New home completion figures for 2010 indicate little change to the oversupply of empty property

The stock of empty property available for sale in the State is an important metric in understanding price trends from a demand:supply viewpoint. It is also important to the construction industry in forecasting demand. And it is of general national importance to understand the quantum and condition of the national housing stock. 2011 will see the first  census since 2006 but if previous censuses are anything to go by, it will be 2012 before any meaningful information on the housing stock is made available. Yesterday Geodirectory issued its own report on new property in the State which concluded that 14,495 new homes were added to the national stock which now stands at 1,878,824. The reported new build is in line with figures produced by the Department of Finance in its monthly economic bulletin (page 10) which said that 13,500 new dwellings were created in the 11 months to November 2010, the last reporting period available. It seems that both sources use connection to the electricity grid as a basis for determining new homes. DKM Consultants estimated in June 2010 that new homes would number 7,500 in 2010. The difference is down to the methodology used (see Appendix A4.4 on page 132 of the DKM outlook report) and the implication from DKM’s estimates is that property built in previous years was connected to the grid for the first time in 2010.

So consider the following equation:

[Opening stock of overhang empty property] less [Obsolescence] less [Population growth divided by average household size] less [Acquisition of holiday homes or investment property] plus [New build] plus [Disposal of holiday homes or rental property] = [Closing stock of empty overhang property]

(1) Empty or vacant property dominated the headlines in late January 2010 as the results of NIRSA’s research were published and the number 300,000 stuck in the public mind until October 2010 when the Department of the Environment Heritage and Local Government published its review of ghost estates and in the public perception the number of empties dropped to some 30,000. And it is the mass media’s fault for confusing the matter by failing to detail the bases for the various studies into empty/vacant property. The concensus amongst the propertypin, Goodbody, DKM, NIRSA and UCD reports was that there were in excess of 100,000 dwellings above the usual long term vacant level that could be termed an overhang. The ghost estate review ignored completed estates, some smaller incomplete estates and one-off housing.

(2) Obsolescence isn’t measured in Ireland. NIRSA suggest an obsolescence rate of 6/1000 (that is, every year, six out of every 1,000 homes drop out of the national stock)

(3) Population is estimated by the CSO as at April each year and the census in 2011 will help confirm the accuracy of the CSO’s estimates. The latest figures available for April 2010 suggest population increased by 11,000 in the year to April 2010 (high birth rate, low death rate = high natural growth substantially offset by high net outward migration). The average household size in Ireland is estimated at 2.75 and has been very gradually reducing. So the demand for new houses might be estimated at 4,000 (11,000 divided by 2.75) and this estimate should be treated with caution because it ignores the detail of household profiles for new dwellings.

(4) Neither the acquisition/disposal of holiday/investment homes is measured. You could argue that local economic troubles might lead to the disposal of holiday homes, and you could also argue that cheaper property attracts foreign buyers of holiday homes. You could argue that higher mortgage rates, pressure on incomes, decreasing rental rates, second home taxes, stagnant population growth may lead to disposals of investment residential property. You could argue that short-term emigrants may just choose to leave their property empty rather than sell into a depressed market or attempt to rent it. So this component is foggy at best.

(5) So how many vacant dwellings do we have at the end of 2010? Very difficult to say but it’s likely to be above 300,000 and of these, 100,000 are likely to be in excess of the long term vacancy level. Did the stock of vacant dwellings increase in the past year? Difficult to say because new build activity was much reduced from previous years but so also was population growth and largescale changes through disposals of holiday homes/second homes won’t be detailed until the census later this year. Ditto for obsolescence. But I would think it unlikely that there has been much reduction to the level of overhang.

Having accurate figures for the above components of change to the housing stock would aid price discovery in the market and help the construction industry plan its future – employment in the sector still represents 7% of the total workforce but absent information on future demand there is the risk of further unnecessary cuts and permanent loss of business expertise and skills.