19/12/19: Irish Planning Permissions 3Q 2019: Some Goods, Some Bads

The latest Irish data for Planning Permissions approvals is a mix of some good news, some bad news and some ugly trends. Here is the summary of them for 3Q 2019:

1. Overall, planning permissions numbers for housing applications are up 4.02% y/y - this is the good news. Better news: cumulative 1Q-3Q 2019 numbers are up 7.12%  on the same period in 2018.
2. New dwelling planning permissions are up 6.01% y/y - this too is the good news. Also exciting: cumulative 9 months permissions are up 6.33% y/y.
3. Other new construction ex-dwellings permissions are up 6.29% - another bit of good news.
4. Extensions and alterations-related planning permissions are up only 1.42%. But this is offset by the cumulative 9 months gain of 7.65% y/y. Which is a nice number.
5. Bad news: private homes permissions are up only 1.13% y/y in 3Q 2019, and worse news: the same are down massive 5.57% y/y on a cumulative basis for the first 9 months of 2019.
6. Great news: apartments permissions (for units, not aggregated over schemes) are up massive 80.15% in 3Q 2019 y/y and are cumulatively up 86.81% y/y for the first nine months of 2019.
7. Average area of the houses for which new permissions are grated is up 0.82% in 3Q 2019 compared to 3Q 2018, but average area of the apartments with new permissions granted is down big time: down 14% y/y in 3Q 2019 and on average down 7.1% in the first 9 months of 2019.

So we are planning more apartments (good), not as significantly more homes (bad), but our apartments planned are getting smaller (bad). 

Now for some other bad news, or trends, rather. 

Given the demographic demand and the state of construction industry in the post-crisis period, we are continuing to under-supply new housing to the markets. Based on the assumed demand for 25,000 new homes annually, cumulative undersupply of new permissions to build residential units since 1Q 2010 currently stands at around 81,900 units and although this number is finally declining (since 4Q 2017), at the current rate of new planning permissions approvals (Q1-Q3 2019 figure), it would take almost 6.5 years to clear the backlog. That is, assuming in the mean time, there is no new recession to knock out the wind from the building and construction sector, and/or no significant inward / return migration to boost demand. Accounting for depreciation at ca 4100 units per annum (https://www.savills.com/insight-and-opinion/savills-news/273944/john-mccartney--housing-obsolescence-commonly-overestimated--and-depreciation-heavily-concentrated-in-rural-ireland) extends this horizon to 10.3 years. 

12/6/15: Did Ireland Abandon Homeowners in Need?

An short, but informative article on the issue of mortgages arrears in Ireland:
http://www.herald.ie/news/state-has-abandoned-mortgage-holders-31296163.html

The article correctly points to the lack of state engagement with the issue of long term arrears and the banks' strategy of extend-and-pretend in hope that rising house prices will maximise their returns on future foreclosures.

But the real, the main, point here is whether the Irish state has abandoned the homeowners in need. In my view - the Irish State was never concerned with the interests of homeowners. To think otherwise is to delude oneself once again into a fallacy of seeing the State as an agent concerned with the interests of the people.

Here are the excerpts from the recent study commissioned by the EU Parliament on changes in core rights accruing to individuals across a number of European nations in the wake of the post-crisis austerity programmes. The selection addresses the view of the reporters on Ireland in the context of the right to housing.

"Right to housing was affected in Belgium, Cyprus, Ireland and Spain in two
principal ways: with the increase of foreclosures and evictions and by the
interventions into the allocation of social housing and rental allowances." (page 15)

Note: this is not 'new' as in being indicative of an 'abandonment' of homeowners - rather, this is an assessment of systemic, long-term changes enacted by the State. And it covers both: private structure of homeownership and rental markets, and public provision of social housing.

"At the same time, in Belgium, Cyprus and Ireland, rental allowances or the
availability of social housing are inadequate and insufficient to respond to the needs of people in the wake of the crisis" (page 123)

"The Irish social housing budget was cut by 36% in 2011 and by another 26% in 2012. At the same time, with the loss of jobs and turbulence in the labour market, it is not surprising that the number of households on waiting lists for social housing increased by 75% between 2008 and 2011, i.e. from 56,000 to 98,000. Moreover, it is estimated that in 2011, approximately 5,000 people were homeless in Ireland compared to 3,157 people in 2008. The continued rise in rents, particularly in the last 12 months, is seen as contributing to the problem498, while rent supplements, having been reduced by 20% to 25%, are becoming increasingly inadequate with the severe budget cuts. Certain vulnerable groups have been adversely affected in Ireland. Travellers have
experienced 85% spending cuts on housing since 2008. Moreover, resource allocations for asylum seeker accommodation were reduced by 13% in 20115. In 2008, 36% of all single-parent households were on the waiting list for social housing and one fifth of all people who relied on a rent supplement to meet their rental costs were single parents. The capital assistance scheme, which used to house people with disabilities, was also reduced from EUR 145 million in 2010, to EUR 50 million in 2012" (page 125)

So here you have it - the EU report does not document an act of abandonment as a departure from past policy. It suggests systemic, long term trend toward such abandonment. In other words, the report findings imply a lack of concern or interest on behalf of the State to secure rights to housing from the start of the crisis, not a sudden change of heart.

Full EU report is available here: EUP (2015: PE 510.021) "The impact of the crisis on fundamental rights across Member States of the EU Comparative analysis". Study for the Libe Committee, Policy Department C: Citizens’ Rights and Constitutional Affairs, European Parliament. February 2015: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/510021/IPOL_STU(2015)510021_EN.pdf 

26/4/2014: It's a long... long... long... road to house prices recovery...

It is a virtually impossible task forecasting long-term price movements in property markets for small economies, like Ireland. The reason is that there are simply too many moving parts all with huge volatility built into the numbers. Take for example normally stable time series such as population. In the case of Ireland, wild swings in terms of net migration over the recent years saw 2006-2008 annual average net immigration of 80,300 per annum switching into a net annual emigration of 31,633 per annum in 2010-2012. While total change in 2007-2013 population in Ireland was 108,000, net migration swing was 111,930. You get the point: what we think the potential demand might be is not an exact science and in the case of Ireland it is not really much of any science whatsoever.

So setting aside actual economic models, what can we say about future property prices trends?

We can do a couple of simple dynamic exercises. Suppose that we are getting back to pre-crisis ‘normal’. This can mean pre-2001 rates of growth in prices or it can mean Celtic Garfield rates of growth. Many would say ‘The Bubble days are over’. So they may be. But suppose they are not. Suppose the rates of growth that prevailed over 2004-2007 are to return. The logical question is: if the boom were to come back, how long will it take property prices to recover? This is obviously a wildly optimistic scenario. But let’s entertain it, shall we?

Below I provide a table of estimated years by which current (end of 2013) prices indices for Irish residential property are likely to recover their real (inflation-adjusted) peak values consistent with pre-crisis years. In other words, the table shows years by which we can expect the crisis effects to be finally erased.

Take 3 scenarios:

Scenario 1: assume that from now on, average annual growth rates for property prices run at their 2004-2007 averages and that inflation averages 1.5 percent per annum (CPI). Adjust the pre-crisis peak for inflation that accumulated between 2007 and present.

Scenario 2: assumes the same as Scenario 1, but adjusts inflation expectation forward to 2 percent instead of 1.5 percent.

Scenario 3: assumes the same as Scenario 1, except we also take into assume average rates the average for 2004-2007 and 2012-2013 to reflect the popular argument that 2012-2013 years growth rates reflect ‘recovery’ in the markets, aka a departure from the crisis.

The last line in the table shows the average duration of the period of recovery – averaged across 3 scenarios. This means that the average is ‘geared’ or ‘leans’ more heavily toward Scenarios 1 and 2 which are by far much more optimistic than Scenario 3.

Do note that all three scenarios are wildly out of line with what we should expect in the long run from the property prices – appreciation at inflation + 0.2-0.5 percentage points margin.

Click on the table to enlarge

Key takeaway:

You might think we are in a recovery, but be warned – even under very unrealistically optimistic price growth projections – the effects of this crisis are likely to prevail well beyond 2025 in Dublin and beyond 2030 nationwide. Now, enjoy the property supplements and financial ‘analysts’ op-eds telling you that everything is going on swimmingly in the markets…