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Irish Housing: Watching a Fat Man Dance
Read more about: Census, Housing, Scandal, Social Policy
Last month I wrote a post about the glut of housing in Ireland, and how, as a society, we have experienced a mortgage boom, rather than a simple housing boom. A couple of people have suggested that “holiday homes down the country” account for the large amount of empty Irish housing units. Others have said that supply and demand problems in Dublin are affecting average prices. Finally, there’s the “second home” syndrome, all carving up the empty housing figures.
On Thursday (16 August 2007) the CSO released the Census 2006 Housing Report. When contrasted with the Department of the Environment’s house completion figures, it reveals almost 10,000 unoccupied new housing units in Dublin city, almost 11,000 in Fingal, and 2,000-3,000 each in Dun Laoghaire/Rathdown and South Dublin. In Limerick, a staggering 83% of new housing units have fallen into the gap between new construction and new households. The census report adds to the analysis that the banks, the government, and our housing retail sector in general, have been behind the obscene prices.
The figures below show the amount of private households in permanent housing units - a house, flat, or bedsitter containing one person or more - in Ireland’s cities and its three Dublin county councils, as recorded by the 2002 and 2006 censuses. It is followed by the amount of new households, 2006.
The Department of the Environment’s figures for house completions used below are a merger of public and private housing projects. Also, as both the 2002 and 2006 censuses were held in April of each year, I have taken 25% of house completions in 2002 and 2006 and incorporated those figures into the totals. For example, the amount of house completions in 2002 in Dublin city was 4,124. I took 25% of that figure - 1,031 - and used that as my “yearly total”. 25% is a deliberately conservative estimate. The true figure for unused new housing units is almost certainly higher than the figures below suggest.
With regard to Galway, Limerick, and Waterford, C.C. relates to “City Council”.
Housing is not an abstract concept. It is intensely physical. We know how many houses and apartments were built in each of the city and county council areas, and we know the amount of new households - from single bedsitter inhabitants to South Dublin mansions - as recorded by the census enumerators. We also know from the census housing report (p.5) that the very same enumerators came across around “266,000 residences [that] were vacant at the time of the census while in a further 30,000 cases the household was either enumerated elsewhere or temporarily absent from the State.” These vacant houses/flats/ apartments/bedsitters are spread across the country, in both rural and urban areas. With regard to new housing units in our cities, the general gap between construction and occupation is shown below:
The amount of unoccupied housing units as a percentage of the total constructed is thus:
These figures are quite incredible. In Cork city, for example, there was an increase of 1,224 households since 2002. In the same period, however, around 5,571 housing units were completed. Now, even if every single new household moved into a new housing unit - as opposed to moving into a housing unit that may have been unoccupied in the 2002 census - this leaves around 78% of all new housing units in the Cork city council area with simply nobody living in them. By anyone’s standards, that’s an oversupply, no?
And with a famously open market economy such as Ireland’s, surely an oversupply would lead to a downturn in prices? Here’s how prices have reacted to oversupply in the Irish housing market. (The amounts are the average between new and second-hand prices. I took the average price of a new house and added it to the average price of a second-hand house, and divided the figure by two.)
And the increases in percentage terms…
With supply and demand taken out of the price increase equation, we are left, once again, with a mortgage boom as a key player in the overpriced Irish housing market- available credit has driven prices up, rather than housing demand or short supply. (Another key factor in house prices is land speculation.) People have taken out €400,000 mortgages, because the banks have allowed them. Sellers are getting €400,000 for their houses, because they know the buyer can get that amount from the bank. The recent slowdown in the housing market is because people cannot afford mortgages.
According to Constantin Gurdgiev, Economist & Editor, Business & Finance Magazine
The core issue here is affordability. Basic estimates suggest that the median per capita disposable income in the country today stands at around €31,300 per annum. Factoring in the savings rates and using a 4.5:1 ratio of disposable income to loan value, a median household entering the market today can afford a mortgage of between €380,000 and €400,000. The stamp duty, legal fees and costs of moving the household and upgrading properties cut roughly 15 percent from the affordability threshold. This is a far cry from the latest asking prices – according to Daft’s statistics, “the average family dwelling in Dublin city ranges from €485,000 to €518,000 for a three bed and from €671,000 to €734,000 for a four bed property.”
The slowdown in the market happened last year when asking prices in Dublin broke the €400,000 mark - and not because of bloody stamp duty or surplus issues. The market has run out of mortgages.
Quite simply, the supply of mortgages over €400,000 is what has dropped off. So, what you’re seeing now is houses empty for six months or more as sellers can’t find buyers for their prices.
And that’s a bubble.
Conor, I think you have some valid points but you have a tendency to dismiss out of hand any opinion that does not 100$ concur with yours. Your comment “A couple of people have suggested that “holiday homes down the country” account for the large amount of empty Irish housing units.” seems intended to dismiss the idea that there are any other factors at work in the housing market at all.
I pointed out in your previous post on this http://www.irishelection.com/07/soft-landings-irish-property-style/ that a significant (note the word significant, that does not mean the majority by any means) amount of builds outside of Dublin were holidays home. Reports I could find indicated the figure of 20% is not unreasonable for some of the western counties.
Your argument has merit but you place far too much blind faith in revelations from numbers provided by the CSO. For example basing anything on the CSO for Limerick in 2006 is deeply, deeply flawed. That census showed the population of Limerick city dropping compared the previous census. The fact that it was held the weekend of the Heineken cup and a Limerick v. Tipperary match means the numbers are simply not reliable.
A considerable (again note the word considerable, did I suggest it accounts for everything? No, just that it was a factor that had not been to the fore prior to the last few years) amount of new apartments in Dublin went unoccupied those investors purchasing them did not expect to recoup the fit out cost and they planned on selling within 1/2 years of completing the purchase.
dismiss out of hand any opinion that does not concur with mine? you’re wrong I tells yeah! WRONG!!!!
The reason why I focused on the cities is to highlight the fact that holiday homes cannot explain the figures for them. your comment about the figures for Limerick as deeply flawed is, in itself, deeply flawed. The CSO has two figure for empty homes during the census night - one of 266,000 for houses empty, and 30,000 for houses where people were “temporarily absent”. The CSO figure of 266,000 - a figure arrived from the actual physical process of knocking on doors - concurs quite closely to the discrepancy between the amount of housing units built since 2002, and the rise in households countrywide.
Also, look at Cork, Waterford, even Galway. This is a nationwide trend.
by the way, you STILL havn’t told us where you’re getting the 20% holiday homes figure from.
You’re the one that highlighted Limerick why not Waterford, so no I won’t look at the rest. I’m not going to trawl through the CSO figures. This reporting of the same release http://home.eircom.net/content/irelandcom/topstories/10937799?view=Eircomnet you are referring to talks about 12% holiday homes in Donegal and 11% in Wexford. I somehow do not think they were built in a even distribution over the last 200 years, so a figure of 20% in the last decade or so is a reasonable figure. You appear to be have access to the information why don’t you tell us how many holiday homes were built in each of the last 10 years?
haha! cheeky bugger! You’re the one who brought up holidays homes. Ok. I’ll do your homework for you.
The census figure for holiday homes in the state is 2.8% of the entire housing stock.
However, they make up 18.69% of empty housing units. No figure is given as to how many of these were built in the last ten years or so.
The central argument remains: How can 216,533 empty housing units - or 12.3% of the entire housing stock, lead to 56-71% rise in prices?
15.1% of the entire housing stock is empty. (houses, apartments, and holiday homes).
The figures for holiday homes in the cities mentioned aboved are:
Dublin city - 111. And as a percentage of empty housing units - 0.43%
Dun Laoghaire/ Rathdown - 60. ” ” - 0.87%
Fingal - 233. ” ” - 3.0%
South Dublin ” ” - 0.26%
Cork city - 28. ” ” - 0.45%
Limerick city - 8. ” ” - 0.27%
Waterford city - 11. ” ” - 0.37%
Galway city - 205. ” ” - 7.38%
“The central argument remains: How can 216,533 empty housing units - or 12.3% of the entire housing stock, lead to 56-71% rise in prices?”
Because those empty houses are not all on the market, or in places where the market of buyers is interested in making purchases. As I said before a house in Monaghan is not much good to someone in Cork city, nor a house in Clare to someone working in Dublin. If someone has a house that is not for sale then it is not as much a factor in the market as those houses that are for sale.
But we’re talking about new housing units here. They were built to be put on the market. If they’ve been bought up, by who? If they are investments, can that many people really afford to pay a second or third mortgage on a place that they are not renting? These units have been built, but not occupied. and we’re talking huge amounts of properties. If demand is regional, why haven’t property prices been more regional?
Take Longford, for example. After holiday homes and “visitor only” residences have been removed from the overall figure, you’re still left with a vacancy rate of 21% - that’s 3,262 houses, and 261 apartments. Now, since 2002, Longford has seen around 3,200 new housing units built. and since 2003, house prices in Longford have risen from an average of €183,123, to a 2006 average of €230,096. A “modest” rise of 25% in 3 years.
Even at 2003 prices, that’s a vacant housing stock value of €597,347,226! Just sitting there waiting to be sold, or sold on, or rented? almost 600 million euros doing nothing? And that’s just one county.
Cork city, though, that’s the best.
Prices have risen from €287,801 in 2003, to €388,827 in 2006 - a 35% increase. now, there were 6,067 vacant housing units in April 2006, or 12.3% of the housing stock (minus holiday and “visitor only” residences.) Thing is, from April 2002 to April 2006, around 6,000 new housing units were completed. That’s a vacant housing stock value (at 2003 prices) of €1,478,928,322! Just sitting around, not being rented or being sold. Just there, empty. Vacant. 6,067 units. Over 1.4 billion euro of property (at 2003 prices). €2,116,206,002 at 2006 prices. A nice little profit, if you can find someone to sell it to.
But, as far as demand goes, the household increase for Cork (from 2002 to 2006) was 1,224, or around one fifth of the completed new housing units. Man, that’s oversupply on a massive scale.
also, the average price of a house in April 2006 was €291,700. there were 216,533 vacant housing units in the State that month - 174,935 houses, and 41,598 apartments. (I’ve not included holiday homes, which accounted for 49,789 of the housing stock.)
That gives a ball-park figure of €63,162,676,100 worth of housing stock. Is it all trying to be sold, or rented? Or is a part of it an investment for the future - but one with no income being made off it at the moment.
One thing’s for sure. It ain’t all for sale at the moment. Currently, there are just over 50,000 properties for sale on Daft.ie - and that includes everything from plots to 6 bedroom mansions. It has around 6,000 properties for rent.
My home has around 20,000 properties, according to daft.ie, anyway. Even with that, we’re still not getting close to even half of the vacant properties.
At the end of the day, supply has far exceeded demand in every single county in Ireland, and has done so for the past four years, easily. Yet prices rise. That’s the banks and the estate agents for you.
Yet prices rise. That’s the banks and the estate agents for you.
No that is people willing to pay these prices if people didn’t pay these and rented like the rest of Europe then the prices come down. I will leave Dan to the rest of the anaysis. I will have to cheak out the rest of the CSO later in the week
so why were people willing to pay €400,000 in 2006, but only €280,000 in 2003? what caused the change in “willing”? and why are people “not willing” to pay over 400,000 - thus adding to the present downturn? what is it about 400,000 that caused the seachange in “willing”?
most people don’t buy houses - most people buy mortgages, and then with that mortgage they buy a house. There are very few people who can afford to buy a house. It has been the supply and demand of mortgages that has been allowed to set prices in this country, not houses.
If people want a house, they have to get a mortgage. and that’s where the con kicks in.
Conor, they were willing because other people were willing, if only one person in a queue for one house is willing to spend 400,000 then the price will raise to met that. All the market will bear is the expression. It is about knowing the value of money and the real value of a house.
I think a big problem is people who have no context of what a mortgage is, and what the real cost of it is, they focus on repayments instead of the total borrowed and the relationship between capital they borrowed and the total they actually owed in interest(a moving target too with variable rates) and capital. They think only of the monthly repayments, not the total figure. (the continuing decline in Leaving Cert Maths would link in here nicely)
“Quite simply, the supply of mortgages over €400,000 is what has dropped off.”
Surely you mean the demand, especially since interest rates are stabilising.
Are you still claiming 40% of housing is unoccupied?
copernicus, me old mucker! I thought you weren’t talking to me over the harry potter and fries line.
I’d say people were buying houses at inflated prices because everyone assured them that housing was an investment. If they realised that prices have been hugely influenced by mortgage sellers,and not by any inherent house value - certainly not by supply and demand issues - maybe they would have thought twice about spending a sizable amount of their projected income for the next 35 years all in one afternoon. you’re right about the maths, Dan. People haven’t thought this through.
what we have here is a classic example of “common sense” being anything but. The consensus among the banks, media, and political leadership, was that housing was ok. People believed it, and nobody in the opposition - not FG, not Labour, not the Greens - was willing to say otherwise.
So, why, with all the availability are the rents in Ireland now the highest they have ever been?
Why is renting now almost as expensive as buying?
Why are people renting when they could buy?
Why are people paying so much for rental properties?
Why can you rent out a flat within 2 hours of it appearing on daft.ie?
Its all becoming a bit of a mystery to me.
Because we’ve been conned into thinking that demand has set prices, when in fact it’s been easy credit.
http://www.irishelection.com/08/cheap-credit-continues-to-bite-the-economy/
Couldn’t both have been factors?
Oh absolutely! Dan, I agree, and normally it would be a factor - a significant factor. but I don’t think demand is what has led to the simply incredible rise in house prices since 2002 - the period when our economy’s growth really leveled off (when construction is taken out of the equation, that is.)
I can’t find any figures for actual house sales, so I’d be inclined to argue that it is as likely that builders are sitting on houses / apartments rather than putting them all on the market, for fear of driving prices down. I don’t think the demand is there. I think we have cosy cartels working away in the Irish construction industry - with a nod to Mr. Lowry on that one.
My home was sold last year. Located in Dublin city, 5 minutes walk from the Dart, 15 minutes (by Dart) to the city centre. We had about 4 genuine offers in five months. and stamp duty had nothing to do with it. Ok., it’s the second-hand market, and I’m really talking about the new housing market, but still… something is up, Dan.