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Planning Permission data indicate housing oversupply is set to grow

June 29, 2010 by namawinelake

The Central Statistics Office late last week released data on planning permissions in Q1, 2010 which indicated, as expected, applications continue at a low level and even though there was an increase of 10% in applications compared with Q4, 2010, the usual increase between Q4 and Q1 is 30% so safe to say that the residential construction sector stays weak. This entry will examine planning applications over the last decade and compare actual building activity and will conclude that the State is still building far more than is required.

Firstly here’s the data (the base information is available in a google docs spreadsheet here, planning permissions are published on a quarterly basis by the CSO whilst completions are published annually by the Department of the Environment Heritage and Local Government):

There is not a 100% correlation between planning permissions and completions, evidenced by the fact that in the 9 years to the end of 2009, there were planning applications in respect of 698k housing units and only 584k were in fact actually completed.

If you assume there to be a one year lag between the granting of planning permission and the completion of the building then the experience in 2009 was that completions were 40% of the applications in 2008. Overall over the decade the figure was 80% so plainly things have slowed down with the crash in the property market. In 2009 there were 40,556 applications and if the 2009 trend in completions were to continue, we will have 16,000 completions in 2010 (40%). Annette Hughes at DKM Consulting, a company which advises government and the construction sector, was reported by the Irish Times over the weekend was forecasting 7,500 completions this year of “houses” which would see a completions at less than 20% of 2009’s applications.

With the population looking as if it will be broadly flat in 2010 compared with 2009 – births offset by deaths and more significantly, net outward migration and assuming an average household of 2.7-2.8, then the demand for property should be minimal and certainly less than 5,000 units. With the enormous overhang of empty property and the likelihood of new build being greater than that required by the minimal increase in population, would price elasticity of demand models indicate that a further substantial downward correction is in prospect?

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