Ben Breen & John Reidy IGEES Unit, Department of Public Expenditure and Reform NERI Conference Presentation, June 2022
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An Overview of the Irish Housing Market and Policy Ben Breen & John Reidy IGEES Unit, Department of Public Expenditure and Reform NERI Conference Presentation, June 2022
This paper has been prepared by IGEES staff in the Department of Public Expenditure and Reform. The views presented in this paper do not represent the official views of the Department or Minister for Public Expenditure and Reform. 2 Rialtas na hÉireann | Government of Ireland
Conclusions • Affordability essential for supply (viability), not necessarily the other way around. • Effective land management policies are key to delivering affordable housing. • Mechanisms of social and public housing delivery that are resilient to fluctuations in the economic cycle are vital for long run stability. 3 Rialtas na hÉireann | Government of Ireland
Market Transactions and Prices
New Dwellings Existing Dwellings
€450,000 1,800 €350,000 5,000
€400,000 1,600 4,500
€300,000
€350,000 1,400 4,000
€250,000 3,500
€300,000 1,200
3,000
€250,000 1,000 €200,000
2,500
€200,000 800
€150,000
2,000
€150,000 600
€100,000 1,500
€100,000 400
1,000
€50,000
€50,000 200
500
€0 0 €0 0
2010M01
2010M08
2011M03
2011M10
2012M05
2012M12
2013M07
2014M02
2014M09
2015M04
2015M11
2016M06
2017M01
2017M08
2018M03
2018M10
2019M05
2019M12
2020M07
2021M02
2021M09
2010M01
2010M07
2011M01
2011M07
2012M01
2012M07
2013M01
2013M07
2014M01
2014M07
2015M01
2015M07
2016M01
2016M07
2017M01
2017M07
2018M01
2018M07
2019M01
2019M07
2020M01
2020M07
2021M01
2021M07
2022M01
Volume of Sales - 3 month average Mean Price Median Price Volume of sales - 3 month average Mean Price Median Price
*Prices (Left Hand Axes)
*Volume of Sales (Right Hand Axes) Source: CSO
4 Rialtas na hÉireann | Government of IrelandPurchasing Affordability: What can Middle Income Households Afford?
(Dublin, 2021)
• Bars show the median mortgage potential (i.e., Gross Income of households at 50th percentile of income distribution x3.5
to reflect lending rules) for households living in various tenure types and Local Authorities. The horizontal lines display the
median and mean price for dwellings in county Dublin.
• The distance between the various bars and horizontal lines indicates the affordability gap for middle income households.
€600,000
€500,000
€400,000
Affordability
Gap
€300,000
€200,000
€100,000
€0
Example: Borrowing Dublin City South Dublin Fingal Dún Laoghaire-Rathdown
potential of middle income Owned Mortgage Owned Outright Rented Private Market
household living in Dublin
City, who own a house with Rental Local Authority Dublin County Mean Price Dublin County Median Price
a mortgage
5 Rialtas na hÉireann | Government of Ireland Source: author calculation of CSO dataPurchasing Affordability: What can Middle Income Households
Afford? (Other Urban Centres, 2021)
• Bars show the median mortgage potential (i.e., Gross Income of households at 50th percentile of income
distribution x3.5 to reflect lending rules) for households living in various tenure types and Local
Authorities. The dots represent the median and mean dwelling price for respective LAs.
€400,000
Affordabilit
y Gap
€350,000
€300,000
€250,000
€200,000
€150,000
€100,000
€50,000
€0
Kildare Galway City Limerick Cork City Waterford
Owned with Mortgage Owned Outright Rented Private Market Rented Local Authority Mean Price Median Price
6 Rialtas na hÉireann | Government of Ireland Source: author calculation of CSO dataSocial Housing Delivery 7 Rialtas na hÉireann | Government of Ireland
Social Housing Output
30,000
• Capital expenditure fell post
25,000 2008, coinciding with near
cessation of social housing
20,000 building. Recent years have
seen building return to near
15,000 pre-2008 levels.
10,000
• Greater reliance on current
expenditure to meet housing
need (HAP vs Rent
5,000
Supplement), though longer
0
term need for greater social
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
housing stock remains.
Build Acquisition Leasing RAS HAP
8 Rialtas na hÉireann | Government of IrelandIrish Housing Policy and Expenditure
Housing Related Expenditure and Output: 2016 – 2021
2016 2017 2018 2019 2020 2021
Total
Expenditure
(€m)
942 1,408 2,061 2,439 2,632 3,093
% Capital 57% 59% 65% 62% 56% 59%
% Current 43% 41% 37% 38% 44% 41%
Unmet Social
Housing Need 91,600 85,799 71,858 68,693 61,800 59,247
Social Housing
Units Delivered
19,044 25,901 27,086 28,072 24,622 23,312
9 Rialtas na hÉireann | Government of IrelandThe Private Rental Sector 10 Rialtas na hÉireann | Government of Ireland
RTB Standardised Rent Metrics
National Standardised Average Rent (€) 2021Q4 Regional Variation in Standardised Average
€1,600 Rent
€2,500
€1,400
€1,200 €2,000
€1,000
€1,500
€800
€600 €1,000
€400
€500
€200
€0 €0
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2015Q2
2015Q4
2016Q2
2016Q4
2017Q2
2017Q4
2018Q2
2018Q4
2019Q2
2019Q4
2020Q2
2020Q4
2021Q2
2021Q4 Dublin City GDA excl. Cork City Galway City Limerick Outside Waterford
Dublin City GDA City
Source: RTB
11 Rialtas na hÉireann | Government of IrelandAffordability – Rental Market
€2,500
€2,000
€1,500
€1,000
€500
€0
Dublin Rent Non-Dublin Rent GDA Rent Outside GDA Rent
Houses Apartments National Affordability Threshold
• Bars show the 2021Q3 Standardised National Rent Metric for renting both houses and apartments in various areas.
• Horizontal lines represent the affordability threshold (i.e., 35% of monthly disposable household income) nationally, and for
households whose tenure status is renting and rent free (i.e., private market rental and social housing supports)
• Income Data: 2020 Survey of Income and Living Standards
12 Rialtas na hÉireann | Government of Ireland Source: CSOCyclicality and Affordability in the Rental Market Private rental sector exhibits elements of counter cyclicality • Initial high returns available to institutional property investors were partially contingent on distressed asset prices followed by increasing market rents (Beswick et al., 2016) • A decline in economic activity also reduces the attainability of homeownership, intensifying demand in rental sector • Low rental stock, rising rents, demographic factors (smaller household size), continue to make PRS attractive Viability challenges in PRS supply due to rising input costs. Implications for long run sustainability of supply? • Medium rise urban apartments from 5 to 15 stories cost between €378,600 and €479,000 (SCSI, 2021) and can run as high as €615,000 for a city centre apartment (IIP, 2020). • Lyons, 2021: Only one-sixth of renter households in the greater Dublin area could afford the €1,640 monthly rent that investors require to break even on an apartment with a €400,000 build cost at prevailing yields. 13 Rialtas na hÉireann | Government of Ireland
Summary of Supply (2018 – 2021)
TYPE OF DWELLING 2018 2019 2020 2021 2022 SO
FAR
UNITS WITH Apartments 8,975 18,898 24,662 26,272 NA
PERMISSION Multi-unit Housing 14,483 13,941 12,417 9,220 NA
One-off Housing 5,481 5,622 5,292 7,499 NA
Total Permitted Units 28,939 38,461 42,371 42,991
COMMENCEMENTS Single builds 5,078 5,089 4,415 5,301 1,641
Multi-Unit Development* 17,389 21,148 17,271 25,423 7,702
Total Commencements 22,467 26,237 21,686 30,724 9,343
(Apr 2022)
COMPLETIONS One-off housing 4,676 5,062 4,942 4,682 1,106
Multi-unit housing 10,969 12,509 11,664 10,644 2,821
Apartments 2,258 3,478 3,920 5,107 1,742
Total Completions 17,903 21,049 20,526 20,433 5,669
(Q1 2022)
NEW DWELLING All Dwelling Types 11,341 13,123 11,871 12,355 1,979
TRANSACTIONS (Q1 2022)
14 Rialtas na hÉireann | Government of Ireland
*Apartments and Multi-Unit Housing Source: CSOLand 15 Rialtas na hÉireann | Government of Ireland
Land Speculation and Competition Irregular Supply of Suitable Sites • Land has option value: current use and potential future value. • Speculation of future land values disrupts supply of suitable development land, and increases development cost Competition at the land bidding stage locks in high costs. • Bidding at the land acquisition stage means sites are acquired by actors who foresee highest house prices/rents, or lowest build costs. • Locking in higher prices: development occurs at margin of viability 16 Rialtas na hÉireann | Government of Ireland
Breakdown of Apartment Delivery Cost: 2 bed, medium rise
suburban – €411,000
Selling Costs
Prof Fees Contingency 2%
4% 2%
Construction
Contributions
5%
VAT on Sales
Margin/Risk
Finance
6%
Construction
47%
Site Purchase
Finance
Site Purchase
11%
Contributions
Margin/Risk
11%
Prof Fees
Contingency
VAT on Sales
12%
Selling Costs
Source: The Real Cost of Apartment Delivery, SCSI, 2021
17 Rialtas na hÉireann | Government of IrelandBreakdown of Apartment Delivery Cost: 2 bed, medium rise
suburban – €411,000
Selling Costs
Contingency
Prof Fees 2%
2%
4%
Contributions
5%
Construction
Finance
6%
VAT on Sales
Margin/Risk
Construction
47%
Site Purchase
Finance
Site Purchase
11%
Contributions
Prof Fees
Competition in Contingency
Land Bidding Selling Costs
Margin/Risk
11%
Stage
VAT on Sales
18 Rialtas na hÉireann | Government of Ireland
12% Source: The Real Cost of Apartment Delivery, SCSI, 2021Cost Rental 19 Rialtas na hÉireann | Government of Ireland
Cost Rental and International Models of Public Housing Alternative forms of public housing supply, such as cost rental, may have the potential to avoid the pro-cyclicality and viability issues described. Cornerstones of Austrian Cost Rental Model: • Self-Financing Model: Cost rents cover construction, debt and maintenance. • Revenue generated from matured stock (long term outcome). • Financing arrangements more Off-Government Balance Sheet • Diverse sources of finance (public loans, commercial loans, equity of developers, tenant equity) • Public housing open to broader range of income cohorts (helps to achieve self financing development and service debt used to finance development). • Large stock of public housing that is retained by municipalities and non-profit sector • Less reliance on demand side assistance • Cost rental sector competes with private rental sector which drives down optimistic bids on land (reducing input costs) as developers are “price takers” of the going market rents 20 Rialtas na hÉireann | Government of Ireland
Conclusions • Affordability essential for supply (viability), not necessarily the other way around. • Effective land management policies are key to delivering affordable housing. • Mechanisms of social and public housing delivery that are resilient to fluctuations in the economic cycle are vital for long run stability. 21 Rialtas na hÉireann | Government of Ireland
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