Vacant Property DKM vs. NIRSA Vs. UCD (Part 2 of 7).

Definitions

I was hoping to deal with the comparisons between the three reports in two posts but there is just too much information and work required so I hope to deal with the following questions in posts during this week.

1. How many vacant properties are there? (Part 3 of 7)

2. Where are the vacant properties located? (Part 4 of 7)

3. What types of property are vacant? (Part 5 of 7)

4. Why are these properties not on the market at present? (Part 6 of 7)

5. Theoretically, what would be the effect of collusion amongst sellers to maintain property prices? (Part 7 of  7)

To recap, there have been three recent studies of vacant residential property in the State as follows:

1. DKM report primarily on construction in September 2009

2. NIRSA studies in January 2010 which appear to be available only as a series of blog entries on the irelandafterNAMA blog. The relevant entries would appear to be at

An estimate of vacant housing in Ireland – 18^th January, 2010

Housing Vacancy Update – 20^th January, 2010

County vacancy rates – 22^nd January, 2010

An estimation of oversupply by County – 24^th January, 2010

3. UCD with others report in March 2010

My apologies that I am not also examining a series of blog entries on the website http://www.thepropertypin.com/viewtopic.php?p=362867 which as long ago as August 2007 were claiming there to be 350,000 vacant properties in the State. I just didn’t have the time.

Following the publication of the latest report,  Construction Industry Federation Director of Housing and Planning, Hubert Fitzpatrick again claimed there to be between 35,000 – 40,000 vacant NEW homes and Housing Minister, Michael Finneran stated that “the figures available to me say there is somewhere between 122,000 and 147,000 vacant properties”

In this blog entry, I am examining definitions used when describing vacant property. Specifically definitions of “vacant”, “property”, “holiday home”, “overhang”, “normal vacancy”, “obsolescence”. As all three sources used the Census 2006 as a starting point I consulted the CSO and the Census for guidance.

I though the Census forms from 2006 might assist in the area of definitions. In H1 a property could be defined under four headings as a house, an apartment, a bedsit or a temporary structure such as a caravan. CSO then produced reports on different questions asked in the Census, the key one in this context being Housing (the best table is table 43 on page 110). When arriving at the total number of dwellings of 1,769,613,  temporary dwellings like caravans (7,225) were excluded but all other categories of dwelling including bedsits  (8,751) and unclassified (31,803) were included. The breakdown of the 1,769,613 permanent dwellings is interesting and it is as follows:

Dwellings where the occupants were the usual residents                   1,462,296

Dwellings where the occupants were visitors                                    11,049

Dwellings where the residents were temporarily absent                    29,946

Subtotal (widely quoted as number of occupied dwellings)   1,503,291

Dwellings that were vacant houses   174,935

Dwellings that were vacant flats                   41,598

Dwellings that were holiday homes  49,789

Subtotal                                                      266,322

Total permanent dwellings                                                   1,769,613

In the introduction to the census Housing report, under the heading “Conduct of Census”, it is stated that 4 weeks prior to the actual census, the census workers determined themselves that there were likely to be 1.5m occupied dwellings on the night of the census and delivered the forms there. The remainder were judged by the census workers to be vacant and it is the census workers that produced the split between vacant house, flat and holiday home. The guidance issued to the census workers is given here though I am awaiting a response to some follow-up questions – in particular what is the definition of a holiday home, how many vacant bedsits are there (the Census report indicates nil yet the report includes over 8,000 bedsits as occupied dwellings), what are the circumstances in which residents are visitors (could these also be holiday homes), what are the circumstances in which residents are classified as temporarily absent (could these be truly described as vacant homes).

“Standard Vacancy Rate (SVR)”(UCD) or “Expected vacancy rate”(NIRSA) or “Normal vacancy rate”(DKM) . UCD say (page 15, top) “Assessing an appropriate vacancy level within total housing stock can be regarded as necessary to allow a normal property market to operate efficiently…This vacancy guideline of 5% facilitates both labour liquidity and residential market churn”. NIRSA say on 18^th January, 2010 that “Of course, a certain small percentage of housing stock is always going to be unoccupied given its state and location vis-a-vis demand, but even so it’s clear that there is presently a large amount of vacant houses and an large oversupply of residential property”. NIRSA make reference to an “expected vacancy rate” of 6% in their post on 20^th January, 2010. DKM say (page 41, middle) “In order to ascertain what the ‘normal’ vacancy rate should be in a housing market at any given time, the average vacancy rate has been derived for twelve European countries” and they conclude a “normal vacancy rate for Ireland is 6%”.

What all of this implies is there is some principle in property akin to the principle accepted by most economists that full employment actually means something more than 0% unemployment. Where is the evidence for this? When UCD say a level of vacancy is necessary for “labour liquidity” and “residential market churn” what could they mean? Jim lives in Connaught and has just landed a job in Dublin so he vacates his property in Connaught to live in Dublin. What happens to his old property? He leaves it empty, he rents it, he sells it? If he leaves it empty then presumably it is classified as a second home or holiday home. If he sells or rents it then it must be a vacant home. In terms of “residential market churn” if Jim builds a new home on a plot down the road and moves in there, he will decide to either keep, rent or sell the old property. Again if he keeps it, it will be a second or holiday home. Otherwise it is vacant.

Is the concept of “standard vacancy rate” or “normal vacancy rate” or “expected vacancy rate” valid in terms of implying a certain level of stock which although uninhabited isn’t quite vacant? I don’t think it is. I am not familiar with it as an economic term. There are of course vacancy rates in the property world but I am not familiar with these rates for residential property being applied in the sense applied by the three sources.

“Holiday Home” This is first referred to by the 2006 Census. There is no definition provided and I have asked the CSO what they mean by “Holiday Home”. It would appear that it is the Enumerator who makes the judgment and they are encouraged to consult neighbours when arriving at their judgment. Of particular interest is whether “holiday home” includes “second home” ie Joe who left Connaught to work in Dublin has left his home in Connaught empty though he goes back there every weekend. His home would commonly be referred to as a “second home”. Is that included under the “Holiday Home” heading. I am hopeful the CSO will be able to provide guidance with this definition.

“Obsolescence” Yes homes don’t last forever and need to be maintained. Each of the three sources attempted to quantify homes that had fallen into such a state of disrepair that they had become uninhabitable today. Although the three sources came up with similar nominal obsolescence rates, none provided sources or indeed explained the application for the rates. DKM assumed a rate of 0.3%.. NIRSA say obsolescence is 0.6% per annum. UCD estimated an obsolescence factor of 0.5%. Although the nominal rates are similar, the lack of sources and explanation of application muddy their use by the sources.

“Overhang”. Colloquially this is taken to be the permanent vacant dwellings which are capable of being sold or rented today. However it has different terms to different people. Michael Finneran, our Housing Minister said yesterday “But remember that in any country in the western world there is always an overhang of about 6pc to 7pc”. So our Housing Minister uses the term “overhang” as if it meant “standard vacancy rate” (UCD) or “expected vacancy rate” (NIRSA) or “normal vacancy rate” (DKM). DKM don’t define the term but on page 41 through their calculations they indicate that “overhang” is what you have left after subtracting holiday, obsolete and normal vacancy from total vacant properties. NIRSA don’t use the term “overhang”, they use “oversupply in the same sense as DKM use “overhang”. UCD don’t define the term though they use it as a verb in a sentence (page 15) – “For many regions in the rest of the State the evidence is that a significant oversupply will overhang the market over a longer period”