 2011, Ireland’s average household size fell by almost 1.5 – or an average rate of 0.16 persons each year. Therefore, if housing had not been scarce in recent years, we would have seen it fall to 2.57 in the 2016 Census, not rise to 2.75.

Assume, to be conservative, that nobody in Ireland put off having children in recent years because they couldn’t afford the housing – in other words, population was unaffected, just household formation. This means that, between 2011 and 2016, Ireland fell 120,000 homes behind schedule.

This is a simply astonishing backlog of unbuilt homes, given this is a country of just 1.7 million households. To put it in context, the fall in vacant homes between the same two Censuses was just 30,000.

On top of this backlog of 120,000, each year 50,000 new homes are needed. As the new Housing Minister prepares himself for his first autumn and winter in the job, the stunning inability of housing supply to meet demand must surely dominate his thoughts.

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

Time to start thinking in price per square metre

Just like every generation likes to think it’s unique, so too every country believes it’s different. Clearly, the Americans know they’re different to everywhere else – and the same can be said for our British neighbours. But we Irish are also convinced that we’re different.

One of the oft-mentioned differences is about our attachment to land and property. There are a number of variants to this story. But they ultimately all come back one way or another to the blaming the English.

Whether it’s the Great Famine, the Land Acts or just the old “800 years of oppression” trope, many Irish people believe that we are unique attached to the land. This apparently innate desire to own our homes explains, or so goes the argument, our unusually high homeownership rates.

But what if I told you that was all a lie? Ireland has one of the lowest homeownership rates in Europe. It has been falling since 1991, when it was at 82% and was just 69% in the 2016 Census. Just seven countries in Europe, out of the 28 for which information is available, have lower homeownership rates than Ireland.

So, Ireland is not an outlier when it comes to owning a home – at least not an outlier the way most Irish people think we might be. But one area where we are an outlier is in how we think about the price of our homes.

Perhaps unique in the European Union, with the partial exception of soon-to-be former member the United Kingdom, Irish consumers do not think in price per square metre – or even price per square foot. This is not some cultural barrier, with Irish people unable to think in such terms. Irish men and woman who buy or rent office space for their business will happily think in terms of this metric then, but dutifully ignore it when buying or renting their own home.

Some of this may simply come down to leadership. Those in charge of the sector should lead the consumer, when it comes to improving how the housing market works. This was definitely the case with Building Energy Ratings five years ago and it is likely to be the case with the price per square too.

Hopefully, this is set to change. A new report on the housing market, by the Institute of Professional Auctioneers & Valuers (IPAV), is out now. In addition to barometer metrics of the “heat” of the price of particular property types, the report also includes average price per square metre for the first half of the year. This is broken down by county and postcode, and by property type.

Thus we can see that the average price per square metre varies dramatically by location and type. Among two bedroom apartments, the average price per square metre is less than €700 in Longford but above €5,300 in South County Dublin and above €5,500 in Dublin 2.

The price per square metre is typically higher for three-bedroom semi-detached properties than for two-bedroom apartments, with only two markets seeing price per square metre of less than €1,000 for three-beds, Longford and Sligo. In a further four markets – Cavan, Donegal, Leitrim, Mayo and Tipperary – the price was less than €1,200. But in a number of Dublin segment, including Dublin 4, Dublin 7 and Dublin 14, the average price per square metre was above €5,000.

For four-bedroom semi-detached properties, average price per square metre was similar to the three-bedroom counterpart in most locations, with Cavan and Longford once again the cheapest markets at roughly €1,000. But there is a clear prestige premium at the top of the market, though, with the average price per square metre of more than €7,000 for four-bedroom properties in Dublin 4.

This is the first edition of this report and part of the value of such reports is comparing trends across time. But even in this first edition, there is valuable information in comparing across locations. Price per square metre in Cork – at about €2,600 – is significantly above price per square metre in Galway, which is closer to €2,000.

As the Department of Housing looks to build the repository of information it needs, it will be drawing on databases such as the Property Price Register, Residential Tenancies Bureau, and the Building Energy Ratings.

These will give policymakers the wherewithal to better understand what is value in the housing market, including the underlying reasons – such as access to employment – that explain such huge variation in the cost of additional square metre of living space.

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