How many homes that need to be built in Ireland is now a question often asked. This decision making process should involve analysing many factors including new home sales as a proportion of total home sales rather than predicting how many potential buyers want a new home. It appears that the Construction Industry Federation (CIF) were often the first port of call to answer such an important question of how many homes should be built every year in Ireland. The CIF used to publish new home statistics every year which were simply regurgitated figures from the Department of Environment, so often a newspaper article would follow, detailing the new statistics and quoting the CIF. However, the body has still not updated its website showing the 2013 total figure of 8,301 new homes (Their page showing new home completions from 1970 to 2012 is still available which was of vital use for journalists).
From Jan to May 2014, there were 3,941 home completions which is an increase of nearly 31% on the same period last year, meaning if the trend continues for all of 2014, there will be around 11,000 home completions this year. It’s worth noting that home sales from Jan to May 2014 are up 38% on the same period last year according to the Property Price Register (PPR).
The Economic and Social Research Institute (ESRI) predicted that there need to be 15,000 to 20,000 new homes constructed every year, and according to the UK government, 300,000 new homes need to be built every year, so per capita, that would be the same as saying around 22,000 new homes need to be built in Ireland. Since the ESRI estimates broadly tally with the UK estimates, one would assume that the ESRI have got it right on how many new homes we need, especially since home sales are increasing 23% more than the rate of home completions.
Except such an assertion ignores four points:
- There were 230,056 vacant homes (excluding holiday homes) in Ireland from the 2011 census giving a vacancy rate of 11.9% (14.5% including holiday homes) compared to England’s vacancy rate of less than 3% in 2013. It is worth noting that the number of empty houses in the 2011 census of 168,427 is actually a decrease of 3.7% from the 2006 census but the number of apartments in the same period had increased by 48% to 61,629 (Vacant homes do not include homes under construction or derelict homes).
- The Irish unemployment is around 1.8 times higher than in the UK meaning people there are more likely to afford a new home.
- There is net immigration in the UK whereas in Ireland there is net emigration which is per capita, twice the UK number of net immigration (according to the respective estimates from the ONS and CSO).
- There are a huge amount of mortgages in arrears in Ireland.
The Housing Agency report published in April 2014 identifies a supply needed of nearly 80,000 homes between 2014 and 2018 inclusive. The requirement for 2014 is around 9,500 homes and for 2018, it is nearly 21,000 homes according to this report. While this report seems to be more reflective of the situation than previous reports, it seems to be misinterpreted by some people, in that the report is stating the supply requirement and not necessarily implying that 80,000 homes need to be built over four years, due to the fact of the high vacancy rate across the country.
New Home Sales and Construction
From the 2011 census, the counties of Dublin, Meath, Kildare and Wicklow which all form the Greater Dublin Area (GDA) had nearly 26% of the 230,056 empty homes (29,681 vacant homes and 29,534 vacant apartments), whereas the population in the GDA represented 39% of the total state’s population and nearly 46% of the nation’s 2013 home sales occurred in these counties. In the GDA from April 2011 to May 2014, there have been 36,515 home sales and 7,912 home completions. Only 12% of home sales in these counties were new (around 4,400) showing that only so many new homes are currently being sold with around 3,500 left.
The 2011 census occurred on April 10th 2011 but for calculations I pretended the census took place on March 31st 2011. According the to Property Price Register (PPR) between April 2011 and May 2014, there have been 81,636 home sales of which 10,558 were new homes (The new home figures are extrapolated by downloading the figures to excel and filtering the data between new and old homes).
According to the Department of Environment, in the same 38 month period, there were 28,444 homes completed, meaning the 10,558 new homes sold in the same period represented just 37% of the number of homes actually built. The 3,663 new homes sold in 2013 represent 44% of the 8,301 homes built in 2013. Obviously the new homes sold were not dwellings that were just completed a few days before but could easily have been built a good few months beforehand and be included in previous years figures, but the comparison of new home sales with home completions from the two different sources suggest that new homes are not being shifted as fast as one might think. However 44% of new homes in 2013 being sold is progress on 29% of new homes sold in 2011 (April to December 2011).
Some of the border counties and Laois have the highest proportion of new homes sold since the census, at around 20%. Since these counties have a lot of new homes available, this suggests around 20% of home buyers would want a new home if there was one available. Based on current trends, it look like there are going to be around 40,000 home sales for 2014, and if 20% were new this would be around 8,000 homes which will be adequately covered by the 11,000 or so homes that will be completed this year.
Another factor to consider is that around 10% of homes on census night were new homes in unfinished estates (The census does not appear to reveal how many of the vacant 230,056 homes were new).
The 2013 Department of Environment report on unfinished housing (which takes place every year and involves assessing the number of units in all unfinished estates throughout the summer months) shows that there were 8,694 new homes that were vacant in these estates compared to 18,638 vacant units in the 2011 report. In the 2013 report, the 8,694 empty homes are revised down to 6,370 as the difference is 2,324 new vacant homes in estates no longer deemed to be unfinished (The breakdown by county, of the 8,694 is given in the report which is in the attachment). The report also lists 14,446 units in various stages of construction but when they are completed, they will simply be part of the standard home completion statistics.
Many of these new homes in unfinished estates that have been sold (9,944 between 2011 and 2013) could have been built before the census, meaning that they would have been an addition to the new homes built between April 2011 and May 2014 as listed above. This means that the homes built since the census would not have sold as well as it appears because of the backlog from the unfinished estates which are selling. Obviously, there would be an overlap with the statistics, in that some of the vacant homes in the unfinished estates would have been finished after the census and so is not an addition to the new homes built since then. Nevertheless, the vacant homes in these estates need to be taken into consideration when looking at the sale of new homes compared to construction in the same period, even though there is no precise way of finding out what proportion of these new homes in unfinished estates were completed before the census. In short, while 53% of homes in these estates have sold between 2011 and 2013, the new homes market will not be as transparent as it could be until all the excess homes built in the boom years are either sold or knocked down. The facts at least appear to tell us that a good proportion of these homes are in areas where people actually want to live since they are selling.
Second Hand Home Sales
Out of the 81,636 homes sold in the April 2011 to May 2014 period, 71,078 were second hand homes. Unfortunately there is no way to find out how many of these home sales involved buying a house that was vacant in the 2011 census. A simple way to solve this problem would have been for home sellers to fill out a form which could have involved ticking a box to say whether or not the home was listed as vacant in the 2011 census. This information could have then been incorporated into the PPR. Such a form could also ask how many bedrooms there are, if the home is new, or if it is a house or apartment etc.
Aside from other factors which affect housing vacancies, this leaves us in a position to only be able to roughly estimate rather than know more precisely, how many vacant homes there actually are which is not acceptable if we are to strive for a more transparent housing market.
As mentioned earlier, the vacant homes represent close to 12% of the number of homes in the country. Therefore a rough estimate to calculate the amount of the 71,078 second hand homes, sold since the census, that were vacant would be 12% of that amount. However, one could argue that the vacant homes were more likely to be sold than the occupied ones (due to deaths, moving in to a nursing home etc.) which could make an estimate of 20% more realistic, (although still a rough estimate) of 14,216 second hand homes sold which would reduce the vacant stock. From using this 20% estimate, the number of the vacant homes in the GDA that have since been sold would be around 7,300, and together with 3,500 new homes not yet sold, there would still be around 48,000 vacant homes in the GDA even before taking other factors into consideration.
Empty Homes per Population
From the 2011 census figure of 230,056 vacant homes, nearly 62,000 were apartments and by looking at a breakdown of where these empty apartments actually are, the city areas of Dublin, Waterford and Limerick each have the same proportion of one empty apartment for every 32 people living there. Galway and Cork cities have one empty apartment for every 45 and 43 people respectively. Next in line are Dun Laoighaire Rathdown and Leitrim which has one empty apartment for every 55 and 56 people respectively. Waterford County has by far the lowest proportion of empty apartments of one empty apartment for every 223 people with County Limerick in next place with one for every 176 people.
The breakdown of the 168,000 empty houses shows Leitrim’s 3,463 empty houses gives the county the highest proportion of vacant houses across the country with one empty house for every 9 people living there. It’s no surprise that Roscommon, Longford and Mayo are the next worst counties for the number of empty houses per population and that Dublin South has the lowest number of empty houses at a rate of one per 95 people.
Overall, in terms of both empty houses and apartments, the counties with the highest number per population in order, are counties Leitrim, Roscommon and Longford where the stock of empty homes in the 2011 census, would have been enough for Leitrim and Roscommon for 12 years and enough stock in Longford for over 14 years based on 2013 sales from the property database ( if you look at the number of empty homes for Leitrim and Roscommon and divide by the respective figures for 2013 home sales, you get the exact same figure of 12.27 years!). Dublin and its 3 neighbouring counties have on average one empty home for every 35 people.
Increase in Rental Properties
The Private Residential Tenancies Board (PRTB) annual reports for 2010 and 2011 lists 231,818 and 260,144 tenancies registered, respectively. An estimate for the number of tenancies registered at census time would be 238,900 (assuming tenancies were registered evenly throughout the year), which would be 50.3% of the total 474,788 rental properties in the 2011 census (or 78.2% of the total 305,377 private landlord rental properties). The number of PRTB registrations as of July 2014 is 274,704 which is an increase of 15% from the census estimate. Since the registered private landlord tenancies at census time represented nearly 80% of the total such properties, it may be fair to say that there are now more than 352,000 private rental properties in July 2014, which is an increase of nearly 50,000 rental properties since census time (ignoring any possible increase in local authority/voluntary housing).
One factor which may skew this estimate is the fact that after 4 years a tenancy has been registered; it is automatically removed from the register even if the same tenants are still in the property, a rule that may be unknown to some landlords (these figures suggest that there are around 66,000 private rental properties not registered). This increase of 50,000 or so more rental properties should greatly reduce the amount of vacant homes. According to the Irish Banking Federation there have been around 2,000 buy to let mortgages issued since the census (estimate made for April to June 2014) which would obviously be a factor towards the increase in rental properties. Another factor is that, from the census to March 2014 inclusive, there have been around 36,000 cash sales of homes. Since anecdotal evidence suggests many of the cash buyers are at retirement age, it would be unclear what proportion of these homes would be now be rented out or used as a home for retirement while their original home is either sold, rented out or left vacant. These factors could mean that the increase in rental properties have reduced the vacant stock by roughly 40,000.
There are around 28,000 (with around 80% aged over 65) deaths every year in Ireland. It is unclear how many of these deaths result in an empty home. According to the census, around 27% of over 65’s live on their own, which could indicate that deaths result in over 6,000 vacant homes every year.
According to the Central Bank of Ireland, in March 2014, out of a total of 762,454 mortgages (principal dwelling houses) in the state, 132,217 (17.3%) were in arrears of which 79,502 (60.1%) were in arrears for more than 180 days. At the same month, there were 144,686 buy to let mortgages with 39,361 (27.2%) in arrears of which 27,161 (69%) were in arrears for more than 180 days.
Only 1,117 homes were repossessed in Q1 2014 (0.65% of the total 171,578 mortgages in arrears). If we were to assume that all mortgages (principal dwelling and buy to let) over 2 years in arrears will be repossessed, then more than 48,000 homes would be added to the market.
According to the Bank of England, in Q4 2013 only 1.9% of the UK’s nearly 14 million mortgages were in arrears which is a reduction of around 5% from Q3 2013. In the UK, there were 6,137 new repossessions in Q4 2013 which is 2.3% of all mortgages in arrears. This means that the home repossession rate in the UK is around 3.5 times more than Ireland’s rate of 0.65%. In other words, if we had the same repossession rate as in the UK, there would be around 15,700 homes repossessed in Ireland every year (171,578*2.3%*4 quarters).
According to the Central Bank of Ireland, between April 2011 and March 2014, there were 11,423 repossessions carried out.
One myth seems to be that the National Asset Management Agency owns a lot of these empty homes and that they are mostly to blame for not increasing supply of vacant housing on the market.According to NAMA, only 13% of its assets are residential (a further 10% are land assets). Since NAMA are going to reach the halfway mark this year, and 56% of the agency’s portfolio is in the state, this should mean that the value of its Irish residential portfolio on its books should be around 1.16 billion euro (€31.8 billion/2*13%*56%). If it is true that NAMA has around 15,000 homes then the average book value of these homes would be around €77,000 as most of the homes (10,000) were apartments last year (this is assuming that 56% of the value of the loans is in the state and not 56% of the number of loans).
NAMA has offered 4,000 properties for social housing, however only half of these properties have been deemed suitable by the local authorities for such housing. According to the agency, ‘NAMA has delivered over 475 properties for social housing to date, with a target of 600 by year end.’ While NAMA does not have a lot of available housing for the buying market, it is committed to lending €2.5 billion to developers, up to the end of 2016. However, this will only include the provision of 4,500 new homes over the next 2 years as most of the development will be commercial.
To summarise the different points that have been made, the estimated number of vacant homes since the Census would be affected by the following predictions:
- If sales of new homes in unfinished estates have reduced vacant stock by around 9,900.
- If sales of second hand homes have reduced vacant stock by 14,200.
- If the increase in rental stock have reduced vacant stock by 40,000.
- If the provision of social housing have reduced vacant stock by 1,000 as lettings by NAMA to local authorities would not be included in the PRTB statistics.
- If deaths have resulted the addition of 18,000 homes to the housing stock.
- If the bank repossessions of 11,400 homes have added the same number to the vacancy stock.
These figures, when added or subtracted to the 2011 census figure of 230,000, would give a current estimate of 194,300 vacant homes in the country which gives a vacancy rate of 10% based on the 2011 stock or 12.7% including holiday homes. On top of this, the estimate for total stock in 2013 has risen 1.2% (which does not give an estimate for holiday homes), pushing up the true vacancy rate slightly higher.
The estimate of 194,300 ignores factors such as legal separation and divorce, as it is hard to know how many empty homes would result from this as for example, there could be a cross over with the figures for repossessions.
It also ignores the issue that some completed homes in ghost estates were demolished, although this would be a very small number as the little demolition that has taken place mostly involves homes that were only at a foundation level and never finished.
Also net emigration estimates of 30,000 people per year would result in some homes being made vacant; although a good proportion of these people are probably young who lived in the family home, but nonetheless there still would have been families who left after selling a home or renting it out.
The estimate also ignores the fact that not all of the new homes recently built have been sold. Also some holiday homes that may have been sold could now be part of the principal private residence market.
Obviously the many factors that influence vacant housing don’t directly result in a vacant home, such as for example, a family selling their home before emigrating may indirectly result in a home remaining vacant as the person who buys a home from such a family may no longer be a potential buyer of a home made vacant because of a death or repossession.
Even if half of the 71,078 second hand homes bought in the 38 months to May 2014 were ones that were vacant in the census, the vacancy rate would still be around 11.5% (based on 2013 stock estimates and assuming holiday homes have remained the same). In other words, if all of the second hand homes that were sold since the census only involved buying a vacant home, the vacancy rate would still be 9.8% (7.0% excluding holiday homes). Assuming 40% of all the activity from the 6 factors listed above occurred in the GDA, then the vacancy rate in this area would be around 6.2%.
If the ideal vacancy rate for Ireland is 5%, then there is still an excess of 96,000 homes based on these estimates. With the evidence suggesting that people actually want to live in a good proportion of these homes, we simply need new home building to be based on more facts.