It's the demographics stoopid

The Irish Property Bubble (2006) The Republic of Property
1

We had a net increase of population by 106,100 for the year ending April 2007. Link

Immigrants don’t usually buy houses so there were 67,300 looking to rent places. In a best case scenario (for builders), you are looking at two per household, which means that at best 33,650 properties can expect to be housing new immigrants. A more realistic figure of 3 per household means approx 22,000 extra properties required for rent.

The 38,800 born last year are all wee nippers and thus won’t be buying houses or renting just yet. Let’s just assume that they’ll be absorbed by keeping the 2.8 per household figure that we have for Irish families. That means 13,800 properties are required to house the wee kiddies born.

To look at it from another angle.
52,500 were born in 1990. They turn 18 this year and can reasonably be expected to require homes over the next decade or so. Assuming that number was not decreased by their parents emigrating etc, and that they all get married and live as couples they can reasonably be expected to require approx 26,000 homes over the next decade but for the purposes of this thread, we’ll assume they buy all in one big chunk which means 26,000 “this year”.

Nowhere do these figures remotely justify building over 80,000 homes a year. If net migration drops, which is almost a certainty, a huge amount of the real demand for new housing disappears into thin air.

These figures don’t even take account of the annual death rate which predicts 28,000 deaths in Ireland per annum and even if we assume they were all married senior citizens with no children, they would be expected to release approx 14,000 homes a year onto the market.

Doing the sums:
+22,000 houses required for new immigrants to rent
+14,000 houses required to house new babies
+26,000 houses required to house the 18 year old generation
-14,000 houses released due to death of occupants

Thus 48,000 new homes required (in a best case scenario for builders) and if immigration slows, this will drop even further.
If migration was to become static, then you’d be looking at only 26,000 homes being required per annum.
250,000 is a conservative estimate of the number of empties in Ireland right now which could in theory house the next five years worth of demand, before you consider that this empty overhang is likely to increase even further during this year.

I’ve deliberately set this up to give the rosiest picture possible for builders by using multiples that would up the number of homes required.
Flaws? Mistakes? Thoughts?

2

I still think there’s a bit of a pent up demand from the 25-35 age bracket that have been out of the loop when it comes to house buying due to the affordability issue.

Don’t ask me to back this up with anything as trivial as statistics, but I know from speaking to friends and acquaintances that many have been priced out of the market and are now looking around for somewhere to buy, now that the affordability issue is addressed and there is some value to be had.

I’d be surprised if this phenomenon isn’t widespread. How much this will affect demand? I think anyones guess is as good as mine.

3

Have 5-20% drops in asking prices really addressed the underlying affordability issue? At 2008 levels many people in the 25-35 bracket are still priced out of the market. Surely stricter controls on credit will also impact on their purchasing power.

4

I came up with a similar figure just by dividing the population increase by the average household size which was about 2.7 in the 2006 census.

E.g. 106,000 / 2.7 = 39,259

The net population increase would already take account of deaths, so there is no need to bother with that. There would be a certain number of demolitions per year, but I doubt it is very significant.

BTW, about the lowest avg. household size in the EU is ~2.1, so any VI suggesting that our household size are similar to Germany and Finland is clearly full of shit.

5

Hmm … What % of the 106,000 came here to build houses and work in other spin-off businesses?

6

That’s a fair point Poc and there’s no real way to quantify it.
I can only speak of personal experience and I’m the only one of 2 in my college class of 30 who has not bought (we’re all 28-32 now). In my social circle in Dublin, 3 out of the 10 of us (26-31) have no stake in property. In my social circle in Cork where I’m from (ages 25-35), it’s about 50/50.

It’s not very scientific but if my mates in Cork were to be taken as a representative sample of the 25-35 age bracket with an average birth rate of 55,000 for those years, we’re looking at 27,500 people per year as “pent up” demand. 11 times 27,500 makes 302,500 people and 150,000 houses required assuming that they all buy as couples which still won’t clear the overhang but there’s something a bit too rosy here.
My college classmates are all chemical engineers, i.e. high earning professionals. My Dublin mates are all professionals, some of whom are high-earning. However, my Cork mates are for the most part hippy alternative-lifestyle types and some of them would never have got a mortgage during the boom let alone the coming crunch. Most of them are low-to-average earners with only one real Celtic tiger in the group.

I think there is pent up demand. After all, I’m part of it but I do suspect that it won’t be enough to sustain house price levels as those who haven’t bought by now can hang on, rent and wait & see.

Can the stubborn buyers please stop sitting on their hands, do their duty for Ireland and start buying up empties snappish? You can get great value out there now that the average house price is only 9 times your salary!

Edit: corrections.

7

It really is clutching at straws trying to make the best possible case for numbers of units needed. That pent-up demand has indeed an affordability issue, most(78%) earn under 35k p.a.(based on govt stats).

To add to affordability, alot will be single, a further bunch wouldn’t give a hoot about buying and rent(single&couples), another bunch will have outstanding debt(credit card, personal loans) which reduces their affordability(tiger splashing cubs), another bunch wouldn’t even qualify for a mortgage (single&couples, your skanger type demographic :lol ) AND all these will have to have a 9% deposit with no loans outstanding in best case scenario.

If lending does return to historic norms(via credit crunch) to corresponding huge reduction in prices, then the ones who cannot afford now and are single will buy and soak up some normal demand p.a.
And then the immigrants as pointed out. They are mostly in low wage jobs with a pull factor to buy in their home countries hwere its hell of alot cheaper. You’ll be looking at the health sector, better part of I.T., maybe finance to source some real buyers from this group and that ain’t much in numbers!

8

Maybe it’d be better put in the present tense. i.e. “The affordability issue is being addressed.” Prices are dropping, albeit slowly, this factor and wage inflation is narrowing the affordability gap.

I think the point is still valid; that there are a number of people who are looking to get into the market that aren’t represented in the aforementioned figures.

9

There is only 1 source of homegrown people to feed the demand for housing, and that’s the houseshares.

Any family unit that is currently renting and decides to buy, will by definition be leaving an empty place behind, they have no net impact on empties.

In a house share situation you could have anything from 2 to 4 individuals (perhaps more) who might be willing to go their seperate ways and buy their own places. In some cases they’ll be linking up with others from the same house share or another house share to create a family unit.

Immigration will always be hard to predict in advance, and if we are relying on immigrants to support the rental market then we’ll always have a knife hanging over us, unless we can create an economy that a)welcomes immigrants, and b) creates enough of the kinds of jobs that will keep them here.

Bringing in immigrants to build houses for immigrants is not the kind of sustainable jobs I’m talking about.

-Rd

10

I certainly agree that it’s an important factor that is very difficult to quantify. I personally know a number of people in that bracket who have stated their intention to buy sooner rather than later. However, external factors (e.g. credit restrictions or economic downtown) are likely to impact these intentions even in the short term. Many people seem to assume that we can have 2008 affordability with 2006 economic/lending conditions.

11

That’s the point I’m trying to make. I fixed a glaring error in my last post and it is clear that even if half of all 25-35’ers have yet to buy houses, the current empties can only be filled if every one of them buys a house each. If a significant proportion of them buy as couples or with a friend, then the empties will not be cleared by the 25-35 age bracket pent up demand.

If you look at non-immigrant influenced demographics, there is demand for at best 25,000 homes per annum.

12

Another factor to consider is the empties, just because a house is empty there’s no guarantee that it will be coming back on the market as a rental or sale anytime soon. It’s another impossible to quantify figure, what amount will come back on the market and how many the owners will be content enough to sit on their hands as regards their empty property? The only thing we can say for certain that it won’t be 100% of the figures for empty houses that will contribute to availability.

Once again, I’m not going on anything other than what I’m seeing in my own life. For example there’s a gaff a few doors up from me that has been vacant for over 1 year and possibly longer, it looks like a good bit of money has gone into a complete renovation and yet it lies idle. I’m only deducing that, from the rents in the area, that whoever owns it can afford to/or is forced to forgo the 18k-20k that it would bring in each year in rent. There’s no sign of it coming back to the market for rent or sale and yet it would be included in the empties figure estimated above.

13

This kind of thing made sense in the era of rapid capital appreciation - why go to the effort (and expense) of letting the place out when you get most of the profits from holding on to it.

In fact if you assume that it would take a similar amount of money to:

  • Pay the deposit to buy a place plus fit it out for rental
  • Pay the deposit for two placesthen given massive capital appreciation, you’d be better off owning two idle places than owning and renting the one.

Of course, you’d be paying the mortgage on two places with no rental income to offset it with, but when prices were rising maybe 40K a year and interest rates were low, doubling that to 80K was more significant than a few grand a month.

14

Actually this ratio would be much higher, it is not unknown to have 8-10 eastern European immigrants per dwelling. As most of them plan to come just for limited period of time, they are not into “wasting” money on living costs so they can maximize profits from visit. Of course families with children would tend to have separate dwellings, but they are min 3 people.

It leads to interesting results. In some places, like London, immigrants “push” out families from many locations, as even well-off two income couples may not be able to compete on price against low income but multiple income groups.

Last but not least, main thing that brings people to Ireland, is availability of jobs. Once economy would stop creating new jobs at this pace, the flow will stop - who know, maybe even reverse.

15

I’m aware of that but the object of the exercise was to take a pro-VI slant on things and demonstrate how the “fundamentals” actually still work against the builders.

Everything in the OP is slanted to give the best possible outlook for bulls and the sums still aren’t adding up to a recovery any time soon.

16

which is more than matched by the pent up supply of people who own three gaffs these people who are currently renting will no longer rent off three gaffs if they buy so the figures cancel each other out…

I think… :laughing:

17

You have to remember that there is an ongoing decline in household size and this leads to a demand for housing even without a population increase. It has been trending this way for 30 years and I see no reason why it will stop anytime soon. According to the CSO average household size in 2001 was 2.97. In the 2006 census this had reduced to 2.81, or a decrease of 0.032 per annum.

So divide population of 4,000,000 by 2.81 = 1,423,487 dwellings

Next year if the household size falls to 2.78 then 4,000,000 / 2.78 = 1,439,884 dwellings, or an increase of 16,397 houses with no increase in population.

A 106,000 increase in population @ 2.78 per house will need an extra 38,130 houses. So a back-of-fag-packet total required will be 54,524.

18

I edited my OP based on the more correct figure you had for household size which brings my figure to 48,000 new builds. I think it’s fair to use a different one for immigrants and also for new people coming onto the market. Either way, both our figures are rather far removed from the notion that building nearly 90,000 units in one year was a sustainable exercise. Even if building stopped right now, it would take five years to work through the empties but if building stops, the non-nationals will leave and it will take us even longer.

19

Do you have a link for this? I would like to have a look at these figures.

20

Very true

Household sizes at the last 3 censii were :

3.15 in 1996
2.95 in 2002
2.8 in 2006

A decline of about 0.04 a year with rounding up if in any doubt .

So its safe to surmise that we are at 2.72 persons per household now, 2008 even though its not April yet , down from 2.8 persons per household in 2006.

The population has furthermore increased by some 140k ( 70k a year) since the census , giving us 4.34m in April 2007 and we will say 4.4m even today .

**4.4m people divvied into chunks of 2.72 shows that we have a requirement for 1.61m homes right NOW !
**

Yet we built 90k homes in 2006 and 80k in 2007 so its safe to say that we increased our total of 1.8m homes in April 2006 to about …hmmm 1.94m now …allowing for a few retirements and refurbs from the housing stock along the way …

The sum of new builds q2 q3 q4 2006 and q1 q2 q3 q4 2007 and that data is Here and is 149,522 precisely.

I shall assume 165k including 15.5k for q1 2008 which is unreported, unsurprisingly that 8)

I then add 1.8m to this 165k and I get 1.965k but I furthermore assume that a full 26.5k homes were retired from the housing stock since the census in 2006 as they fell into disuse and dereliction or were knocked .
**
So thats 1.94m houses out there now and habitable.**

** So we take 1.61m used out of the 1.94m extant and we have 330k empty** .

Thats 17.5% of the housing stock albeit with some holiday homes included

Very well observed and correct first principles but do reduce that to 2.72 to a home to remain on trend and with rounding UP if in doubt like I did. I feel 2.78 is way too optimistic .

**Do remember that there are some other variables which WOULD INCREASE the number of empties above 330k.
**

These are for example.

Increase in the birth rate per woman, babies do not form households .
A decrease in immigration in the past year ( or from now) .
An increase in emigration in the past year (or from now) .

However 17.5% of your housing stock lying idle ( most of the year anyway) is UNPRECEDENTED in modern civilisation …save in Malta for some odd reason.

Therefore I re-iterate.

Its The Empties Stoopid