Showing posts with label affordable housing. Show all posts
Showing posts with label affordable housing. Show all posts

Wednesday, February 19, 2020

19/2/20: Early effects of the 2020 Berlin rent controls changes


New research from Germany's ifo Institute and Immowelt looked at the effects of the new rent caps (rent controls) in Berlin. The findings are consistent with what we observe in other major cities with rent controls:

  • "In Berlin, the rent for almost all apartments advertised on real estate portal immowelt.de (96.7 percent) is above the rent cap."
  • "In 83.5 percent of cases, the rent exceeds the cap by over 20 percent."
  • "Rent on apartments covered by the law has risen considerably more slowly since the cap was announced".
  • But, "rent on apartments outside the scope of the cap is still rising strongly" (note: these are new construction units).
  • As the new rent controls come into effect later this year, the ifo study predicts that "a large number of these apartments to be withdrawn from the rental market when they become vacant and sold as condominiums".
  • Reduced supply of rental properties means that "people looking for accommodation in Berlin will be affected"
  • Rent caps introduce a bifurcated rental market: "Since July 2019, the rent prices for regulated apartments have increased more slowly than in the 13 other German cities... [but] ...rent for unregulated apartments (new buildings built since 2014) rose faster..."


"As a result [of the rent controls introduction], the divide in the Berlin real estate market is widening: new buildings, which are often found in preferred locations, are becoming increasingly expensive while prices for existing housing are developing less strongly. This  weakens the incentives to develop these buildings. ... Such a development cannot be good for an urban society and contradicts the very purpose of the law."

Ifo's preferred solution to reduce economic inefficiency of rent controls: "Instead of interfering with the ownership rights of mostly private landlords and hindering investment in housing, policy should focus on creating subsidized housing where needed.”

Full paper: “Economic Effects of the Berlin Rent Cap” (in German) by Mathias Dolls, Clemens Fuest, Carla Krolage, Florian Neumeier, and Daniel Stoehlker, in ifo Schnelldienst 3/2020: https://www.ifo.de/en/publikationen/2020/aufsatz-zeitschrift/oekonomische-effekte-des-berliner-mietendeckels


Monday, January 14, 2013

14/1/2013: Irish Construction PMI - December 2012


The latest stats for Construction Sector PMI for Ireland are out (link here) and the data is not encouraging. At 43.0, the rate of decline in the sector activity was slightly down in December 2012, compared to November and October 42.6 readings. In fact, the rate of decline was the lowest since May 2012 when the index reading was 46.3. However, despite this, Construction sector activity continued to show uninterrupted contraction for 41 months in a row (the records available to me only go back to August 2009).


Overall sector PMI is currently below12mo MA of 43.84 (2011 average was 44.42, ahead of the 2012 average). PMI in December was ahead of 3mo MA of 42.73, but not statistically significantly so, and ahead of 6mo MA of 42.17.


As shown above, rate of decline has moderated in all 3 core components of the overall index:
  • In Housing sub-sector, index finished 2012 on 45.8, an improvement m/m from 44.2 in November and better than 3mo MA (44.47), 6mo MA (42.82) and 12mo MA (42.49).
  • In Commercial sub-sector, index ended December at 41.3 - a gain on 39.8 in November, but below 3mo MA (41.73), below 6mo MA (42.65) and below 12mo MA (45.16)
  • In Civil Engineering, index rose to 35.2 (still massively below 50 line that would mark zero growth) from 31.1 in November. The index is ahead of 3mo MA (32.33), ahead of 6mo MA (33.42) and below 12mo MA (36.86).

Correlations between different index components are shown below:

Overall, Construction Sector activity is still contracting, albeit contraction rate has moderated somewhat. In December 2011, the index stood at 49.9 (virtually zero growth signal), while in December 2012 it was at 43.0 (clear contraction). Housing subsector registered the only monthly expansion at 52.3 (since 2009) in December 2011, contrasted by an outright decline of 45.8 in December 2012. Commercial subsector activity showed nearly zero growth at 49.8 in December 2011 against an outright and deep contraction of 41.3 in December 2012. And Civil Engineering posted a substantial contraction reading of 37.7 in December 2011, more than matched by an even deeper contraction of 35.2 in December 2012.

Tuesday, December 11, 2012

11/12/2012: Ireland and EU27 Construction sector activity Q3 2012


On foot of the previous post looking at Q3 2012 data for Construction and Building Sector activity in Ireland, here are some international comparatives.

Keep in mind the mental key to decoding these: per Irish Government and a host of its 'analysts', Ireland has delivered an economic turnaround sometime back in early 2012 and our economy has stabilized. We are not Greece. In fact, per claims, we are the best performing economy in the Euro area periphery.

With the above in mind, chart below shows Ireland's Building & Construction Sector performance with index normalized at 100=2005, set against the backdrop of the 'Peripheral' Euro area states:


Pretty clearly, we are 'unique' in the periphery as being so far the worst performing economy in terms of Building & Construction. Now, let's recall that in Ireland, Building & Construction are about the only conduits for household investment. Also, let's recall that household investment is usually seen as the leading indicator of cyclical turnarounds.

Now, to the full EU27 comparative:


And again, by far, Ireland is the worst performer in the above. In fact, based on 2012 data through Q3:

  • Ireland's index of construction activity is currently at 20.85, down on 2011 index of 23.4 and down on pre-crisis peak of 103.6. 
  • Which means that Irish activity index is now down to the absolute lowest in the EU27. Worse, our index reading is worse than Greece's (37.7 or 81% ahead of Ireland's). 
  • We are 44.7% below Greece, 53.2% below Spain, 62.7% below Portugal and 73.2% below Italy.



So that 'turnaround' or in Hillary Clinton's words 'rebound', then... certainly not to be seen in Building & Construction sector.

11/12/2012: Construction Sector Activity in Ireland - Q3 2012



Horrible numbers out today for the Irish Building & Construction sector.

Per CSO: "The volume of output in building and construction was 4.2% lower in the third quarter of 2012 when compared with the preceding period. This reflects decreases of 5.3%, 2.4% and 1.9% respectively in the volume of residential building, civil engineering and non-residential building. The change in the value of production for all building and construction was -2.1%. On an annual basis, the volume of output in building and construction decreased by 10.8% in the third quarter of 2011. The value of production decreased by 8.5% in the same period."

Now some details:

  • Value Index for ex-Civil Engineering work stood at 17.5 in Q3 2012 (100=2005 activity levels), down 15.5% y/y, marking 23rd consecutive quarter of declines (! give that number a thought).
  • Worse, ex-Civil Engineering Value index is down 2.23% q/q, down 10.15% for Q2-Q3 2012 compared to Q4 2011-Q1 2012 6mo periods and down 14.5% for the 6 months through Q3 2012 compared to same period in 2011.
  • The rate of annual decline in the index has accelerated since Q4 2011.
  • Volume Index for ex-Civil engineering work fell to 15.5 in Q3 2012 from 15.9 in Q2 2012. The Index is now also down consecutive 23 quarters. The annual rate of decline continued to accelerate for the fourth quarter in a row.
  • In 6 months through Q3 2012 index fell 15.82% compared to same period of 2011. Quarterly index change is -2.52%.
  • Relative to peak, Value Index in ex-Civil Engineering sector is now at 15.39% and Volume Index is at 14.57%.

In Civil engineering sector things are bouncing at the bottom - a pattern that is now running solidly from Q3 2010:

  • Value Index for Civil engineering slipped to 63.0 from 64.6 in Q3 2012 compared to Q2 2012, marking a decline of 2.48% q/q. However, due to massive jump in Q2 (+16.2% y/y), index is still 9.2% ahead of Q3 2011 reading. This side of the Index is likely to suffer in 2013 due to Budget measures on capital spending.
  • Volume Index of Civil Engineering also fell from 57.5 in Q2 2012 to 56.1 in Q3 2012 (-2.43% q/q), although the index is up 7.9% y/y in Q3 2012 (due to a one-off substantial rise of 14.8% in Q2 2012).


Overall, based on simple averages, activity in Civil engineering remained broadly unchanged - at absolute lows - since Q3 2010, averaging between 63.3 for the Value Index and 56.3 for the Volume Index. This dynamic is simply inconsistent with any talk about economic turnaround.


Misery comparatives for the sector are self-evident when looking at residential and non-residential indices:



  • Value of Residential Construction reached another historical low in Q3 2012 - hitting 8.2, down from 8.5 in Q2 2012. This means that activity by value in this sub-sector is now down 91.8% on 2005 levels or 92.8% on pre-crisis peak. The Index has been posting annual rates of decline in every quarter since Q1 2007, or 23 quarters in a row. The rate of decline (y/y) also accelerated since Q1 2012.
  • Volume of Residential Construction is down from 7.6 in Q2 2012 to 7.2 in Q3 2012. Again, this implies that volume index is now down 92.8% on 2005 level and 93.0% down on pre-crisis peak. Annual rate of decline accelerate to 20% in Q3 2012, the highest rate in 4 quarters. The index has now posted 26 consecutive quarters of annual declines.
  • Non-residential Construction Value Index fell from 53.5 in Q2 2012 to 52.5 in Q3 2102, with annual rate of decline accelerating to 15.5% in Q3 2012, marking third consecutive quarter of annual declines. The index is now 57.4% down on pre-crisis peak.
  • Non-residential Construction Volume Index is down from 47.5 in Q2 2012 to 46.6 in Q3 2012, marking an accelerated annual rate of decrease of 16.3% in Q3. The Index is now down 58.4% on pre-crisis peak.

If anything the above dynamics clearly show that the rates of activity collapse are accelerating through Q3 2012, nto ameliorating or turning to positive growth. Both series dynamics, therefore, are consistent with worsening of economic conditions, not stabilization or a turnaround.

I will blog on European countries comparatives in the next post.

Friday, June 15, 2012

15/6/2012: Q1 2012 Construction Sector Activity for Ireland


Having dealt with leading indicator for Construction sector activity - Ulster Bank PMIs - in the previous post, now's the time to update the latest actual outrun figures from the CSO that cover Q1 2012. Keep in mind - core conclusion in the previous analysis showed no signs of uptick in activity in the sector, with housing and commercial real estate construction activity continuing to shrink.

Pre latest CSO data:

  • In Q1 2012 Value of all activity ex-Civil Engineering has fallen to 18.7 against 20.6 in Q4 2011. Quarterly rate of decline therefore is -9.22% for value against the annual rate of decline of -13.4%. Y/y rate of decline accelerate from Q4 2011 when it was 8.4%. Over last 6 months the index declined -5.07% compared to previous 6 months and -10.88% y/y. Q1 2012 marks an absolute record low activity by value in the broader construction sector ex-civil engineering.
  • In Q1 2012 Volume of all activity ex-Civil Engineering fell to 16.7 from 18.5 in Q4 2011, marking another record low for the series. Year on year, the index has fallen 13%, which represents the sharpest contraction in four consecutive quarters. Quarter on quarter the index is down 9.73%. Things are getting much worse, rather than less worse. Over the last six months, average index reading fell 5.38% compared to previous six months average and year on year last six months average is down 9.51%.
  • Relative to peak, value of construction production ex-civil engineering now stands at just 16.45% of the peak levels and volume of activity is now at 15.70% of the peak levels, both showing record declines.



For Civil Engineering sub-sector - the very same trends are true, with one exception - the rate of declines in activity slowed, not accelerated, in Q1 2012. Alas, we are thus in the case of getting worse more slowly, which is, as I like pointing out, not the same as getting better.



Value of Residential Construction fell to 9.4 in Q1 2012 against 9.7 in Q4 2011. The index declined 1.4% y/y and is now down, on average 4.5% in the last six months compared to previous six months. Year on year, average activity in the last six months fell 18.03%. Now, keep in mind, Residential Construction is now running at 91.75% below its peak pre-crisis levels.

Volume of Residential Construction fell to 8.5 from 8.8 in Q4 2011, a decline of 15% y/y. Average activity for the last six months was down 4.95% on previous six months and down 15.61% on same period a year ago. Relative to peak, volume of residential construction is now down 91.76%.


Per chart above, Value of Non-Residential construction declined to 53.8 in Q1 2012 from 62.4 9n Q4 2011, marking annual decline rate of 12.4%. Average six months activity is now down 5.53% on previous sexi months period and is down 5.83% on the same period a year ago. Relative to peak, non-residential construction value is down 56.37%.

Volume of Non-Residential construction activity dropped to 47.8 from 56.6 in Q4 2011. Annual rate of decline in Q1 2012 of -12% comes on foot of an annual increase of 3.3% in Q4 2011. 6mos average through Q1 2012 is now 5.43% below the previous 6mo period and is 4.31% below same period a year ago.

Chart below illustrates annual changes.



So the very same trends shown by the PMIs are present in the actual data. Once again, where's all that pinned up demand for new offices and facilities, for retrofits of facilities and for fit-outs that were supposed to come with the 'robust jobs creation' by the MNCs?

15/6/2012: Irish Construction PMIs - no sign of that MNCs jobs creation, again

What is going on in Irish construction sector, folks? The latest statements from the Irish development authorities and the Government and its 'experts' would make you believe that MNCs are killing each other trying to rush into building new space to house those thousands of workers that are allegedly being hired by them. Of course, we know the latter is balderdash (see here) when it comes to date through 2011, but can it be true for trends since 2011? After all, the Government aims to create tens of thousands new jobs in 2012 in the MNCs-sectors.

Ok, here are two posts on latest construction sector activity. First one on Construction Sector PMIs (courtesy of the Ulster Bank) and the second one on CSO data.


Take a look at the latest (May 2012) Construction Sector PMIs:



Suppose there was a rush in activity in MNCs-sectors. That would translate in some uptick in construction activity in Commercial sector. Right? In May 2012 Commercial sector Construction PMI stood at 46.8, which is (1) signal of rather significant rate of contraction m/m, (2) marks the lowest reading in the sub-index since November 2011, and (3) is worse than shallower rate of contraction signaled by 48.4 reading in April.

In fact, May 2012 reading is below 3mo and 6mo MA readings. So the rate of decline has accelerated in May compared to 3mo average and 6 mo average.

As dodgy as the activity is across all Construction-related sub-categories, it is the Commercial sub-sector activity that is signaling worsening of the already poor trend.


So, where are those thousands of new jobs going to be housed? Per Ulster Bank (emphasis mine): "Those panellists that recorded a decline in overall construction activity during the month mainly linked this to falling new business. New orders at Irish constructors decreased for the fifth successive month. Where firms were able to secure new business, they reported that this was often dependent on prices being reduced."

Now, you might say that there can be 'expectations' of future activity that are not fully reflected in the above figures. Yep. "Irish construction firms remained optimistic that activity will be higher in 12 months’ time than current levels, with sentiment improving from that registered in April. That said, positive expectations largely reflected the fact that a rise in activity is likely given the low levels currently being recorded." So, yes, firms are still giddy (they've been 'optimistic' now for many months, in fact over a year), but they are not giddy about hordes of new orders arriving. Instead they are optimistic about the prospect of continued attrition wiping out more of their competitors or that they might pick some jobs as the derelict unfinished sites start crumbling down in earnest. Nice one.

Thursday, February 2, 2012

2/2/2012: Sunday Times 29/01/2012 - irish property bust

This is an edited version of my Sunday Times article from January 29, 2012.


In a recent Annual Demographia International Housing Affordability Survey of 325 major metropolitan areas in Australia, Canada, Hong Kong, Ireland, United Kingdom and the United States, Dublin was ranked 10th in the world in terms of house prices affordability. The core conjecture put forward in the survey is that Dublin market is characterized by the ratio of the median house price divided by gross [before tax] annual median household income of around 3.4, a ratio consistent in international methodology with moderately unaffordable housing environments.

Keep in mind, the above multiple, assuming the median household income reflects current unemployment rates and labour force changes, puts median price of a house in Dublin today at around €175,000 – quite a bit off the €195,000 average price implied by the latest CSO statistics. But never mind the numbers, there are even bigger problems with the survey conclusions.

While international rankings do serve some purpose, on the ground they mean absolutely nothing, contributing only a momentary feel-good sensation for the embattled real estate agents. In the real world, the very concept of ‘affordability’ in the Irish property market is an irrelevant archaism of the era passed when flipping ever more expensive real estate was called wealth creation.

What matters today and in years ahead are the household expectations about the future disposable after-tax incomes in terms of the security and actual levels of earnings, stability of policies relating to household taxation, plus the demographic dynamics. None of these offer much hope for the medium-term (3-5 years) future when it comes to property prices.

Household earnings are continuing to decline in real terms (adjusting for inflation) in line with the economy. The CSO-reported average weekly earnings fell 1.2% year on year in Q3 2011 once consumer inflation is take out. But the average earnings changes conceal two other trends in the workforce that have material impact on the demand for property.

Firstly, reported earnings are artificially inflated because the workforce on average is becoming older. Here’s how this works. Younger workers and employees with shorter job tenure also tend to be lower-paid, and are cheaper to lay off. Thus, the rise in unemployment, alongside with the declines in overall workforce participation, act to increase average earnings reported. This explains why, for example, average weekly earnings in construction sector rose 2.5% in Q3 2011 year on year, while employment in the same sector fell 4.1% over the same period. This means that fewer potential first-time buyers of property are having jobs, and at the same time as the existent workers are not enjoying real increases in earnings that would allow them to trade up in the property markets.

Secondly, the real world, rising costs across the consumer expenditure basket, further reducing purchasing power of households, is compounded by the composition of these costs. One of the largest categories in household consumption basket for those in the market to purchase a home is mortgage interest. This cost is divorced, in the case of Ireland, from the demand and supply forces in the property markets and is influenced instead by the credit market conditions. In other words, the 14.1% increase in mortgage interest costs in the 12 months through December 2011, once weighted by the relative importance of this line of expenditure in total consumption is likely to translate into a 2-3% deterioration in the total after-tax disposable income of the average household that represents potential purchaser of residential property.

And then there are effects of tax policies on disposable income. One simple fact illustrates the change in households’ ability to finance purchases of property in recent years: between 2007 and 2011 the overall burden of state taxation has shifted dramatically onto the shoulders of ordinary households. In 2007, approximately 46% of total tax collected in the state came directly out of the household incomes and expenditures. In 2011 the same number was 58%.

The above factors reference the current levels of income, cost of living and tax changes and have a direct impact on demand for property in terms of real affordability. In addition, however, the uncertain nature of future economic and fiscal environments in Ireland represents additional set of forces that keep the property market on the downward trajectory. For example, in Q3 2011 there were a total of 116,900 fewer people in employment in Ireland compared to Q3 2009. However, of these, 113,700 came from under 34 years of age cohort. Unemployment rate for this category of workers, comprising majority of would-be house buyers, is now 20.4% and still rising, not falling. Given the long-term nature of much of our current unemployment, no one in the country expects employment and income growth to bring these workers back into the property markets for at least 3 years or longer. Without them coming back, only those who are trading down into the later age of retirement are currently selling, plus those who find themselves in a financial distress.

Tax uncertainty further compounds the problem of risks relating to unemployment and future expected incomes. Government projections that in 2013-2015 fiscal adjustments will involve raising taxes by €3.1 billion against achieving current spending savings of €4.9 billion are rightly seen as largely incredulous, given the poor record in cutting current spending to-date. Thus, in addition to already draconian pre-announced tax hikes, Irish households rationally expect at least a significant share of so-called current expenditure ‘cuts’ to be passed onto households via indirect taxation and cost of living increases.

In short, there is absolutely no catalysts in the foreseeable future for property markets reversing their precipitous trajectory. No matter what ‘affordability’ ranking Irish property markets achieve, the demand for property is not going to grow.

This, of course, brings us to the projections for the near-term future. The latest CSO data for the Residential Property Price Index released this week shows that nationwide, property prices were down 16.7% in December 2011 compared against December 2010. Linked to the peak prices as recorded by the now defunct PTSB-ESRI Index, the latest CSO figures imply that nationally, residential property prices have fallen from the peak of €313,998 in February 2007 to ca €166,000 today (down 47% on peak). In Dublin, peak-level average prices of €431,016 – recorded back in April 2007 – are now down to close to €195,000 (almost 55% off peak).

Using monthly trends for the last 4 years, and adjusting for quarterly changes in average earnings and unemployment, we can expect the residential property price index to fall 11-12% across all properties in 2012. Houses nationwide are forecast to fall in price some 12-14% - broadly in line with last year’s declines, while apartments are expected to fall 11-12% year on year in 2012, slightly moderating the 16.4% annual fall in 2011.

More crucially, even once the bottom is reached, which, assuming no further material deterioration in the economy, can happen in H2 2012 to H1 2013, the recovery will be L-shaped with at least 2-3 years of property prices bouncing along the flat trendline at the bottom of the price correction. After that, return toward longer-term equilibrium will require another 1-2 years. Assuming no new recessions or crises between now and then, by 2015-2016 we will be back at the levels of prices recorded in 2010-2011. Between now and then, there will be plenty more reports about improving affordability of housing in Ireland and articles about the proverbial foreign investors kicking tyres around South Dublin realtors’ offices.

Chart: Residential Property Price Index, end of December figures, January 2005=100


Source: CSO and author own forecast

Box-out:
Ireland’s latest shenanigans in the theatre of absurd is the fabled ‘return to the bond markets’ with this week’s swap of the 2 year 4.0% coupon Government bond for a 4.5% coupon 3-year bond. The NTMA move means we will be paying more for the privilege to somewhat reduce the overall massive debt pile maturing in 2014, just when the current Troika ‘bailout’ runs out. So in effect, this week’s swap is a de fact admission by the state that Ireland has a snowball’s chance in hell raising the funding required to roll over even existent debt in 2014 through the markets. Which, of course, is an improvement on the constant droning from our political leaders about Ireland ‘not needing a second bailout’. Of course, as far as our ‘return to the markets’ goes – no new debt has been issued, no new cost of financing the state deficits has been established in this swap. The whole event is a bit of a clock made out of jelly – little on substance, massive on PR, and laughable from the functionality perspective.