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.
NAMA Wine Lake 
Thought you’d be interested in this story about rigidity and lack of realism.
In the early 90s I was the financial modeller in a multi-discipline team of consultants engaged in the review of the combined heat and power system for the capital city of an Eastern European country. The fuel used was gas from Russia supplied at a very attractive price but expressed in US$. The contact specified an exchange rate to use for our 3-5 year projections – this had been set several months earlier. I refused to use this rate as the local currency had fallen very sharply against the US$ which meant that the latest price been paid in the local currency for the Russian gas was shooting through the roof. After much argument within the consultancy team and with the Government, I was allowed to explore a scenario using the latest FX rate. I presented this to, it must have been, about a hundred bureaucrats, banks etc. in a local cinema. Needless to say all hell broke loose when the real figures were presented. The projected increase in heating and power prices for customers made the headlines in the next day’s papers.
The moral is that Nama, Dept of Finance and Minister should get their heads out of the sand and start facing reality on prices, demand etc. (as you highlight so clearly). People who bury their heads in the sand can never see the wood for the trees. This means that Nama’s strategies are outdated and consequently could ultimately report paper losses even greater than my estimate of €30,000,000,000+ as well as possibly lose a pile of taxpayers’ cash.
Sounds like you’ve experienced the phenomenon of sticking your head above the parapet and telling things as they are, regardless of egos and inconvenience. Of course you were dealing with hard data and population projections are more opinionative – I can see why in late 2008 the ESRI were considering only two scenarios but to not update these after the publication of emigration figures for year ending April 2009 (negative 8000) in Autumn 2009 seems bizarre. If 450,000 net inward migrants came here in the period 1994 – 2008 then isn’t it CONCEIVABLE that we might have net outward migration for the next decade as EU_Accession countries grow their economies towards the EU average and as Ireland unravels the cost of a catastrophic property bubble and banking crisis, in this scenario isn’t it CONCEIVABLE that we’d have net outward migration – of course there’s nothing to prevent consideration of other scenarios but to dismiss one scenario completely seems careless and lazy. And of course NAMA are lumbered with the result – the must assume net inward migration is between zero and 600,000, which when taken with our natural growth of 50,000 or so a year means there will be plenty of demand for those empty properties and which means they will have value beyond that today on a simple supply/demand basis.