How many new homes need to be built to cater for demand and thereby help to reduce the spiralling cost of housing?
The answer to that question seems to vary, depending on who one asks.
In an address last month, Housing Minister Simon Coveney said the Government’s target was to increase total housing output to 25,000 homes per year by 2021. He admitted it was a “huge challenge”, given that in all of 2015 just over 12,600 new homes were built, while output fell as low as 8,300 in recent years.
However, 25,000 is, as Myhome.ie chief executive Angela Keegan points out, “outdated” even for next year.
Also, the figure seems exceptionally small given the estimate by Ronan Lyons, author of Daft.ie’s latest quarterly house price report, who estimates that anywhere between 40,000-50,000 new homes a year are needed. He breaks down how he reaches that total.
“We know from the initial census results that the country added 170,000 extra people between 2011 and 2016,” said Mr Lyons. “Given the likely composition of new households – between two and 2.5 people per household, on average – this means that the country added almost 75,000 new households in those five years.
“We know from the same source, the census, that there were just 17,000 new homes added to the stock of dwellings in the last five years, once holiday homes are excluded.”
Furthermore, he points out that the balance between those emigrating and immigrating has shifted since the recession eased, with those entering the country now exceeding those leaving.
“Migration is driven by those in their 20s and 30s, in other words the very groups forming households and starting families,” said Mr Lyons. “Based on the 2011 census, we know that every additional 10,000 migrants require on average 4,000 dwellings, so, even if net migration remains relatively low — at say 20,000 a year over the next few years — that will add 8,000 to the number of new homes required annually.”
Mr Lyons also pointed to a core demand for housing as a result of the natural increase, the number of families being formed compared to those dying.
Another factor is the falling average household size; in 1971 it was four people, today it is 2.7.
The last factor he points to is “obsolescence”, the number of houses which are not usable.
“The Department of Housing and CSO estimate that roughly 0.8% of the housing stock goes obsolete each year,” he said. “In other words, the typical dwelling lasts about 125 years. This means that, every year, about 16,000 dwellings fall out of use.”
Mr Lyons concluded that there are roughly 10,000 dwellings needed each year to offset obsolescence, a further 10,000-15,000 needed to accommodate Ireland’s smaller households, between 20,000 and 25,000 on top of that to house the natural increase – and a likely further 8,000 or so due to net migration.
“In total, Ireland needs at least 40,000 new dwellings a year and probably closer to 50,000,” he said. “These will be concentrated in and near the urban centres and will be disproportionately homes for one- and two- person households, such as apartments, downsizer homes, and student accommodation.
“As the latest figures show, without this kind of supply, we will all have to spend more and more of our income just to have a home.”
According to Conall MacCoille, chief economist with Davy and author of MyHome.ie’s Q4 Property Report, the Help-to-Buy scheme which provides a tax rebate worth 5% of the purchase price of newly-built homes to first-time buyers “would add fuel to the fire”.
In the short term, the measure is likely to push up house prices, helping builders’ profit margins.
“However, there is likely to be little material impact on housing supply as land prices are quickly increased,” he said.
“Second, the Central Bank of Ireland has relaxed its lending rules so that there are no restrictions on the availability of 90% loan-to-value (LTV) mortgages to first-time buyers. Greater numbers of mover-purchasers will now be allowed to take out mortgages in excess of an 80% LTV.”
He said the immediate impact was likely to be small, limited to Dublin and commuter belt counties, which account for most transactions above the €220,000 threshold to which the rules are applied.
“However, the main impact may be on expectations. As the housing market tightens, first-time buyers desperate to secure homes will be encouraged to take out the maximum 90% LTV loans, so, the most likely outcome is that Irish house price inflation should accelerate in 2017. We expect house price inflation to equal 8% through the calendar year.
“However, the combined impact of the Help-to-Buy scheme and looser lending rules means that double-digit house price inflation in 2017 is a distinct possibility.”