Ireland's Housing Need & Policy Options: An Overview - Ronan Lyons, Identify Consulting For: Irish Institutional Property August 2020
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Ireland’s Housing Need & Policy Options: An Overview • Ronan Lyons, Identify Consulting • For: Irish Institutional Property • August 2020
Structure
• Medium-term Need
• Current Context
• Policy OptionsThere are four principal sources of housing demand in any economy –
some of which are more responsive to external conditions than others
• Four principal sources of housing demand
1. Natural increase: changes in the native-born population, in particular in household-forming
cohorts – best measured by comparing the 25-34 year-old female cohort with an older
counterpart (e.g. 65-74 or 75-84 year-olds) – largely exogenous to economic conditions
2. Net migration: movement of people into the economy – in Ireland, hugely endogenous to
economic conditions
3. Change in household size: determines the number of dwellings given a population – long-run
trends largely exogenous but short-run trends hugely depending on housing supply
4. Replacement of obsolescent stock: each year, a small fraction of existing housing falls out of
use – this will be higher in economies with greater internal migration (e.g. urbanisation)
• These cover all tenure types – owner-occupied, private rental and social
• The spread of housing demand within the Irish economy depends on preferences (e.g. urbanisation)
but also public policyThe first two sources of demand – natural increase and net migration –
currently translate into at least 30,000 homes needed per year
Estimated housing demand, by source • 30,000 homes a year are needed to meet likely
(population increase only, 000s) population changes alone
60
50
• Natural increase peaked in 2010 and will level off
40
~17,000 per year by 2020s
30
• Offsetting this is increasingly positive trends in
20
migration
10 • Emigration fell 2010-2014 and each year
since 2015 has seen larger numbers of net
0
migrants into Ireland
-10 • Official migration projections are relatively
simplistic, with a baseline case of 30,000 per
-20
year (vs. 34,000 in 2018)
2020s*
2030s*
2019e
1980s
1990s
2000s
2010
2011
2012
2013
2014
2015
2016
2017
2018
Natural increase Net migration Total
Source: CSO. Notes: Net natural increase is calculated by the difference between 25-34 and 75-84 female
cohorts; net migration is converted from persons into 2-person households; projections for 2020s and
2030s based on CSO population projections (including average of M1/M2 scenarios for migration)The natural increase in the population in Ireland is by far the largest
in Europe
Natural Change, as percentage of 2017 adult population
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
-0.6%
-0.8%
-1.0%
Latvia
Portugal
Spain
Hungary
Slovenia
Cyprus
Lithuania
Bulgaria
Poland
Sweden
France
Netherlands
Malta
Estonia
Romania
Italy
Czech Rep.
Denmark
UK
Germany
Finland
Greece
Slovakia
Ireland
Croatia
Belgium
Austria
Luxembourg
Source: EurostatNet migration has been positive and growing since 2015 – every
extra 10,000 migrants require on average 4,000 new dwellings,
principally in the cities
• Annual gross migration to Ireland between Immigration (I) and emigration (E), by
2010 and 2018 more than doubled from
42,000 to 90,000 year and nationality (000s), 2006-2018
150
• Emigration fell from 80,000 to 56,000 in
the same period, resulting in a swing 100
from net emigration of 27,000 in 2010 to
net immigration of 34,000 in 2018 50
• The fall in emigration is driven by fewer
Irish leaving minus the rise in 0
immigration by more non-EU nationals
coming to Ireland -50
• Every additional 10,000 migrants require on -100
average 4,000 dwellings
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
• Non-Irish households have a lower
number of people per HH than the Irish (I) UK (I) EU15 (I) NEU (I)
average: 2.52 vs. 2.73 in Census 2011 Other (I) Irish (E) UK (E) EU15 (E)
NEU (E) Other (E) Net migration
Source: Census, CSO; “NEU” refers to new (post-2003) EU Member StatesIreland has Western Europe’s largest average household size –
but it has been falling steadily over the last five decades
Average household size, by country Average household size in Ireland,
(2014) by year
3.0 4.5
4.0
2.5
3.5
2.0
3.0
1.5
2.5
1.0 2.0
0.5 1.5
1.0
0.0 Finland
Sweden
Spain
Greece
Austria
UK
France
Ireland
Portugal
Norway
Netherlands
Switzerland
Italy
Denmark
Germany
Average
Belgium
Luxembourg
0.5
0.0
1966 1971 1979 1981 1986 1991 1996 2002 2006 2011
Source: Hypostat 2016; Census of ireland (various issues)Two thirds of the growth in Irish households since 1996 has been 1-2
person households, who now form the majority of households in Ireland
Number of households (000s),
• The number of Irish households grew by by size and Census year
50% between the 1996 and 2016 Censuses –
1,800
from 1.1m to 1.7m
75
1,600
• Of the 580,000 new households, two thirds
(390,000) were one or two person 1,400
households 1,200 741
• This represented 80% growth, from 1,000
120
0.5m to 0.9m households
800
• 1-2 person households have increased 505
from 44% to 52% of all households in 600
Ireland 400 886
499
• A further 40,000 new households were 200
‘crammer’ households 0
1996 2016
1-2 persons 3-5 persons 6+ persons
Source: Census of Ireland (various editions)Average household size rose between the 2011 and 2016 Censuses – but
this was driven by scarcity rather than demographics
• In the 2016 Census, the average household Irish households, by type, 2011-2016
size in Ireland was 2.75, up from 2.73 in 2011 100%
• This was not driven by a baby boom 90%
• Households with children made up 63% 80%
of the population in 2011 but just 48%
of the population growth 2011-2016 70%
• ‘Crammers’ (households with unrelated 60% "Crammers"
parties) made up 15% of the 2011
50% With others
population, but 35% of the 2011-2016
With children
growth 40%
No children
• In order to fall to 2.6 – in line with recent 30%
trends – Ireland would have required an
20%
extra 120,000 dwellings
10%
0%
2011 population 2011-2016 growth
Source: Census of Ireland (various editions)Household growth 2011-2016 was driven by three groups: older
no-children households in rural locations, families in towns, and
‘crammers’ in Dublin
Change in number of households, by broad type and size, 2011-2016
25,000
20,000
15,000
"Crammers"
10,000
Families
5,000 No kids
0
-5,000
Dublin Other Cities Towns Rural
Source: Census of Ireland (various editions)‘Crammer’ households keep household size high – demographics
imply a true household size in 2016 closer to 2.4, requiring an
additional 217,000 households
Household size, actual and calculated from demographics, by region
(and implied housing need), 2016
3.00 2.91 90,000 Average household size,
2.69 2.67 2.75
2.60 2.59 implied by demographics
2.45 2.44
2.50 2.26 2.22
75,000
2.00 60,000 Actual average household
size (2016 Census)
1.50 45,000
1.00 30,000
Estimated dwellings
0.50 15,000 required to achieve
demographic household
0.00 0 size (RHS)
Dublin Other Cities Towns Rural State
Source: Calculations, based on Census of Ireland (various editions)If Ireland’s average household size converges to the European average, it
will create major demand, especially for homes for smaller households
Number of extra dwellings required (000s) for a • Even with a fixed population, a
population of 4.8m, for different average household rise in the fraction of 1-2 person
sizes (relative to 2.7) households creates demand for
a significant number of new
350
dwellings
300
• Relative to a 2.7 average
250 household size, a population of
200 4.8m with an average household
size of 2.5 requires 142,000 extra
150
dwellings
100 • This is the equivalent of 11
50 years construction output at
2015 rates
0
2.9 2.8 2.7 2.6 2.5 2.4 2.3 • Convergence to EU average
-50
of 2.3 would require an
-100 additional 300,000 dwellings
-150
Source: Author calculationsOn demographics, the overall picture is clear: Dublin has a relatively
homogenous housing stock that is ill-suited to meeting the diverse
needs of its residents
• In total, Dublin is missing roughly 125,000 Households by number of persons and related
multifamily apartment dwellings dwelling stock (000s), 2016
1000
• The Greater Dublin Area is home to ~360k 900
households of 1-2 persons but has just
800
~230k dwellings of for 1-2 person- 418 Other
households 700
600
• In contrast, it has a surplus of ~100k family 674
323
homes, given its population structure 500
422
3-5 persons
400 /
• The mismatch is even larger outside GDA: 5-9 rooms
between 250k and 300k units 300
529
200 1-2 persons
• Within multifamily, there is a need at all lifecycle 232
358
233
/
100
stages – from student accommodation to 1-4 rooms
assisted living 0
Dwellings
Dwellings
Households
Households
• The largest gap likely relates to housing
workers, including those moving to Ireland
from overseas, both long- and short-stay
GDA Ex-GDA
Source: Calculations, based on Census of IrelandIreland is a laggard in urbanisation – but as it continues to urbanise,
this will concentrate housing demand in and around its largest cities
• Urbanisation is at the heart of economic growth Urbanisation rates, 1960-2016 by
• Cities allow specialisation (more productive country
labour) and agglomeration (more productive 1960-2016 change
100
capital and land) 1960 urbanization
90
• Density also allows cheaper utilities and a
80
wider variety of public/private services
70
• Since 1960, the fraction of people in high-income 60
countries living in cities has risen from ~60% to 50
~80% 40
• Ireland is only now at 64%, having been at 46% 30
in 1960 20
• Over the coming half-century, this is likely to 10
increase to at least 80%, creating significant 0
demand for urban housing
Canada
Spain
OECD
Finland
UK
Japan
Greece
France
Iceland
Ireland
Norway
Italy
Portugal
Netherlands
USA
Belgium
Luxembourg
Denmark
Australia
Germany
Source: World urbanisation Prospects, 2016Ireland’s labour market is as urbanised as other high-income
countries – meaning its under-urbanisation reflects inadequate
housing close to cities
Inequality curves of place of residence and work, Ireland
100%
(2016)
90% Top 20% of Census districts account for:
Cumulative total of
80% • 83% of work – in line with
urbanisation rates elsewhere in the
70% high-income world
population
• 65% of residents – Ireland’s low
60% urbanisation rate
50%
Equality
40%
30% Residence
20% Work/School
10%
0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
How to read this chart: Cumulative total of census districts Most densely populated 20% of
On the horizontal axis, going from 0% up gives the total Census districts (i.e. Irish cities)
fraction of workers or residents in the bottom x% of Census
districts. For example, going to 40% on the horizontal axis, the
bottom 40% of Census districts account for less than 5% of
workers – but almost 10% of residents.
Source: Calculations, based on Census of Ireland POWSCAR 2016Related to urbanisation, obsolescence also creates housing need –
with Ireland’s dwellings skewed to older/rural stock, over 10,000
homes are needed each year to keep stock constant
• Almost two thirds of Ireland’s stock of Ireland’s Dwelling Stock, by Age
dwellings is in rural locations 70%
• Ireland is experiencing delayed 60%
urbanisation – one that is being spatially
skewed by land-use restrictions 50%
• 150,000 households (9%) live in dwellings
40%
that are 100+ years old
• 6.3% of Ireland’s dwellings are buildings 30%
100+ years old in rural locations
20%
• If 5% of old urban stock and 10% of old rural
stock falls obsolete annually, ~13,000 to 10%
“stand still”
0%
Urban Rural
Pre-1919 1919-1945 1946-1960 1961-1970 1971-1980
1981-1990 1991-2000 2001-2005 2006+ NS
Source: Census; “NS” = Not StatedFor 2020-2025, demand for housing nationwide is likely to be
47,000 per year – compared to a target of 25,000 per year in
Ireland 2040
• Available evidence suggests underlying
Source State GDA housing demand of 47,000 homes per year
• This covers all elements of demand,
Obsolescence 8,000 2,500 including owner-occupied, rental and
social housing
Headship 12,500 5,000 • While 25%+ social is common in many
countries, it seems unlikely that more than
Natural Increase 18,500 7,400 10% of new construction will be social
• Major policy reforms, e.g. implementing
Net Migration 8,000 3,200 cost-rental, could change this
• Of the remainder, current trends suggest
Total 47,000 18,100 that ~60% (28,000) are needed for owner-
occupancy, with the other 30% (14,000) for
rental
Rounded estimates of new units required in Ireland and
in Greater Dublin area, per year, 2020-2025
Assumptions: 0.4% obsolescence, a fall in household size to 2.5 by 2035, and
natural increase (as defined by 25/34-75/84 cohort difference) of 18,000 and net
migration averaging 20,000 per year (in 2.5 person households due to dwelling
mix)Structure • Medium-term Need • Current Context • Policy Options
After roughly six years of strong inflation, sale prices in Ireland have now
stabilised, having risen by >50% but remaining ~30% below 2007 peak levels
Average sale price, by market National sale price inflation
€500,000 8% 20%
Quarterly
€450,000
6% 15%
Annual
€400,000
4% 10%
€350,000
€300,000 2% 5%
€250,000
0% 0%
€200,000
€150,000 -2% -5%
€100,000 -4% -10%
€50,000
-6% -15%
€0
2006q1 2008q1 2010q1 2012q1 2014q1 2016q1 2018q1 2020q1
-8% -20%
2006q2
2007q2
2008q2
2009q2
2010q2
2011q2
2012q2
2013q2
2014q2
2015q2
2016q2
2017q2
2018q2
2019q2
2020q2
National Dublin Other cities
Leinster Munster Connacht-Ulster
Source: Analysis of Daft.ie ReportThe ending of sale price inflation comes as the stock and flow of
properties available has increased significantly in recent quarters
Flow of sale listings during quarter,
Stock available to sell, by region
by market, since 2007
20000 8000 35,000
18000 Rest of Country
7000
30,000
16000
6000 Rest of Leinster
14000 25,000
5000 Dublin
12000
10000 4000
20,000
8000 3000 15,000
6000
2000 10,000
4000
2000 1000
5,000
0 0
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Leinster Munster Conn-U
Dublin (RHS) Other (RHS)
Source: Analysis of Daft.ie ReportRent inflation has slowed in 2019, but rents have risen for 29 consecutive
quarters, nearly doubling in total and 35% higher than the previous peak
Average monthly rental price, by
market National rental price inflation
8% 20%
€2,500
Quarterly
6% 15%
Annual
€2,000
4% 10%
€1,500 2% 5%
€1,000 0% 0%
-2% -5%
€500
-4% -10%
€0
-6% -15%
2006q1 2008q1 2010q1 2012q1 2014q1 2016q1 2018q1 2020q1
National Dublin Other cities -8% -20%
2006q2
2007q2
2008q2
2009q2
2010q2
2011q2
2012q2
2013q2
2014q2
2015q2
2016q2
2017q2
2018q2
2019q2
2020q2
Leinster Munster Connacht-Ulster
Source: Analysis of Daft.ie ReportIn the private rental market, availability remains at extremely
low levels
Flow of rental listings during quarter,
Stock available to rent, by region
by market, since 2007
4500 9000 50,000
Rest of Country
4000 8000 45,000
Rest of Leinster
3500 7000 40,000
Dublin
3000 6000 35,000
2500 5000 30,000
2000 4000 25,000
20,000
1500 3000
15,000
1000 2000
10,000
500 1000
5,000
0 0
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Munster Conn-U Dublin (RHS)
Other Leinster (RHS)
Source: Analysis of Daft.ie ReportThe overwhelming evidence from both sale and rental markets
in Dublin is that availability is the key determinant of subsequent
price changes: supply matters
Scatterplot of Dublin sale listings Scatterplot of Dublin rental listings
and quarterly changes in sale and quarterly changes in rents,
prices, 2006-2019 y = -0%x + 11% 2006-2019 y = -0%x + 7%
R² = 76%
10% 10% R² = 59%
Quarterly change in Dublin sale prices
Quarterly change in Dublin rents
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
-2% -2%
-4% -4%
-6% -6%
-8% -8%
1500 3000 4500 6000 7500 1500 3000 4500 6000 7500
Stock on Dublin sale market, 1st day of quarter Stock on Dublin rental market, 1st day of quarter
Source: Analysis of Daft.ie ReportBut since the crash, supply (of all forms) has been inadequate – and recent
improvements still fall short of underlying demand (47,000 per year)
New dwellings commenced, by local authority and month
5000 5000
4500 4500 Estimated
4000 4000 monthly
3500 3500
demand
3000 3000
Ex-GDA
2500 2500
GDA
2000 2000
Demand (40k)
1500 1500 Demand (50k)
1000 1000
500 500
0 0
2015III
2016III
2017III
2018III
2019III
2015IV
2016IV
2017IV
2018IV
2019IV
2015I
2016I
2017I
2018I
2019I
2015II
2016II
2017II
2018II
2019II
Source: Analysis of Census, CSO and Department of Housing figuresIreland’s housing is out of line not only with its own demographics, but
also compared to all other European countries, where typically 50% of
dwellings are apartments
Fraction of dwellings in apartments
Italy
Spain
Switzerland
Iceland
Finland
Germany
Austria
Sweden
UK
Greece
France
Portugal
Denmark
Norway
Belgium
Netherlands
Ireland
0% 10% 20% 30% 40% 50% 60% 70%Significantly higher gross yields on homes for smaller households
highlight the concentration of future demand in 1 or 2 bedroom homes
Average gross yield for residential real estate, mid-2019, by property size and location
14%
12%
10%
8%
6% 1-bed
2-bed
4%
3-bed
2% 4-bed
0%
Tipperary
Wicklow
Donegal
Dublin 5
Dublin 9
Dublin 7
Dublin 8
Dublin 1
Dublin 3
Dublin 6W
Dublin 2
Dublin 6
Dublin 4
Monaghan
Waterford City
North Dub
South Dub
Offaly
Dublin 17
Dublin 22
Dublin 10
Dublin 24
Dublin 11
Dublin 15
Dublin 12
Dublin 20
Dublin 13
Dublin 16
Dublin 18
Dublin 14
Cork Co
Longford
Galway Co
Clare
Kerry
Limerick City
Kildare
West Dub
Westmeath
Leitrim
Wexford
Laois
Kilkenny
Galway City
Louth
Waterford Co
Meath
Carlow
Roscommon
Cavan
Sligo
Cork City
Mayo
Limerick Co
Source: Analysis of Daft.ie Report; Markets are sorted from left to right by the 2019Q2 price of a 3-bed semi-detached property
Note: gross yield calculated as the annual rent divided by the capital value, for particular property type-location combinationsLittle evidence that Dublin’s population share is too big –
smaller populations mean bigger share in largest city
Share of population in largest city, European countries (n=42)
100% y = -144%ln(x) + 423%
Malta R² = 60%
Norway
80%
Denmark
Luxembourg Ireland (Rep)
60% Finland
Ireland (Island)
40% Germany,
Turkey
20%
0%
12 13 14 15 16 17 18 19 20
13 = 0.4m Population in logs 19 =178m
Source: Author calculations, based on jakubmarian.com, Wikipedia/CIA World FactbookIn fact, Dublin has gone from largest importer to largest exporter
of people within Ireland – with consequences for commuting and
quality of life
Net difference between population by county Fraction of commuters with a ‘long
of birth and county of residence (000s) commute’ by distance/time
50%
250
45%
200
40%
150
100 35% % travelling
16km or more
50 30%
25% % travelling 30
0
minutes or
-50 20% more
-100 15%
-150 10%
1996 2002 2006 2011 2016
-200 5%
Dublin Kildare, Meath Rest of Munster Connacht-
0%
& Wicklow Leinster Ulster
1981 1986 1991 1996 2002 2006 2011 2016
Source: Author calculations, based on various issues of the Irish censusThe location of new housing supply has been inadequate, with the
emergence of a 100% Dublin housing price premium in recent decades
Dublin/Rural Ireland housing price premium
120%
100%
80%
60%
40%
20%
0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Unweighted average New to 2nd hand Listings (adjusted) Rents (adjusted)
Source: Author calculations, based on Department of Housing statistics (1970-2005) and Daft.ie Report (2006-2019)And the mix of new housing supply has been inadequate, with the new
homes built increasingly out of sync with Ireland’s household structure
Number of households (000s), New dwellings completed in
by size and Census year Ireland, 1996-2015 (thousands)
2,000
63
1,800
1,600 75 125 675k smaller
680 228 homes needed,
1,400
741
175k delivered
1,200
120 215 vs.
1,000 175k larger
800 505 homes needed,
237
600 1171 53 675k delivered
400 886
200 499
0 Urban/GDA apts Urban/GDA houses
1996 2016 2016* Rural apts Rural one-offs
1-2 persons 3-5 persons 6+ persons Other rural
Source: Author calculations, based on CSO Census and Dept of Environment/Housing statisticsIn recent years, affordability has deteriorated, with rent and sale prices
rising faster than incomes.
Average rent to average income Average FTB house price to average income
40% 10
9
35%
8
30%
7
25%
6
20% 5
15% 4
3
10%
3-bedroom house in West Dublin, two 2
5% incomes
1
Double-room in Dublin, one income
0% 0
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
1997Q1
1997Q4
1998Q3
1999Q2
2000Q1
2000Q4
2001Q3
2002Q2
2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4
2016Q3
2017Q2
2018Q1
2018Q4
2019Q3
Source: Analysis of CSO, OECD, PTSB and Daft.ie figuresHowever, supply is determined by viability, not affordability – and
viability is extremely challenging for apartments in Ireland
• For apartments in Dublin, construction costs are
€225,000 per unit excluding site costs and land
• Costs rise to over €300,000 when legal, planning
and finance costs are included (details are shown
on the graphic)
• The addition of land, VAT, levies and equity sees the
final cost rise to over €460,000
Source: Dublin Residential Cost Benchmark (2020) by Linesight construction consultants for IIP 32One of the main reasons supply of new apartments has been so weak is
that total construction costs in Ireland are high by international
standards
Listed cost, per m2 of internal space, of building mid-rise, medium-spec
apartments, by city and year
€3,000
€2,500
€2,000
€1,500
€1,000
€500
€0
2015 2016 2017 2018 2019 2020e 2021f
Toronto Munich Dublin Amsterdam Warsaw Madrid Belfast Edinburgh
Source: Analysis of Turner & Townsend International Construction Market Survey, various issuesBuild costs for suburban homes (excluding land, government tax and
developer’s profit) are between €2,100 and €3,000 approx. per square
metre. Apartments are more expensive to build than houses.
Build cost per m2 of suburban housing, by type in 2020 Q1
Construction
Sales and marketing
Suburban apartment Planning, professional fees,
compliance
Development staff, legal
and administration
Contingency
Part V costs
Suburban townhouse
Finance and banking
Irish Water and utility
connections
€0 €500 €1,000 €1,500 €2,000 €2,500 €3,000 €3,500
Source and notes: Figures based on analysis provided by Linesight to IIP for dwellings with 100m2 gross floor area (83m2 nett floor area for apartment dwelling types).
Figures exclude site acquisition costs, cost of equity capital/profit, and tax, as well as costs relating to any abnormal ground conditions or contamination.
For City Centre / Complex Build cost may be up to 20-40% higher depending on site conditions, height, specification and the like. Other assumptions available on request.Looking ahead, permissions data suggest that new estate houses will
continue to come on to the market in 2020 and 2021 and, from 2021,
apartments too. But level of supply far behind projected demand.
Dwellings completed and units granted Pipeline of new apartments (as of
permission (lagged), by quarter and type of mid-2019)
5,000 housing
14,000
4,000 12,000
3,000 10,000
2,000 8,000
6,000
1,000
4,000
0
2,000
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
2020Q1
2021Q1
2022Q1
0
Completions - one-off Completions - estate Dublin City South Dublin North Dublin Cork
Completions - apartments Planning - one-off (+2Q) Under construction Planning consented
Planning - estate (+6Q) Planning - apartments (10-12Q) Planning submitted Pre-planning
Level of supply far behind projected demand Source: Analysis of CSO and Department of Housing figures; LIV ConsultingStructure • Medium-term Need • Current Context • Policy Options
Ireland has a persistent underlying medium-term need for significant
additional housing – 47,000 units per year, concentrated in smaller
urban homes
• To recap, there are four main sources of housing demand
• Two relate to a growing population - natural increase and net migration
• The other two are household size and obsolescence
• The four sources combine to create a new for 47,000 new housing units per year
• The bulk of new homes needed are:
(1) for smaller households and
(2) are concentrated in and near the main cities
• There are three main segments in the housing system: owner-occupied, private rental and social
housing
• The owner-occupied sector looks largely in balance, with a significant increase in construction since
2015 meaning that supply appears to be meeting demand
• The other sectors, however, still look chronically under-supplied and account for the majority of the
~25,000-unit shortfall between completions and underlying needHigher up-front costs for smaller homes in or near cities mean there
is a tension between viability (sale/rental prices exceeding costs) and
affordability (prices being in line with incomes)
• Construction costs in Ireland are very high, compared both to average local incomes and to costs in
other jurisdictions
• The latest evidence is that, for a 2-bed apartment in Dublin’s outer city / suburbs, all-in build
costs are approximately €300,000 for a 83m2 home
• If it is a city centre / complex build, the same 2-bed apartment could cost up to 20-40% higher
depending on site conditions, height, specification and the like
• Without public subsidy, these costs are borne by the ultimate occupants in the sale or rental price
• In other words, high construction costs present a challenge between viability and affordability
• The higher costs are, the less affordable new homes will be
• The higher costs are, the higher the break-even rent denoting viability
• Very high construction costs require urgent addressing by policymakers – but, even with political
will, it is unlikely to be fixed within 3-5 years
• ‘Soft costs’ of construction – including taxes – may be easier to change quickly than ‘hard costs’,
such as labour and materialsThe importance of financial and environmental sustainability places
significant constraints on government policies to boost housing supply
• The Celtic Tiger bubble/crash episode provides a stark warning about the potential consequences of
getting around high construction costs through increasing leverage
• The typical deposit paid by a first-time buyer fell from 25% in 2000 to less than 5% by 2006 –
with a dramatic increase in the ratio of mortgage credit to household income
• The subsequent dramatic rise and fall in property prices has led to the adoption of Central Bank
rules that limit the leverage individual households can take on for property purchase
• At the same time, the move towards energy self-sufficiency to address the climate challenge affects
the potential to reduce build costs
• Nearly Zero Energy Building (NZEB) standards impose up-front costs for significant future
benefits
• This creates a capital market policy puzzle: if the amount of debt an individual household can
taken on is capped, how will investment take place in assets with high social returns, such as
NZEB?In the context of high costs, rent controls would have serious negative
consequences for new supply – a cost-rental approach is
recommended instead for alleviating this burden
• Ireland’s housing context over coming decades will be defined by the climate challenge, demographic
change, and the drive towards greener, denser living
• Private rental and social rental will be central modes of tenure in meeting Ireland’s substantial housing
needs over coming decades
• Those housing needs will also be increasingly differentiated over the life-cycle, from purpose-built
student and co-living accommodation for younger households to independent and assisted living
complexes for older households
• Given high costs, controls on rent levels for newly built homes will significantly exacerbate the shortage
of non-owner-occupier housing
• Policy should instead focus on cost-rental schemes. (Cost rental is a mechanism whereby rent covers
the cost of construction and long-term maintenance only. Building on state land can further reduce the
cost).
• If home ownership remains a policy priority, then Shared Equity and Shared Ownership housing
schemes are also open to policymakersWhere home-ownership is a policy priority, two further policy options are Shared Equity Housing and Shared Ownership Housing
Ireland’s Housing Need & Policy Options: Conclusion • This report has examined Ireland’s housing need and the policy options available to meet that need • The composition of housing need in the medium-term will likely be driven by three factors: (i) falling household size (ii) urbanisation and (iii) environment sustainability • All three factors imply a need for much greater diversity of housing options, especially for smaller households in and close to Ireland’s major cities • The current context is one of strong demand and, with the exception of owner-occupied housing for larger households, continuing weak supply • The lack of responsiveness of new supply is ultimately a product of high construction costs, with viability (the price-cost ratio) well above normal levels of affordability (the price-income ratio) for most households and areas • In addition to reducing costs, policy options include cost-rental, shared ownership and shared equity schemes
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