Another article outlining how the government’s focus on supply is doomed to failure because housing is not a typical supply and demand market.
Ramping up supply will not resolve Ireland’s housing crisis (via @IrishTimes) Ramping up supply will not resolve Ireland’s housing crisis
Can someone post up the article, the premise seems a nonsense
It’s notable the graph runs to 2012 which would have see 07-12 the peak of the crash and property prices.
There’s a fundamental misconception at the heart of the debate about property in this country, one that conflates housing need with housing demand and therefore presumes the answer to the problem lies with supply.
There’s undoubtedly a huge need for housing – that’s indisputable, on demographics alone – but that’s not the same as saying there is a huge market of potential buyers waiting in the wings.
Most of the apartments being built in Dublin have no buyers, or at least very few. The price points are too prohibitive. According to the Society of Chartered Surveyors Ireland, the cost of delivering two-bed apartments in the capital range from €493,000-€581,000 in medium-rise developments to €514,000-€619,000 in high-rise developments. Hence most are built to rent.
In many cases, even the rents are too high and the schemes are only half let. Take a walk around the city’s docklands on a Saturday or Sunday morning – where much of the recent development has taken place – it’s a ghost town.
So in the middle of a housing crisis – defined by a chronic shortage of affordable options – the market is supplying high-end, luxury units that don’t sell and, in many instances, can’t be let. The same thing has happened in London. Housing need and housing demand are two entirely different things.
You can draw a parallel with the electric car market. Many motorists want to go green but most still can’t afford the basic EV (electrical vehicle) models, so the market remains small.
The homebuyers’ market here might appear cut-throat and treacherous – pictures of young couples queuing outside starter-home estates paint a picture – but it’s actually quite small. The latest property price figures from Central Statistics Officeshow there were just 524 new dwelling transactions in June, down from more than 1,000 in December. That’s because so many are priced out and forced to rent.
Property industry body Irish Institutional Property (IIP) weighed into the debate last week, suggesting the State needed to build roughly 50,000 homes a year until 2051 to resolve the crisis, which is significantly above the Government’s 35,000 target.
It rightly pinpoints that the main drivers of housing demand are population growth; inward migration; household size and obsolescence. With a population of 6.5 million forecast by 2050, arranged into households of 2.1 persons on average, and where 0.6 per cent of the existing building stock becomes obsolete each year, the report estimates that the State needs about 49,000 new units per year between 2016 and 2051. Of these, roughly 20,000 are likely to be needed in the greater Dublin area, it says.
The supply mantra – the notion that increasing supply is the answer to the problem – is now enshrined as a article of faith with Government, industry and much of the public. Government promises bigger and bigger levels of housing output even though it’s not within its gift to do so, while industry says it is being blocked from building more by rising costs and/or increased red tape, legal or otherwise. Both agree, however, on the need to significantly increase supply.
But if we start building at the scale proposed, what will happen? The IIP report claims that the break-even cost for developers of a two-bedroom apartment in the Republic is now close to €450,000, “something that only the top sixth of the income distribution could sustainably afford”.
For this metric to change, one of two things needs to happen. Either the cost of construction needs to come down as we build more and the industry’s exploit economies of scale or the cost of new homes needs to come down as we supply more, leading to either a better financial equation for developers or a better financial equation for buyers.
History unfortunately tells us that neither of these things will happen. Ramping up housing supply has never once in our recent history improved affordability. Even at the high-water mark of construction in 2006, when a record 92,000 homes were built, property prices rose by 14 per cent. Back then the cost of construction was also soaring despite the fact we had an extra 100,000 construction workers in the country.
And even if the price of new homes comes down and the affordability dial moves in a favourable direction, it’s likely that developers will rein in production as the cost of delivery – for reasons to do with land, regulations and other variables – is now firmly baked into the system. Therefore when prices start to fall, the risk for developers will become that bit greater and the tendancy to pause that bit stronger. When the house prices fell off a cliff after the 2008, the industry didn’t build for almost a decade. This is the main reason why we’re in such a jam now.
The traditional developer and the traditional buy-to-let landlord are finding life in the post-crash world financially difficult. That’s why they’re increasingly being replaced or funded by institutional investors, which work to a different financial equation, backed as they are by a wall of cheap money. They can afford to sit on half-empty apartment blocks.
A building boom – as many seem to want – will not resolve the central issue at the heart of Ireland’s housing problem: affordability.
He’s not really allowing for much of a lag, after building all those houses we had so much supply it took another 15 years for prices to get back to those highs
He also seems to think that “investment funds” can afford to buy land and develop homes at prices that nobody can afford to buy or rent at. They need a return.
450k breakeven for a 2 bed apartment does seem unsustainable however.
The housing debate is dominated by ideologues on both sides who spend too much time defending entrenched positions on Twitter.
Another article from a guy who repeatedly uses figures incorrectly and pushes an agenda that doesnt make sense and puts a lot of store in Orla Hegarty and her wildly inaccurate facts on costs. She seems to have been engulfed as a Covid expert now though, so he must be flying solo.
there is a knock on effect with supply. People with starter homes may wish to move up to a larger place and their home then becomes available, its not always the case that some one starting out needs to spend 500k or more. He is also only using figures for apartments in city centre Dublin. Last time I checked, there is a fairly big country with more than city centre apartments being built. He conveniently leaves out from the very same report that a 3 bedroom house in Dublin is averaging at €370k build cost, and the average cost of providing social housing is €210-230k.
There absolutely is an issue with costs and affordability, but with the actual construction of the unit themselves only being 37% of the total end build cost, it leaves a lot for the government to work with if they want to help affordability, mainly through land acquisition costs, VAT, levies and finance costs, all four of which total 38% of the total end build cost per unit.
unfortunately every debate seems to be like this now…
Just out of curiosity now.
What’s the biggest impact on building now?
Labour or materials?
I’m looking to start my project now sometime in the new year and currently have the architect coming up with plans. I am lucky enough to have a relative in the building trade who has moved into the insulation game from blocklaying and have done a few bits and pieces on sites in my younger days so I’ll be able to manage a fair bit of the project myself that way.
I’m gonna cop out and say both equally. We had lockdown until April, and from there to June it was certainly materials that were the biggest issue. Xtratherm shut off phones and orders in June just to process what they had on their books such was the demand, as an example of the material issues. But since about that time, the labour issue has caught up and you now have massive demand. Lots of builders fully booked up until next year so there is no supply at all of labour for loads of trades. A lot of projects I am on at the moment had to stop mid work because they couldnt get plasterers or tilers etc. Demand increases prices. And material prices had been jumping up anyway.
Hopefully, both will level out, but often a material price reduction to suppliers doesnt get passed on to the customers. More and more people are now holding off until next year as its hard to find anyone to do it and also hopeful that prices might come back a bit.
I’d say materials are probably most likely to come down in the short term than labour? As you say though, whether suppliers hand that down is not certain.
What’s your hunch for price and availability of housing 12 months from now?. Will be looking in the Limerick commuter belt. A trickle of supply at the moment.
Buy in glorious North Tipperary
I wouldnt really know about the supply or availability of housing, but I dont see much change from where things are right now. I dont see prices of houses coming down as the supply isnt there and the supply estimations from 2 years ago are way down due to Covid.
You’re on the road from Nenagh. Fairly rural but not far from Naynagh (10 minutes??? @mick_jones ??). You do have a pub in the vicinity
10 minutes from Nenagh and also from M7. 3 bed semis in town allegedly heading for €300k fucking nuts, big fall coming again
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