Ronan Lyons | Personal Website
Ronan Lyons | Personal Website


The scale of the rental market challenge in Dublin

The Rental Report out earlier this week found that rents are still rising at double-digit rates around the country. Both nationally and in Dublin, this is the sixth quarter in a row that rents have been at least 10% higher than a year previously.

Outside Dublin, rents are now roughly one half higher than their lowest point, which was in early 2012. In Dublin, the increase has been even greater – rents have risen by three quarters from their lowest point in late 2010.

While South County Dublin, and Dublin 14 and 16, have seen rent increases of about two thirds, in Dublin 8, rents have increase by more than 90% from their lowest point. It is likely that within the next six months, one of the Dublin postcode – possible Dublin 1, 7 or 8 – will have seen rents double within eight years.

A natural reaction for many to this is to demand limits on rent increases. This is akin to a Minster for Health banning people from having high temperatures. High rents, like high temperatures, are not the problem – they are the symptom of the problem.

Fair enough, you might think, but I’ll still take a paracetamol when the need arises, thank you very much. And if that’s all that controls on rent increases did, then there would little to worry about.

The problem is that controls on rent increases turn the market into a system with insiders pitted against outsiders. Those who have a lease keep it. Those who have to move, either into the city or to somewhere new because circumstances change, lose out. To extend the paracetamol analogy, would you take one if it meant that your headache would go off and afflict someone poorer than you instead?

To solve the underlying problem, rather than just the symptom, the whole country – but Dublin in particular – needs significantly more supply of rental homes. The last time rents rose rapidly, in 2006 and early 2007, there were an average of 10,000 rental homes in Dublin posted on each quarter.

Over the following five years, there were a variety of different totals posted each quarter and taking the picture as a whole, it reveals that, when roughly 14,000 Dublin homes were listed in a three-month period, rents were stable. More than 14,000 meant that rents fell (2008-2010 in particular), while less than that total meant rents rose.

In late 2012, the total number of listings in a three-month period fell below 14,000 and it has continued to fall since. Since the start of 2014, there has been an average of just 7,500 Dublin homes posted for rent every three months. It is therefore completely unsurprising that rents have risen consistently over that period.

Given that the rental sector in Dublin is roughly 50% larger now than a decade ago, it is realistic to think that rents will not start to fall until the number of listings in the capital exceeds 15,000 in a three-month period.

But where will these extra 2,500 rental homes every month come from? They won’t come from the stock of owner-occupied homes – those are also in short enough supply. There are some quick wins dotted around the capital in the form of vacant homes and there is also potential for over-the-shop conversions.

But in each case, this will take time and the potential should not be overstated. Even the most optimistic estimates of over-the-shop space puts the total number of new homes at perhaps 5,000 or 6,000 – roughly two months supply. Similarly, even a halving of the vacancy rate in County Dublin would only bring a few months on to the market.

Obviously, either or both of these would certainly be welcome. But there are reasons that these haven’t happened already, despite an almost-doubling of rents in the capital. The poor utilization of our built stock stems from a heady cocktail that includes – but is not limited to – low property taxes, incomplete registry of title, conflicting regulations and weak local authorities.

Tackling any one of those issues would take years, let alone all. Thus, while local authorities and the national policymakers should not ignore vacancy, the real solution lies in building new homes. With an average lease length of roughly 3 years, this means that the city needs about 800 homes a month – or an apartment block of 200 homes opening every week.

With only a tiny fraction of that currently being built, the challenge for policymakers is to transform the city’s construction sector into one of the best in the world at building apartments.


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

Is David McWilliams right – are we in another housing bubble?

The current state of Ireland’s housing system is well known: plagued by a chronic and growing shortage, especially in Dublin, both sale and rental prices increase quarter on quarter. Since the third quarter of 2012, sale prices in the capital have increased in all but three quarters. In the rental market, they have increased in every single quarter.

The fact that both sale and rental prices have now been rising longer than they were falling has led some to argue that we are in another housing bubble. Among the most prominent of those arguing another bubble is coming is David McWilliams.

On the face of it, one would have to be brave to bet against him. David argued a housing bubble was coming down the tracks as early as the late 1990s. Some write this off as “a stopped clock is right twice a day”. However, watching on YouTube his debate with Austin Hughes in October 2003, it is not the prediction of a crash that is arresting, rather how eerily accurate the mechanisms and fallout.

A couple of weeks ago, David argued that he believes there is another bubble building ‘very rapidly’ and that a crash will happen in ‘the coming years’. Outlining his case, he made two main points. The first is that you don’t need credit to have a housing bubble. The second concerns the price of a home relative to incomes. David, and others, believe that is simply not sustainable for three-bed semis in Dublin to cost €450,000 when an average wage is one tenth of this.

There are two minor quibbles with this latter point. The first is that almost nobody buys a property on their own anymore. The average new mortgage has gone from having 1.3 incomes in the 1990s to 1.7 incomes now. So the proper income in David’s example would be the average household income of roughly €75,000, not a single earner.

Also, while appealing, the average property price is not the correct one to use in this case. First-time buyers don’t buy the average property. They typically buy newly built homes at the edge of the city, in other words far cheaper than the overall average. So instead of €450,000 to €45,000, the real comparison is probably more likely €325,000 to €75,000.

Still, that means that the house price is 4.3 times income, well above the typical level regarded as affordable, which is three times income. But t is important to distinguish between what is healthy and what is sustainable. It is not healthy to have high housing prices in major cities, compared to people’s incomes. But cities around the world have been living with this for close to fifty years in some cases.

In Ireland, the ‘Dublin premium’ is just 30 years old. Up until that point, the average price of a home in the capital was the same as the rest of the country. It probably had a bedroom less and a much smaller garden but the price was effectively the same.

But this point works both ways. This is a phenomenon that has been building up for 30 years. It stems from restrictions on land use – the hidden costs of planning and zoning – that prevent housing supply from meeting housing demand. Other cities have had similar supply shortages for 50 years, so it is not obvious to me that expensive housing per se is enough to cause a collapse.

David’s other point is that you don’t need credit for a housing bubble. This is presumably to pre-empt someone like me arguing that the new Central Bank mortgage rules effectively rule out the type of lending that cause the 2000s bubble and subsequent crash.

The godfather of studying bubbles, Charles Kindleberger, argued that a rush of capital (i.e. money) was a necessary ingredient for any bubble. Capital comes in two forms: credit or equity, in other words borrowing to buy or using up savings to buy.

There are plenty of examples of bubbles where people have cashed in their savings to buy at unsustainable prices. It is argued that the dot-com bubble is the best recent example of this. What makes David’s argument trickier to carry over to housing is that real estate is typically very highly leverage in the first place; in other words, there’s lots of debt associated with property.

A savings-fuelled housing bubble is a much rarer phenomenon. Nonetheless, Australia, New Zealand and Canada have found themselves worrying about this problem as their housing markets bear the brunt of Chinese savers’ desire for external assets. But it’s not just about ownership. The key thing about a bubble is the ratio of sale to rental prices.

In markets like Auckland, Sydney and Vancouver, foreign purchasers of property left their dwellings empty, effectively taking them out of the market. But if something should trigger a departure for these buyers, a flood of new homes would come on to the market.

Earlier, I mentioned that both sale and rental prices have been increasing. Indeed, since 2012, rental prices have actually increased by more, in percentage terms, than sale prices. Rental prices are up three quarters in Dublin and by half outside Dublin from their lowest point. Sale prices are up by 60% in the capital and 47% elsewhere.

The single best barometer of a housing bubble remains the ratio of sale to rental prices in housing. It is generally thought of as safe to pay 20-25 times the annual rent to buy a home. This is the same a home giving you a return of 4% to 5% a year. Those buying four-bedroom homes in West Dublin currently are spending 23 times the rent on average, right in the safe zone.

In the Celtic Tiger bubble, people were prepared to pay 40-50 times and in some cases up to 100 times the annual rent. That key difference tells me that we should not be fighting the last war, when it comes to housing. We have a shortage of housing and that gets tackled one way only: more homes.


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

Lessons from Boston: regulations affect costs

Earlier this week, the Society of Chartered Surveyors of Ireland (SCSI) published a report on the real costs of delivering new apartments. Loyal readers of this column may not have seen too much to surprise – but the figures remain extraordinarily concerning nonetheless.

Building a two-bedroom apartment in Dublin costs a minimum €470,000, according to the report – and can cost as much as €580,000. As if that was not bad enough, these figures, which are based on actual schemes, exclude VAT, which would add another 13.5% to the figure.

Build costs often get mixed up with profitability. But that is not how professional developers work. Developers work off a minimum rate of return. If that return is not there, they will not develop. The reason costs matter is because they convert into higher rents or mortgage payments.

As the SCSI notes, even the cheapest possible two-bedroom apartment would require a salary of at least €87,000 to buy. A more standard urban apartment would require an income of more than €150,000. It is a sorry state of affairs when only the richest 10% can afford a minimum-spec two-bedroom apartment.

This exercise undertaken by the SCSI confirms what many of us active in the housing policy debate have feared for over five years – that the lack of apartment building is nothing to do with the crash. Instead, the hard costs per square metre mean that based on current incomes, our housing shortage will persist.

Many readers may shrug and say that apartments are not for them and that the majority of Irish households live in apartments. This misses the point entirely. The reason that almost 90% of Irish households live in apartments is because we as a society appear unable to keep the cost of apartment building under control.

In fact, the majority of Irish households comprise just 1 or 2 persons and almost all growth in new households over the coming decades will be in similarly-sized households. Given long-run trends in population growth, urbanization and household size, the country does not actually need any more houses for 3-5 people. It needs urban apartments.

The SCSI report is great to have, as it provides data from real live projects. But what it does not do –and what is badly needed – is a full audit of costs and regulations. This is not the job of the SCSI, but it is the job of housing policymakers, in particular the Department of Housing and the Housing Agency.

In particular, we need to know two things. Firstly, what makes up the per-square-metre hard costs of construction? How do these various elements in Ireland compare with elsewhere? From what I can have seen, Ireland is more expensive for each of the various headings of hard costs that professionals use.

But why? Is it the price of nails? Or cement? Or a bricklayer? Until we can open up these top-level figures and look inside, it won’t be possible to answer that question. And thus this cost audit is absolutely critical to solving Ireland’s housing crisis.

Secondly, given we are talking about building the minimum-spec apartment, how does that minimum specification compare with other countries? There was a bit of a fuss about this two years ago, leading to Alan Kelly, then Minister responsible for housing, to approve a reduction in the minimum sizes.

Earlier this week, I visited Boston and took the opportunity to visit some “multifamily developments”, as they’re known there. In meeting some of the professionals involved in the sector there, three related facts stood out.

The first is that there is no problem building apartments in Boston currently. This is easy to miss: there are cities all around the world that have similar pressures to Dublin but are responding to them with the obvious solution, building.

The second thing I noticed is that, while the apartments I saw were definitely aimed at those on higher incomes, even for luxury apartments, the cost of building is well below costs in Dublin. A luxury penthouse apartment might cost $400,000 to build (roughly €350,000).

But when a luxury apartment on the 30th floor overlooking Boston costs less to build than a ground-floor apartment in Beaumount, we need to ask questions.

Two obvious challenges for the viability of Irish apartments are parking and lifts. One development I saw had 40 apartments per floor and 4 lifts. Until recently, Dublin City Council would have demanded 20 lifts on the same floor. Each lift is expensive to install and to maintain and, as it comes with its own staircase, gobbles up floor space.

A second development had set aside part of two lower floors for parking but ultimately parking and accommodation were separate services: many of its residents didn’t want or need a car. In Dublin, the standard is one parking space in the basement – not above ground – for each apartment.

This kind of parking requirement is not only hugely expensive – digging basements is costly – but also limits building up. If you can only fit 50 car parking spaces in the basement, it doesn’t matter how tall the Development Plan says you can build, you won’t be able to do it. And by limiting building up, we are propping up rents and prices.

When informed about the very different requirements for parking and lifts, my Boston hosts responded: “Why? That has to change!” It’s hard to disagree with them.


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

Lessons from Saskatoon: allow people to cluster

A decade ago, I worked with IBM, as an economic consultant as part of their team serving governments and public sector clients around the world. One of my more unusual trips involved a stop-off in the city of Saskatoon. For those who’ve never been, Saskatoon is one of the main cities in the Canadian province of Saskatchewan, which is smack bang in the middle of Canada. It’s a resource-rich part of the world, home to a lot of the planet’s potash and uranium.

One of the reasons I was there was to talk about Ireland’s business model. It being 2007, they were curious about how a country like Ireland – with no natural resources to speak of – was as rich as it was. One of the things I took away, though, was just how powerful our tendency as humans to cluster is.

Canada is a huge and sparsely populated country. At roughly 2.5 billion acres, if the entire human race broke up into families of three, we’d each have an acre. And yet, here in the middle of the vastness of Canada, a classic ‘Central Business District’ rose up into the sky. With no scarcity of land, there was still a cluster of tall buildings in the middle of the city.

This was not some quirk or a vanity project of empty buildings. Instead, it reflected one of the counterintuitive aspects of human nature. If you free us up to move and work wherever, instead of finding our acre away from everyone else, we will instead look to live near others.

The current tally for Saskatoon, a city approximately the same size as Cork, is roughly 50 buildings at least ten storeys tall. Five of these are currently under construction. When it comes to accommodating its own growth, Saskatoon is not putting the brakes on.

Clearly, central to this is regulatory permission to build tall. There are perhaps half a dozen buildings in Ireland more than a dozen storeys tall. This does not reflect a lack of demand. In a city as big as Dublin, without restrictions on heights, there would probably be close to a hundred buildings ten or more storeys tall – and in all likelihood a few of those would have more than thirty storeys.

But Dublin – together with other Irish cities – have local authorities that tend to frown on height. In Dublin City Council, for example, height is proscribed in most of the places where there would be demand for it: the centre of the city. Instead, if you want to build tall, you are encouraged to look in more experimental locations – including Ringsend, North Wall and Ballymun.

Trying to shoehorn demand for height into parts of the city where demand is unproven is not a recipe for success. But this may sound like a victimless crime: city fathers want developers to build tall where there’s no demand – developers don’t build because the demand is not there. Who loses, right?

Unfortunately, these actions have opportunity costs. In fifty years time, Ireland is projected to have an extra 1.5 million residents. Not only that, Ireland will be an 80% urban country by then, the same as its peers, and the bulk of its households will contain just one or two persons.

Add all that up and the prognosis is clear: Ireland needs to densify, rather than sprawl, and central to that is the construction of a large volume of urban apartments, of all kinds, over the coming decade.

But building apartments is a very different activity to building housing estates. In particular, the risk profiles are worlds apart. When building a housing estate, you can build ten or twenty semi-detached homes, test the waters and then use the proceeds to fund the next 30 or 50 homes, if the demand is there.

When building apartments, just like building a hotel or an office block, it’s all or nothing. No apartment is finished and ready to be occupied until they all are. For that reason, policymakers here need to understand how apartments are built, from start to finish, and ensure their rules are future-proof.

In particular, it’s emerging elsewhere as something of a rule of thumb that when developing a build-to-rent apartment block, 500 units is the minimum efficient scale. This means height, not width. But if our main cities have rules that prevent the height needed, then can we really expect to get the homes we need?

It’s time for our local authorities to look around, learn from their peers and future-proof their development plans.


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

A simple Budget can be a good Budget

This was Budget week, the week where fiscal nerds take the day off, stay at home in their pyjamas and shout at the politicians and pundits on TV. I suspect that this kind of person may have been somewhat disappointed by Tuesday’s affair, though.

I’d like to think my interest in Budget Day is a more work than pleasure. In particular, as an economist, a simple Budget can be a good Budget. This is for two reasons. First, ‘Santa Claus’ budgets are an anomaly, not the norm, elsewhere. Good fiscal policy is made by having on-going debates around the best decisions in relation to what is taxed and what is spent.

Secondly, politicians should not always use all fiscal space available to them. The standard rule for fiscal policy is that it should be counter-cyclical: when times are bad, spend more to stimulate the economy. And when times are good, step back.

The last few years have seen Ireland grow faster than any of its European neighbours. Employment has risen so fast that unemployment has fallen by ten percentage points in five years, an astonishing improvement.

And, before all this, Ireland had ‘enjoyed’ massive fiscal stimulus during the Crash when its peers, through the Troika, allowed it to borrow very large deficits, rather than have to balance the books. Looking at this year’s Budget, one might ask the question: if we don’t run a surplus now, when is Ireland ever going to run a surplus again?

But those decisions are of course made at a pay grade higher than mine. Focusing specifically on housing, the construction industry certainly got one of its wishes: this was by and large a simple budget with few substantive changes.

In particular, fears on the part of house-builders that Help-to-Buy would be scrapped did not materialise. My own prediction that it would be tweaked, just so that policymakers could say that had reviewed and ‘fixed’ the scheme was also wide of the mark.

There were a couple of missed tricks, however. In particular, build-to-rent is still treated anomalously for VAT: if you build but never sell something, why should you pay VAT on it? If this had been changed, viability of urban rental apartments would have improved significantly – and this is where the shortage of housing is most acute.

But by far the biggest headline from the Budget, when it came to property, was the change in commercial stamp duty. Commercial real estate transactions are now subject to a 6% stamp duty rate, compared to a 2% rate before the Budget.

Bizarrely, the Minister justified this decision by saying it had been even higher in the mid-2000s. I would have hoped that we can all agree with hindsight that fiscally policy in the second half of the Celtic Tiger was extraordinarily reckless.

It is a relatively fundamental rule of fiscal policy, for example, that you don’t make permanent spending commitments – such as ‘benchmarked’ public sector pay increases – on the back of temporary revenue sources. And taxing transactions, aka stamp duty, is the ultimate temporary revenue source.

I have no doubt that there is every chance this will look a smart move in 12 or 24 months. The Budget also tweaked the Capital Gains Tax exemption, which meant that someone who bought certain forms of commercial property (including sites) between 2011 and 2014 could pay no CGT as long as they held it for at least seven years. That has been cut to four years.

This means that those who bought in 2012 or 2013 expecting to have to hold until 2019 or 2020 can now get out. With Brexit increasingly looking like an economic car-crash, foreign investors may well be tempted to realise existing gains rather than hope for more. A 6% stamp duty rate may look small if your site has trebled in value since 2012.

But this is finite stock of revenues. Commercial stamp duty returns are likely to increase dramatically – probably more than three-fold – next year and the year after. But we should not expect that to continue, in the same way that we should not have expected the €10bn or so in revenues associated with a housing bubble to continue ad infinitum,

Policymakers should look to tax stocks, not transactions. This means reforming commercial rates, not hiking stamp duty. In particular, there are anomalies with the rates system that exclude public bodies and encourage vacancy. Replacing rates – and commercial stamp duty and developer contributions – with a land value tax on all forms of land, other than private homes and farms, would generate more revenues but without the dangers.


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

No free lunch when it comes to property tax

Property tax has – after something of a hiatus of a couple of years – all of a sudden become a hot political potato. Since the end of summer, a string of politicians have been on the airwaves and in the newspapers saying that they will protect homeowners from higher Local Property Tax (LPT) bills.

There has long been a split between civil servants – who want to protect their sources of revenue – and politicians, who would happily promise both higher spending and lower taxation if they could square the numbers.

Still, the speed which with politicians have moved to distance themselves from what is, in most other high-income countries a major source of revenue, is somewhat surprising. It is even more surprising that this is something on which both left and right agree.

To the bewilderment of their peers in the rest of Europe, Ireland’s left-wing politicians have been to the forefront of campaigning against LPT. What is confusing about this is that residential property is the single largest chunk of wealth in the country.

Therefore, it is effectively impossible to be in favour of a wealth tax but against a property tax. There is roughly €500 billion of wealth in Irish housing. If – as many of our high-income peers do – we had a tax of 1% per year, this would provide Irish local authorities with €5bn in funding every year.

This could be used to fund social housing. This, in fact, is more or less a description of what Irish local authorities did before property tax abolished in 1977.

On the face of it, it is easy to see why politicians are saying what they are: they have to get re-elected. Property prices have – according to the latest Report, covered elsewhere in today’s paper – risen by an average of almost 50% since they bottomed out a few years ago.

Indeed, it is perhaps typical of the luck of the Irish policymaker that they fixed the valuation date at 1 May 2013, as close to the bottom of the market nationally as makes no difference. There’s quite a bit of difference around the country in terms of how much prices have changed since then. In Dublin 1, prices have risen by almost 80% from their lowest point. In Ballyfermot (Dublin 10) and Crumlin (Dublin 12), prices have risen by roughly 70%.

Meanwhile, prices in Tipperary and Limerick (outside the city) have risen by just 20%. In Donegal, Sligo and Mayo, prices have risen by just 15%.

The debate now about revaluations echoes a debate had by policy analysts such as myself when the tax was being first designed in 2011 and 2012. It is best practice that property tax valuations are updated regularly. Instead, Ireland chose the opposite: a frozen valuation with an option to renew that freeze.

This is, for want of a better name, the British option. There, no politician has had the guts to update the valuation since 1991. A cottage industry has since arisen where valuers come up with a hypothetical valuation of what a newly-built property now would have been worth if it existed in over a generation ago.

The obvious reaction by homeowners to this is that it will be very difficult for Dublin households to deal with a 70% or 80% increase in the property tax bill. As a homeowner in Dublin, I find it easy to agree.

But that is a far cry from saying we should not revalue LPT. Firstly, imagine this attitude applied to other taxes, like VAT. When was the last time you heard a Minister for Finance stand up at the Budget and say: “Look, the general price level has gone up by 10% in the last few years, so we’re going to cut VAT by the same to balance things out.”

If this seems an odd counter-example, it is worth bearing in mind that VAT is very regressive – it hits poorer households much harder than richer households. LPT, on the other hand, is an incredible progressive tax: most of Ireland’s poorest households own no property. Ireland’s richest households own a lot.

The argument is perhaps more about ability to pay. But there, homeowners – and politicians – want to have their cake and eat it. The reason that LPT is supposed to be going up in 2019 is because they will be wealthier then than in 2013.

Fine, you may say, but property wealth and income or ability to pay are not the same thing. That is true. In some countries, this argument will gain you little ground, as it is seen as a good thing for people to downsize once their nests empty out.

I am not so naïve to think that such an argument would win the day here, though. Nonetheless, if a homeowner makes the argument that they shouldn’t have to pay a higher LPT, based on a lack of income, this can’t be the end of it.

Instead, government should offer those paying LPT the option to pay the higher LPT upfront or else to roll it up and pay (with interest) when they crystallise the wealth. This is, as it happens, similar to the system that operates in some countries, where those below a certain income can opt to defer all property tax payments until the property is sold.

Otherwise, you are just offering people free wealth from owning their own home. If this sounds reasonable, we have short memories indeed. No other asset is so tax-exempt as the family home. The OECD concluded in 2006 that this extraordinarily generous tax treatment was one of the principal factors behind our housing bubble.

Barely a decade on, our politicians have a test to see how much they’ve learned. Will they pass the test?


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

Are we seeing the first effects of Brexit in the housing market?

Today sees the launch of the latest House Price Report. The report, which covers the period from June to September this year, found that inflation in that three-month period was modest, after a pretty hectic first six months.

During those six months, house prices jumped by almost 10%, as the market reacted to the relaxation of the Central Bank’s mortgage rules for first-time buyers. In the most recent three-month period, however, prices rose by just 0.3%. This is the smallest three-month increase outside of the final three months of the year – when prices recently have tended to ease back – since prices bottomed out in 2013.

Prices are now roughly 9% on average than this time a year ago and, taking a step further back, prices are almost 47% higher than when they reached their lowest point. These are the headlines of the report – but the devil of course is in the detail.

Drilling down into the figures, a few things jump out. Unsurprisingly, Dublin has seen far bigger increases than more rural markets: whereas prices are 61% higher in the capital than when they bottomed out, in Munster, Connacht and Ulster – outside the main cities – prices have risen by 37%.

Perhaps the most noteworthy contrast, though, is between Dublin 1 and Donegal. These are, of course, the epicentres of all that’s good and bad about Brexit for Ireland. Dublin 1 is home to the IFSC. If any one housing market stands to benefit from Brexit, it is the one next to where many of the Brexit refugee firms will end up.

On the other hand, Donegal will lose more than any other part of the Republic if a hard Brexit does indeed happen. Letterkenny is three hours from Dublin and almost six hours from Cork – but just two hours from Belfast and 30 minutes from Derry.

The county, therefore, is at risk of losing access to the two urban hubs closest to it. Prices in Donegal have risen by just 1.9% in the last 12 months and are just one quarter higher than their lowest point. This is in stark contrast to Dublin 1, where prices have risen by almost 90% since they bottomed out in late 2011.

The opportunities and threats of Brexit are confirmed by looking through the prices trends for each of nearly 400 “micro-markets” that make up the foundation of the Reports. Two of the three markets closest to the 2007 peak are the IFSC part of Dublin 1 and the Grand Canal Docks part of Dublin 4.

Both micro-markets are less than 20% from their peak a decade ago. This suggests that – with the current lack of supply set to persist for at least the next three years – they will be among the first to reach those peaks again. The other market closest to the Celtic Tiger peak is Sandycove, the country’s most expensive micro-market and likely target for upper management in the Brexodus.

While Dublin – and the other main cities – have markets where prices look less than two years off their Celtic Tiger peaks, there are many others around the country that are years, if not decades, from the peak. Once again, Donegal looms large.

At the opposite end of the recovery is Bundoran. The coastal town in Donegal is heavily dependent on Northern Irish tourists, among others. Prices in the town are still two thirds below their peak – further away than any other market in the country.

Killybegs, another Donegal town, is the market that has seen the smallest increase in prices since bottoming out. Prices have risen by just 9% in the fishing port, well below the national average increase of 47%.

Often, people speak of a two-tier market but the reality is closer to a 400-tier market. Each area has its own amenities and attractions, drawbacks and idiosyncrasies. But the huge variety doesn’t hide some obvious trends.

Ireland’s cities did not build too many homes in the final stages of the Celtic Tiger bubble – this was the preserve of the country’s smaller towns and rural areas, which were dotted with ghost estates and empty one-offs respectively.

Overlaid on top of this mismatch in oversupply was an urge to urbanize. Urbanization is a much misunderstood phenomenon, particularly in Ireland, it seems. In this country, it appears to have been conflated with sprawl. True urbanization is the opposite: more people living on the same amount of land, an environmentally friendly process that also allows a cheaper standard of living and more variety.

It is this combination of strong demand in the cities and excess supply elsewhere that has driven much of the difference in housing market trends over the last few years. And then on top of that, along came Brexit.

For the moment, we must assume that Brexit happens, in the sense of the UK (including Northern Ireland) leaving the single market and customs union. That process will create significant economic changes for Ireland.

There is little doubt that, in net terms, Ireland losing easy access to its main trading and migration partner will be a negative on balance. However, there was always the possibility that some sectors and some locations would gain, while others lost out.

If the evidence of the housing market over the last few quarters is anything to go by, Donegal has recognised it will be badly affected by Brexit. For Dublin’s docks, however, Brexit appears to herald even more demand. Whether these expectations of the market are borne out remains to be seen.


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

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?”


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 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.


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.


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