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. 

8/8/19: Irish New Housing Markets Continue to Underperform

New stats for new dwelling completions in Ireland are out today and the reading press releases on the subject starts sounding like things are getting boomier. Year on year, single dwellings completions are up 15.5% in 2Q 2019, scheme units completions up 2.6%, apartments up 55.6% and all units numbers are up 11.8%. Happy times, as some would say. Alas, sayin ain't doin. And there is a lot of the latter left ahead.

Annualised (seasonally-adjusted) data suggests 2019 full year output will be around 18,000-18,050 units, which is below the unambitious (conservative) target of 25,000. And this adds to the already massive shortage of new completions over the last eleven years. Using data from CSO (2011-present), cumulated shortfall of new dwellings completions through December 2018 was 125,800-153,500 units (depending on target for annual completions set, with the first number representing 25K units per annum target, and the second number referencing target of 25K in 2011, rising to 30K in 2016 and staying at 30K through 2019). By the end of this year, based on annualised estimates, the shortfall will be 132,400-162,250 units. Taking occupancy at 2.1 persons per dwelling, this means some 278,000-341,000 people will be shortchanged out of purchasing or renting accommodation at the start of 2020.

Here is a chart summarising the stats:

Let's put the headline numbers into perspective: at the current 'improved' construction supply levels (using annualised 2019 figure), it will take us between 6.3 and 7.7 years to erase the already accumulated gap in demand. If output of new dwellings continues to grow at 11.8% per annum indefinitely, Irish construction sector will be able to close the cumulative gap between supply and demand by around 2029 in case of the targeted output at 25K units per annum, or worse, by 2031 for the output target of 30K units per annum.

30/7/15: Irish 1Q 2015 Growth: Sectoral Contributions

Some very strong headline figures on Irish growth in 1Q 2015 are out today from the CSO so I will be blogging on these in a number of posts today.

To start with, let's take a look at data on GDP composition at Factor Cost - in other words, contributions of various economic sectors to GDP on output side of the National Accounts. The analysis below references real GDP (adjusted for prices changes).

In 1Q 2015:

• Agriculture, Forestry & Fishing sector posted growth in output of 5.8% y/y. This contrasts with growth of 21.0% recorded y/y in 4Q 2014 and with 16.5% expansion y/y in 1Q 2014. This is the slowest growth in the sector since Q3 2013. Overall, in annual terms, the sector accounted for 2.02% contribution to the overall GDP growth (Factor Cost GDP) or EUR50 million y/y (compared to EUR194 million added by the sector in 4Q 2014). The sector was the second smallest contributor to growth in GDP (at Factor Cost) in 1Q 2015 after Building & Construction. Quarterly growth in the sector was negative: in 1Q 2015 Agriculture et al sector shrunk (on seasonally-adjusted basis) by 30% compared to 4Q 2014 and this contrasts with 25.4% growth q/q recorded in the sector in 4Q 2014.
• Industry (ex-Building & Construction) grew strongly in 1Q 2015, posting y/y expansion of 9.63% compared to 8.71% expansion in 4Q 2014 and 0.56% growth in 1Q 2014. This marks 1Q 2015 as the fastest growth quarter (y/y terms) since Q3 2014 and the second fastest growth quarter (y/y) since Q4 2010. As the result, the sector accounted for 39.1% of all growth recorded in GDP (at Factor Cost) in 1Q 2015. The sector was the single largest contributor to GDP (at Factor Cost) growth in 1Q 2015. A caveat here is that this sector growth is strongly influenced by the MNCs, especially Pharma, Bio and Medical Devices sectors, but more on this when I am covering external sectors performance in subsequent posts. Quarter on quarter growth in Industry (ex-Building & Construction) was much less impressive than annual growth rates. In 1Q 2015, Industry contribution to GDP actually was negative on q/q basis at -0.31% compared to 5.16% growth recorded q/q in 4Q 2014 and 3.35% growth recorded q/q in 1Q 2014.
• Building and Construction sector posted positive y/y growth of 3.26% in 1Q 2015, which contrasts positively with a -0.16% contraction y/y posted in 4Q 2015. However, 1Q 2015 y/y growth was much weaker than 9.66% growth recorded in the sector in 1Q 2014. Overall, Building & Construction sector contribution to growth in GDP (at Factor Cost) stood at 1.38% in 1Q 2015 - the smallest positive contributor to growth in 1Q.
• Distribution, Transport, Software & Communication (DTSC) sector made a strong contribution to growth in 1Q 2015, with activity up 6.5% y/y. The rate of annual growth is relatively steady in the sector, having posted growth of 5.4% in 4Q 2014 and 5.93% growth in 1Q 2014. The sector accounted for 29.1% of total growth in GDP (at Factor Cost) in y/y terms. The caveat applying to these figures is that the sector includes many ICT-related MNCs which have been recently posting growth in tax optimisation-linked activities. Quarterly growth in the sector was also positive, with 1Q 2015 activity up 2.11% on 4Q 2014, after posting growth of 1.05% q/q in 1Q 2014.
• Public Administration & Defence (PAD) sector posted another quarter of annual contraction in activity, shrinking -5.52% y/y in 1Q 2015 after posting -3.09% decline in 4Q 2014. In contrast, the sector expanded by 2.21% in 1Q 2014. Overall, sector made negative contribution of -3.4% to annual GDP (at Factor Cost) growth in 1Q 2015. This marks the largest contraction in annual growth rates in the sector since 2Q 2012.
• Other Services (including rents) sector posted another quarter of steady growth, rising 4.42% y/y in 1Q 2015, having previously posted growth of 4.40% in 4Q 2014 and 4.12% in 1Q 2014. Sector contribution to overall growth in GDP (at Factor Cost) was 30.1% - second largest after Industry ex-Construction.

Chart below summarises sectoral shares of GDP growth in 1Q 2015:

The above clearly shows that the bulk of growth in 1Q 2015 by sector must be compared against growth in exports to attempt to control for MNCs activities before drawing any conclusions about headline growth figures anchoring to the real economy. I will do this in subsequent posts, so stay tuned.

Overall, real GDP at Factor Cost posted growth of 6.1% y/y in 1Q 2015 - a healthy figure compared to 5.28% growth recorded in 4Q 2014 and to 3.87% y/y expansion in 1Q 2014. Thus annual rate of growth accelerated in 1Q 2015 compared to 4Q 2014 and to growth a year ago.  Overall, sectoral activity expanded GDP by EUR2.47 billion in 1Q 2015 compared to growth of EUR2.176 billion in 4Q 2014.

As chart above shows, annual growth rate is currently running above the period average (2012-present) and marks statistically significant rate of annual growth. Which is very good news.

On a quarterly basis, GDP (at Factor Cost) grew by a more modest 0.74% quarterly rate in 1Q 2015, slightly slower than in 4Q 2014 when it expanded 0.79% q/q and much slower than in 1Q 2014 when it grew at 1.57% q/q.  This marks 1Q 2015 as the slowest quarter over the 5 consecutive quarters and the second slowest in 8 consecutive quarters.

Longer-term trends:

Based on annual rates of growth and levels performance, Irish real GDP (at Factor Cost) is on a renewed positive trend. Once again - good news.

Stay tuned for more analysis of the National Accounts figures in subsequent posts.

11/12/2014: QNA Q3 2014: Sectoral Activity

Here is the first post on QNA detailed analysis, covering sectoral distribution of activity in Q3 2014.

Note: I covered top level results here: http://trueeconomics.blogspot.ie/2014/12/11122014-q3-2014-irish-growth-broadly.html

Based on seasonally unadjusted data expressed in constant prices (real terms).

Overall all sectors output amounted to EUR40.868 billion in Q3 2014 which is 3.44% higher than in Q3 2013. This marks a significant slowdown on Q2 2014 growth that clocked at 6.53% y/y, but is marginally above Q1 2014 y/y growth at 3.23%.

For the first nine months of 2014, output of all sectors is up 4.41% compared to the same period in 2013. A very healthy number, albeit moderated by the following factors:

1. ESA2010 application is boosting (superficially) business activity relating to R&D allocations, now counted as investment; 
2. Ongoing shift in MNCs patterns of activity here, including (but not limited to) outsourcing of production; and
3. Ongoing shift of the externally trading economy in favour of ICT services, heavily reliant on profit shifting and tax optimisation.

Agriculture, Forestry & Fishing sector output stood at EUR989 million in Q3 2014, which is down 1.59% y/y - the worst performance since Q2 2013. In Q2 2014 y/y growth in the sector was massive 12.43% and in in Q1 2014 it was 3.74%. Over the first nine months of 2014, activity in the sector expanded 5.47% y/y.

Industry, including Construction, output stood at EUR10.281 billion in Q3 2014, which is up 1.96% y/y - a slowdown on Q2 2014 growth rate of 6.47% but an improvement on Q1 2014 decline of 4.97%. Over the first nine months of 2014, activity in the sector expanded only 1.11% y/y, which is weak. Meanwhile, Building & Construction sub-sector output stood at EUR895 million in Q3 2014, which is up 7.31% y/y - a slowdown on Q2 2014 growth rate of 9.54% and on Q1 2014 growth of 9.73%. Q3 2014 growth is the weakest since Q1 2013. Over the first nine months of 2014, activity in the sector expanded 8.76% y/y, which is ok-ish, given abysmally low levels of overall activity. Current level of activity is comparable to Q1-Q3 1997.

Distribution, Transport, Software & Communications output stood at EUR10.832 billion in Q3 2014, which is up 6.39% y/y - a healthy reading. Nonetheless, Q3 growth represents a slowdown on Q2 2014 growth rate of 11.46% and on Q1 2014 growth of 10.67%. Over the first nine months of 2014, activity in the sector expanded by a hefty 9.4% y/y, which is a good news.

Public Administration and Defence output stood at EUR1.572 billion in Q3 2014, which is down 1.26% y/y, against Q2 2014 growth rate of 3.75% and on Q1 2014 growth of 3.67%. Over the first nine months of 2014, activity in the sector expanded by 2.02% y/y in real terms.

Other Services (including rents) output stood at EUR17.622 billion in Q3 2014, which is up 3.67% y/y, against Q2 2014 growth rate of 2.69% and on Q1 2014 growth of 3.85%. So this sector showed acceleration in y/y growth rates. Over the first nine months of 2014, activity in the sector expanded by 3.48% y/y in real terms.

Summary of changes y/y is shown below in the table.

In summary: only one sector of the economy posted higher rates of growth in Q3 2014 compared to Q2 2014. Two sectors of the economy posted declines in activity y/y against four sectors that posted increased activity. This contrasts with all sectors posting growth in Q2.

Stay tuned for further analysis of QNA figures later tonight.

21/8/2014: Euro Area Construction Sector Activity: H1 2014

Euro area production in construction sector series are out for Q2 2014 (excluding a number of countries) and here is the latest data (you can see press release here: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-20082014-AP/EN/4-20082014-AP-EN.PDF)

First, EU28, EA18 compared to UK (non-euro) and Switzerland (non-EU):

Takeaways from the above:

• The latest euro area index performance (+3.47% y/y) is weak (this is seasonally-adjusted data) and q/q the index has fallen 0.56%. EU28 data is even worse: y/y up 2.90% and q/q it is down 0.57%.

Next: Euro area Big 4:

Again, key takeaways

• Germany: y/y activity is down 0.33% and q/q it is down massive 5.75%
• Spanish construction activity posted large 26.01% y/y rise and a q/q increase of 7.04%.
• French construction activity shrunk 0.78% y/y and was down 0.69% q/q
• Italy is yet to report Q2 2014 data, but in Q1 2014, country construction activity was down 5.51% y/y and down 2.56% q/q.

Euro 'periphery' remains the weak point of the sector activity in level terms, but improving and outperforming EA18 in growth terms:

Key takeaways:

• Having noted Spanish and Italian construction sectors performance above, Ireland's Q1 2014 activity was up 7.68% y/y and up 2.10% q/q
• Greece is a mixed bag: Q1 2014 activity was up 2.66% y/y but down 6.56% q/q
• Q2 2014 data for Portugal posted an 10.0% decrease in activity y/y and a rise of 0.77% in q/q terms.

Now, to summarise the problem, here is the rate of decline in Q1-Q2 2014 compared to pre-crisis peak:

Key takeaways:

• All 'peripheral' euro area economies remain deeply below water in terms of their construction sector activity in H1 2014.
• No euro area  advanced economy has regained pre-crisis levels of activity. 

The above hold even if we replace pre-crisis peak with 2000-2004 quarterly average:

13/7/2014: Ireland v Spain: Property Markets Signal Fundamentals-Linked Growth Potential

Two charts showing why Ireland can expect more robust correction in the property prices post-crisis trough:

First, investment in new construction:

The above shows that Irish construction investment dropped more significantly than in the case of (relatively comparable) Spain. This implies that we have been facing longer and deeper reductions in new stock additions than Spain, implying greater pressures on new supply.

Second, House Price to Income ratios (ignore caption):

Irish property prices have fallen more relative to income than Spanish prices. Which implies that penned up demand is greater in Ireland.

So there you have it, two (not all, of course) fundamentals driving prices recovery up in Ireland and both have little to do with the potential bubble dynamics.

Note: above charts are from IMF's Article IV Consultation Paper for Spain.