Irish House Price Report Q4 2016 | Daft.ie

Ronan Lyons, Economist

3rd Jan 2017

Supply, supply, supply: the new housing mantra

Nationally, the average list price rose by 8% in 2016, very similar to the 8.5% seen in 2015. Compared with static prices in 2013 - although this masked huge regional differences - and an increase of almost 15% in 2014, perhaps this, then, is the new normal.

Normal does not mean healthy, however. We know that in a healthy housing system, any extra demand for more housing is offset by more supply - in other words, the real price of housing should be stable, once general inflation is taken account of. In Ireland, general inflation has effectively been zero not just over the last 12 months but indeed over the last decade.

House Price Lowest Point

So Ireland is currently trapped in a situation where housing prices are increasing far faster than prices in the rest of the economy. This is not sustainable but the latest indications are that this high rate of inflation is embedded in the market, due to strong demand and weak supply.

We know from the initial Census results that the country added 170,000 extra people between 2011 and 2016. Given the likely composition of new households - between 2 and 2.5 people per household on average - this means that the country added almost 75,000 new households in those five years.

We know from the same source, the Census, that there were just 17,000 new homes added to the stock of dwellings in the last five years, once holiday homes are excluded. In other words, for every ten new families formed, just two new dwellings were built, for the entire period from 2011 to 2016. (Completions numbers were much higher than this, but this includes properties built during the bubble and only connected to the electricity grid more recently. It is also a measure of "gross" construction and doesn't account for buildings going obsolete.)

Most and least expensive areas

Bad as that may seem, the picture is worse again. Firstly, the period 2011-2016 was largely one of net emigration, with 125,000 people leaving between 2011 and 2015. There is a clear move toward net immigration, though, emigration falling from 90,000 to 75,000 since 2013 while immigration has risen from slightly more than 50,000 in 2012 to 80,000 this year.

Migration is driven by those in their 20s and 30s, in other words the very groups forming households and starting families. Based on the 2011 Census, we know that every additional 10,000 migrants require on average 4,000 dwellings, so even if net migration remains relatively low - at say 20,000 a year over the next few years - that will add 8,000 to the number of new homes required annually.

This is in addition to the core demand resulting from "natural increase", in other words a surplus of families being formed over families dying. A fast way of checking the size of this natural increase is to compare the size of the cohorts of women aged 30 and 80. There are roughly 35,000 women aged 30 in Ireland currently, which gives a good baseline of household formation - ultimately, the vast majority of these women are likely to be part of one household each. There are just 10,000 women aged 80. Thus, there is a natural increase in number of households each year of at least 20,000 and closer to 25,000.

On top of this, demographics are changing - not least, people are living longer. Coupled with other factors, including a greater fraction of people who do not have any children, separation and divorce, Ireland's average household size has fallen from more than 4 people in 1971 to roughly 2.7 people today. However, it is still the highest in Europe, where the average is just 2.3.

This may sound like a small difference but it is hugely important for how many new homes are needed per year. For example, if Ireland's population did not increase but the average household size fell from 2.7 to 2.3, an additional 300,000 dwellings would be needed. Realistically, that convergence will take time, but it is likely that declining household size will add at least 10,000, if not 15,000, to the number of new homes needed each year.

Housing Stock

The last factor when figuring out how many new homes are needed each year is one that is most often forgotten: obsolescence. The Department of Housing and CSO estimate that roughly 0.8% of the housing stock goes obsolete each year: in other words, the typical dwelling lasts about 125 years. This means that, every year, about 16,000 dwellings fall out of use.

That figure seems somewhat high and, while 125 years may be an accurate guide for rural cottages, urban properties typically remain in use due to renovations. But even a depreciation rate of 0.5% a year would mean 10,000 dwellings are needed annually just to stand still.

Adding all these up, there are roughly 10,000 dwellings needed each year to offset obsolescence, a further 10,000-15,000 needed to accommodate Ireland's smaller households, between 20,000 and 25,000 on top of that to house the natural increase - and to top it all off, likely a further 8,000 or so due to net migration.

In total, Ireland needs at least 40,000 new dwellings a year and probably closer to 50,000. These will be concentrated in and near the urban centres and will be disproportionately homes for one- and two-person households, such as apartments, downsizer homes and student accommodation. As the latest figures show, without this kind of supply, we will all have to spend more and more of our income just to have a home.

Most and least expensive areas

Discuss This Article

  • Re: The Daft House Price Report Q4 2016

    Posted By: Anonymous Poster Date: Tuesday January 3, 2017 @11:14PM

    Irish cost of home build is the main problem. 75,000 artificially added to cost of new homes in Ireland \\\"daft stuff\\\". German Constitution provides for separation of Family Homes from the general definition of property, thus enabling specific provisions / laws to be put in place to ensure sufficient affordable (one-income) home supply without adversely impacting general property rights. Irish constitution needs such a change to assure long term delivery of affordable (private & public) shelter for citizens.
    call for referendum-on-family-home-rights-in-ireland

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Anonymous Poster Date: Saturday January 14, 2017 @08:02PM

    House prices are incredibly low in Ireland. A 3 bed semi for under 100k, that's insane! Anyone who thinks that they are unaffordable is nuts and needs to get out more into the real world. Like a pendulum, prices did swing too high but the back swing was just as enormous. We are no where near equilibrium. Ronan is a daft socialist and needs to wise up.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Derek2017 Date: Wednesday January 25, 2017 @01:33AM

    Sure there are houses for under 100K , however are they near centres of employment etc. ?? They are worth damn all if they are too far away from jobs , leaving people with 2 hour commutes to work /

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Jenny Date: Monday January 16, 2017 @08:10PM

    The house prices are 'insane' but that doesn't mean they will go up. Logic has nothing to do with the Irish housing market , you only need to look at the last 20 years to see.
    It's true that in a lot of areas the current market price that can be obtained is less than the cost of building a new one (which will only go up). That does not mean they will go up. They were built in the wrong areas. Unless some huge multi nationals decide they will relocate in the midlands or other sparsely populated areas these prices will in my opinion remain almost stagnant for another ten years. Equilibrium does not mean the middle point between two 'insane' scenarios. The two insane scenarios ( early 21st century boom & historic crash) are not good indicators of what the value of a house should be. The value of a house is and always was the price which someone is willing to pay for it. If noone wants to pay x amount for a house then the seller will just take it off the market. The upshot is the housing market is dead in Ireland outside Dublin and maybe Cork. There should never have been an economy based on a housing market in an agricultural country in the first place. The media is always trying to talk up getting on the property ladder while the government implements policies that prevent the people from what should be their right. The solution is political not economic.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: William Date: Sunday January 22, 2017 @01:39PM

    Jenny, I agree for the most part. The biggest problem is political and so is the solution. Intervention can cut both ways and in the past it has usually made matters worse.
    We should remember that the solution to the housing crisis is also closely tied in with environmental considerations. We need more houses, they need to be put in the right places (reduce traffic & pollution), they need to be sustainable and environmentally responsible in their construction and they need to be affordable.
    We need to think out of the box and create a legislative and fiscal framework that maximizes utilization of housing stock. Maybe we, the general population, need to think differently too in some areas. Nothing needs to conjured up. If we look on the internet there is so much information on housing initiatives that we can learn from.
    - Why do we allow massive financial interests to buy up tracts of housing and keep them vacant where the only apparent benefit is their bottom line? [Political]
    - Why do we allow people to build houses in rural areas when they have to travel long distances to work and services? [Political but not entirely]
    - Why do we not provide incentives to people living in houses that are too large (due to family situation changes) to move to smaller houses, creating extra capacity? [Political but not entirely]
    - Why do we not provide incentives for people who need to commute large distances for work? This could be applied by giving disincentives to employers recruiting people living further away (unless they moved closer). [Political but not entirely]
    I don't believe there is one big solution but a whole series of smaller ones. The ball is firmly in the court of the politicians and the administrative apparatus for the largest part but we as individuals have a lot of responsibility too. "Be careful what you wish for..."

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Anonymous Poster Date: Saturday January 28, 2017 @10:09AM

    OMG. WHAT YOU SUGGEST IS AKIN TO COMMUNISM. GOVERNMENT INTERVENTION S THE PROBLEM NOT THE SOLUTION.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Darren Date: Saturday January 21, 2017 @09:54AM

    The Solution to achieving the correct level of Supply is government intervention,
    VAT should be removed for new builds in areas where there is high demand but the cost of building suitable properties is preventing builders from building.
    Social and Affordable housing should be built by the government targeted at low earners and poorer families.
    20 x Designs of Housing Estates for fast track planning should be made available, the builder would then save thousands on Architect and Planning fees and could build these houses off site in factories and turn around a project in a relatively short time.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: William Date: Sunday January 22, 2017 @01:03PM

    Darren & 20 x housing designs: Perish the thought. This works for budget airlines but I don't think it would be, in any way, desirable for housing.
    BUT: Of course planning authorities could create a series of general specifications (20 or so) and architects could submit plans that aligned to the different specifications for approval. Once approved they could then be available to builders as you describe. This would provide the fast track you speak of, give us some more room for freedom of expression and keep our architects gainfully employed.
    Sadly: This would require our planning authority to be creative and think out of the box, which in my personal experience is absolutely not the case.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Jenny Date: Saturday January 21, 2017 @03:32PM

    I notice there are people who are still wilfully blinded to the reality...

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Derek2017 Date: Wednesday January 25, 2017 @01:28AM

    There is never a right time to get on the property ladder........

    Perhaps more people need to consider the European model where by individulas look at longer term leases before ever buying their first property.

    Do people have a right to buy a property or is it something merely aspirational ..??

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Anonymous Poster Date: Wednesday January 25, 2017 @05:56PM

    Sooooo. Let's earn 40k each and still not afford a Dublin rabbit hutch or MOVE where 75k buys a new build 3 bed semi THEN find a lower paid job, a decent community in which to live, decent education for your kids and people who dare I say it ...........SMILE. Trying to live the dream is often just a sad miserable nightmare.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Ray Date: Sunday January 29, 2017 @08:15PM

    In response to the housing crisis, could Ireland not look at what is done in France? A social housing system is in place - HLM - and people pay rent according to their income. Some of the HLM's are privately owned, by pension funds, etc., and the system seems to work well. The problem in Ireland would be that people might want cheap social housing and have a new car outside. The HLM system reviews your income, and actually looks in your bank account - a no-no for many Irish people. For example, a woman I know in France had her rent reviewed at age 80, and decided to leave her apartment and buy a property when her rent was put up. Imagine the outcry in Ireland! There are parts of Dublin where people can afford to go to Florida on their holidays, but want cheap rental from the local authorities. HLM properties in France don't look any different from private housing, so, apart from Paris, which has some ghetto-isation in older properties, HLMs for the most part are quite pleasant to live in, and people are looked after.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Anonymous Poster Date: Tuesday January 31, 2017 @09:09AM

    Ireland is a benefit state, most of the people expect to get a house for free from CLUID or local authority, have loads of children and live at the taxpayer's expense. While working people are struggling to pay a mortgage, property tax etc. This article wants more houses being built for lazy and immigrants, that came here to rest themselves.

    • Reply to this message
  • Re: The Daft House Price Report Q4 2016

    Posted By: Anonymous Poster Date: Monday February 6, 2017 @03:48PM

    House prices will rise and rise. Interest rates are low and will stay that way. Regulate the mortgage market to keep it within sensible income multiples and stop the government interference. As for the scrounging dole birds........cut welfare to the bone. Export them to the UK or beyond. Privative all existing social housing. Let the market do its job.

    • Reply to this message

Respond to Article

Your Name: (Optional)

Subject:

Message:

We ask you to keep your comments on-topic and suitable for a general audience. The article you are commenting on is entitled: The Daft House Price Report Q4 2016

Please Note: Your message will not be displayed on the website until its contents have been checked by a member of staff.