May 2018

In defence of clustering: “Student City”

It seems in Ireland that we are not too fond of clustering. We are the least urbanised country in Europe – on a par with Portugal – with less than two thirds of the population living in cities. Elsewhere in the high-income world, typically more than 80% of the population live in cities.

It is important to remember, though, that this is not because we have a different economic structure. Previously, we might have been less urban because we were a more agricultural society. Now, though, over 85% of our jobs are in our main cities.

So we have a huge mismatch between where we work and where we live. These leaves us with some of the longest commutes in Europe. The number of people commuting more than an hour each way on a daily basis went up by more than a third between the 2011 and 2016 Censuses.

You might think that this is just because Irish people are different. “We want our patch of land”, the argument goes. Funnily enough, this is also what people in the UK say – even though they are one of the most urbanised countries.

It’s unlikely that our poorly placed homes are as a result of our preferences, therefore. And if it’s not demand-led, then it must be supply-led. Planning and zoning rules are one of the principal determinants of housing supply.

Indeed, the best research shows that, in response to a 10% increase in demand for housing, as long as land-use regulations do not stop supply from responding, prices need not increase at all.

But Ireland’s housing market is, as we all know, a heavily regulated one. This week, Apple scrapped its plans to build a data centre in Athenry. This news came as a surprise to nobody. In the time it took Apple to open the doors to a data centre in Denmark, and start planning a second one there, it was still facing court challenges here.

Fortunately, it looks as though the Government is finally seeing the harm that land-use regulations can bring. Its Ireland 2040 plan is the first government strategy to acknowledge the cities, and city centres specifically, will have to be the driver of population growth in the future.

Public policy, therefore, is turning – however slowly – in favour of density. But another fight still remains – in favour of clustering. Density is about how many people in a certain neighbourhood. Clustering means the same kind of activity in the certain neighbourhood.

Don’t get me wrong – diversity is important. Jane Jacobs – who wrote one of the bibles of urban economics back in the early 1960s – explained in simple terms how having a mix on the street keeps it safe. But in large cities, there is scope for both diversity and clustering.

We know that clustering is a natural human tendency. Just look at the oldest street names in our cities. In Dublin, the old Viking city includes Winetavern Street, Cook Street and Fishamble Street.

Last year, Dublin City Council changed its rules in order to make it harder for student accommodation to cluster in and around higher education institutes. This is as daft as it sounds: by making it harder to build new accommodation for them, they will continue to band together in fours and fives and – with a budget of up to €600 each in central Dublin – easily displace low-income renters.

Instead, the city council – and its peers elsewhere in the country with higher education institutes in or near areas they control – need to think about where its “Student City” will be.

Over the next decade, full-time student numbers are set to rise by roughly one third. On top of this, the Government has made higher education as an export one of its priorities. This will increase student numbers even further.

All of these students will need somewhere to live. And if we don’t have purpose-built student accommodation for them, they will gobble up more and more of the existing stock of dwellings – which are disproportionately family homes.

In addition, purpose-built student accommodation doubles up as tourist accommodation in the summer. So meeting the needs for student housing will also ease the pressure on the short-term lettings market, the so-called Airbnb effect in the rental market.

I’m sure we could all think of potential locations for Dublin’s “Student City”. An obvious one is Dublin’s fruit markets, between Smithfield and Capel Street. This area is close to 17 acres of prime urban land, within walking distance of the Luas, both main train stations, and the DIT and Trinity campuses.

Most of it is currently used as single-floor warehouses for fruit and veg. While those businesses would certainly need to be accommodated – could they use the basements in a new set-up for example? – it is important to keep perspective on the size of prospective benefits as well as the costs.

==

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

Where’s hot and where’s cold in the rental market?

During the week, the latest Daft.ie Rental Report was released. Its main findings were not unexpected: market rents continue to rise and at a rate above 10% on average. At least in the long term, that is an unsustainable rate of rental growth.

Indeed, in a healthy rental market, rents would have increased by roughly zero over the last few years – in line with general prices and in line with the idea that new supply can emerge to satisfy demand.

But we have far from a healthy market. Countrywide, rents are now 11.5% higher than a year ago – and up 70% on average from their lowest point over five years ago. There is a third relevant comparison – with the peak. In almost all parts of the country, rents are now well above their Celtic Tiger peak, which occurred in the rental market in early 2008.

Rents have now increased every quarter for the last 23 quarters – nearly six years – and for each of the last eight quarters, year-on-year inflation has been above 10% and a new all-time record rent has been set nationwide.

This picture is remarkably similar around the country. The year-on-year change in rents is 10% in Dublin 4, 12% North County Dublin, 10% in county Galway and 11% in Wexford. So the mismatch between supply and demand is countrywide.

But those changes in the last 12 months are only part of the story. The turning point – when rents went from falling to rising – was different around the country. So the cumulative rise in rents from their lowest point varies quite a bit depending on which market you’re looking at.

The table alongside this piece shows the five hottest and five coldest rental markets in the country, using an exclusive new set of figures drilling into nearly 400 rental micro-markets around the country.

The hottest markets are those that have seen not only one of the largest increases in the last year but also from their last lowest point. It’s clear that Dublin dominates – but equally that it’s not necessarily the fanciest areas.

Alongside Sandycove, one of the country’s most expensive markets, is Dublin 17 (near Darndale and Clongriffin) and Dublin 20 (Palmerstown). In those hottest markets, rents have effectively doubled from their lows in 2012/2013.

Hottest Rental Markets Coldest Rental Markets
Market Increase from low Market Increase from low
N Circular Rd (D7) 99.7% Ballyshannon (DL) 17.1%
Christchurch (D8) 99.1% Lifford/Raphoe (DL) 14.0%
Sandycove 96.4% Ballybofay/Stranorlar (DL) 13.7%
Dublin 17 91.7% NW Mayo 12.6%
Dublin 20 91.1% Ardagh (LK) 10.9%

 

At the other end of the market, it is Donegal that dominates. Three of the five coldest markets – defined by the change in rents over the last 12 months and since the low – are in the county. The other two are in north-west Mayo and Ardagh and the north-west of Limerick.

In the coldest markets, rents have only risen by less than 20% from their lows. And in many of those markets, rents only bottomed out in 2014 rather than in 2011.

It is worth digging into those colder markets a little more. Of the 389 micro-markets around the country, 11 are currently showing falling rents– not rising. Eight of those are in the north-west, furthest away from urban centres.

And seven are in Donegal, where the nearest urban centre – if you don’t count Letterkenny – is across a border whose future is extraordinarily uncertain right now. There are 14 micro-markets in Donegal in total – so what can we tell from the others?

Whereas rents near Derry are falling and have only 15% higher than their lowest point, rents in Letterkenny are up – albeit modestly, by 3.5% – in the last year. They are also roughly one third higher than four years ago.

What do we take from all this detail? There is an obvious point – Brexit uncertainty is incredibly detrimental to the local economies that will be most affected.

And there is a deeper point. While Letterkenny is not a large town – its population in 2016 was roughly 20,000 – even that can act as an economic centre for the area nearby. In particular, the location of jobs is what matters.

Ireland is in the somewhat unusual position of having a growing urbanised labour market – but a static and sprawled housing market. Solving sprawl will take time and a diversity of housing options, not just another ring of 3-4 bed semis on greenfield sites.

Solving static housing supply doesn’t have to take time, though. As it has been for the last five or so years, the mantra must be: supply, supply, supply.

==

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