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Archive for June 18th, 2010

The first entry on this blog in January 2010 was in respect of the Irish population and future trends and what they meant for housing demand. The entry back then came on the back of recent work by NIRSA which indicated that empty housing units in the State may have been in the 300,000-range, up considerably from what appeared to be the official government estimates of 130,000-or so. What struck me at the time was the anecdotal evidence of emigration spiralling which begged the question: if emigration grows to the extent that population overall falls then what will happen with all these empty properties and what effect will that have on the property market?

AIB are now saying that this year may see the first population drop since 1990, on the back of net outward migration of 50,000 estimated.  To me this chimes with the general direction pointed to by the CSO’s latest Quarterly National Houshold Survey. Below is a post on the irisheconomy.ie blog:

“Does the QNHS give a good steer on net outward migration for the year?

Q1, 2009, 15 – 64 age range, population 3,531,500
Q1, 2010, 15 – 64 age range, population 3,516,000

Fall in 15-64 age range population 15,500

In April 2009, there were 288,100 people in the 10-14 age range and 207,500 in the 60-64 age range. If 1/5 of the 10-14 turn 15 in the year and 1/5th of the 60-64 turn 65 in the year, then you would have expected the 15 – 64 population to increase by 16,120 (288,100/5 – 207,500/5).

So instead of an increase of 16,120 in the 15-64 age group we have a decrease of 15,500. These people must have emigrated, no? So the net outward migration of 15 – 64 year olds was 31,620?

And given that there is one child for every 3.5 adults in the country and assuming the children weren’t abandoned, would it be fair to assume that 9,000 children net outward migrated with their parents?

So a net outward migration of 41,000? Compared to 8,000 for year ended April 2009.

Of course with our record breaking birth rate we would have had 77,000 new souls in the State and with our very low death rate 27,000 would have shuffled off this mortal coil. So an net increase of 50,000 naturally less 41,000 net outward migrants, ie a net overall increase of 9,000.

And 9,000 at 2.74 souls per home would need less than 4,000 homes.”

To me the colossal scale of emigration undermines demand for housing and according to any price-elasticity model would point to a further drop in prices. AIB are expecting the outward migration trend to last for another 2 years.

The reason this issue is of concern in the context of NAMA is that NAMA, by statutory instrument, relies on information from the ESRI and DoEHLG for predicting future housing demand in determining Long Term Economic Value (LEV) – see the LEV Regulations here. In particular NAMA are not allowed rely on any analysis produced after 10th January, 2010 (see section 5).  The CSO had only produced two scenarios prior to 10 January 2010, one where there was nil net inflow between 2010 – 2026 and the other where there was +600,000. Even if the CSO produced analysis today which CONSIDERED net outward migration over the next decade, NAMA are not even ALLOWED  consider that analysis as it is post- 10th January, 1010.

Therefore, with mounting evidence of substantial short-term net outward migration, NAMA is cocooned in a world where it MUST assume net inflows. This is surely wrong and will lead to overvaluation of property assets in the State by NAMA. There is a reason for this yoke on NAMA’s operation – the valuation date is 30th November, 2009 for ALL tranches (though there appears to be no statutory barrier to changing the valuation date for future tranches) and so it would make sense in the context of a single valuation date to have a cut-off in information to be relied on by both sides, the banks and NAMA.

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