Thursday, March 26, 2015

26/3/15: Irish Planning Permissions 2014: The Crisis Drags On

CSO published Q4 2014 figures for Planning Permissions in Ireland, confirming the trend toward de-acceleration in the already weak data.

Here are the details.

On an annual basis:

  • There were 15,724 planning permissions granted in Ireland in 2014 for all types of construction, up 13.11% y/y but still down 1.7% on 2011. Current level of planning permissions is below 2011 reading and is below any year between 1992 and 2011. Historical average from 1992 through 2014 is 33,333 which means current running rate is more than 2 times lower than the average. We are in the third worst year in the series history.
  • Dwellings permissions rose from 3,316 in 2013 to 3,606 in 2014 (+8.7%). 2014 level of activity is below any year from 1992 through 2012. Dwellings permissions granted in 2014 were 24.4% below 2011 levels and represent the second worst year in history of the series. Historical average for 1992-2014 period is for 14,882 dwellings permissions to be granted, which means that in 2014, levels of dwellings-related planning activity was more than 4 times lower than historical average.
  • Excluding dwellings, all other new construction-related permissions granted rose to 4,299 in 2014 from 3,431 in 2013 (+25.3% y/y), and up 45.0% on 2011, but still 77.8% below pre-crisis peak and 1.4 times below the historical average. 2014 was the third worst year in history for these sub-series and only marginally above the second worst year. 
Charts to illustrate:

Key point: given the absurdly low levels of activity in 2013, growth in 2014 is far from impressive. The bottlenecks created in 2010-2014, amounting to cumulative shortfall in planning permissions of 108,820 permissions relative to 1997-2001 average, and for dwellings this shortfall is 82,309 permissions. This shortfall is, put simply, catastrophic and is only increasing, given the current trends to-date.

Next: floor area relating to new permissions:

As shown in the chart above, 
  • Floor area relating to planning permissions granted for all types of construction fell in 2014 to 3,184,000 sqm from 3,338,000 sqm in 2013 (down 4.6% y/y), representing a decline of 21.9% on 2011 levels. Relative to peak, total floor area approved is now down 86.7% and 2014 level of activity is 3.3 times lower than historical average (1992-2014).
  • Planning permissions approved for dwellings had underlying floor area of 1,366,000 sqm, up 4.7% on 1,304,000 sqm approved in 2013.  2014 reading is 89.6% down on pre-crisis peak, and 4.5 times below the historical average activity.
  • Floor area approved for non-dwellings permissions fell from 1,306,000 sqm in 2013 to 1,064,000 sqm (-18.5% y/y) and is down 88.6% on pre-crisis peak. Activity in this area is running 2.9 times lower than historical average.
Key points: 2014 was the worst year on record for the construction permissions activity measured by the total floor area of approvals, with overall square meterage of new permissions approved falling to an absolute historical low. 2014 was the third worst year on record for square meterage approvals for new dwellings construction and the absolute historical low for non-dwellings activity.

Summary of on-peak changes and historical shortfalls below:

Overall, 2014 data on planning permissions suggests little real improvement in the investment pipeline relating to construction sector. This evidence does not support the National Accounts tale of revival in domestic real estate investment and investment in general. According to the National Accounts, building & construction sector activity and Gross Fixed Capital Formation have both been running in excess of 2011 levels in both 2013 and 2014. Yet, there is no corresponding performance in planning permissions terms. This strongly suggests that current construction sector activity relates predominantly to past permissions pipeline, implying downside risk to the sector in the near future; and that our real estate investment 'boom' is driven predominantly by the re-sale markets (flipping of existent capacity, rather than creating new capital stock additions).

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