A ‘perfect storm’ for housing?
by Bregs Blog admin team
Housing is headline news at the moment and the new Minister for the Environment, Alan Kelly T.D., has his hands full. Link to RTÉ News: “Report shows serious housing shortage in Dublin“.
A perfect storm has arrived of accelerating house prices, falling planning applications and decreasing commencements and completions. From a political perspective, serious inroads need to be made on the housing crisis before the next General Election . We have commented previously on the continued fall in commencement notices, due to S.I.9, so we do not intend to go into that aspect in detail here. The financial drag on the industry has been pronounced due to the introduction of S.I.9 and its associated increased costs that are now well established. With S.I.9 costing €700m per annum this is almost three times the Minister’s expected budget for social housing in the upcoming budget.
We table the following two posts from Dr. Constantin Gurdgiev’s blog “True Economics” to illustrate current issues. As readers of the BRegs Blog are aware we are keen followers of Mr Gurdgiev as he tends to “drill down” into actual figures and frequently gets beyond spin and other anecdotal commentaries on topics.
In his post from 25th September 2014 “Irish Property Prices: Scary Dynamics in Dublin, Relative Slumber Elsewhere” he analyses the much hyped property price increases in Dublin in particular.
“Over the last 24 months, cumulated growth in national residential property prices was 16.02%, with house prices rising cumulatively by 15.34% and apartments prices up 32.2%. Outside Dublin, all properties prices were up more modest 2.89% in cumulative terms over the last 24 months and house prices were up 3.11%. In Dublin, residential property prices were up 38.39% over the last 24 months, which is 13.3 times faster than ex-Dublin. Dublin house prices grew 12.2 times faster than ex-Dublin house prices, at a 24 months cumulative rate of 37.83%. Dublin apartments prices rose 46.09% in 24 months through August 2014.
So as before: there are very worrying signs in price increases in Dublin, albeit levels of prices still remain subdued compared to both historical trend and inflation-driven trend. In other words, be scared of the speed of price increases, but not of the levels of prices so far.”
So not quite a bubble yet but definitely an area concern at present.
Planning Permissions- falling levels
In his next article on the same day “Irish Planning Permissions Q2 2014: No Signs of Sustained Recovery, Yet…” the author looks at recent figures from the Central Statistics Office for planning permissions in 2014. Observers could well expect a big increase in activity given recent price rises and media coverage about the construction sector rapidly gearing up again. The reality is quite different and it would appear that although planning permissions are slightly up, the overall area permitted is down indicating the type of work is small (house extensions etc). rather than additional dwellings. This will only add to any housing shortage. This bears out the BReg Blog team assessment from commencement notice figures also from the Building Control Management System.
“So here is the summary of H1 cumulative figures for 2014, compared to 2011-2012:
- Planning Permission granted for all types of construction rose to 7,982 in H1 2014 from 6,643 in H1 2013 and 7,040 in H1 2012. But total floor area underlying these permissions fell from 1,558, 000 sq.m. in H1 2011 and 1,764,000 sq.m. in H1 2013 to 1,456,000 sq.m. in H1 2014.[empahsis by blog]
- Planning Permissions for Dwellings stood at 1,766 in H1 2014, up on 1,634 in H1 2013, but down on 1,899 in H1 2012. Total floor area associated with PPs for Dwellings stood at 563,000 sq.m. in H1 2012, rising to 727,000 sq.m. in H1 2013 and falling to 632,000 sq.m. in H1 2014.
In other words, I am failing to see any sustained upward momentum in future work pipelines for the construction sector. Backlog of past permissions might be working through the latest optimistic outlooks for the construction sector, but as far as genuine new activity goes, we are not there yet.”
So a way to go before we see any real recovery or job creation in the industry. We may be seeing a classic “balance sheet jobless recovery” where price increases improve the balance sheets of lenders and NAMA, without any consequent benefit to consumers or house hunters. We will be doing an updated review of commencement notice figures also for September shortly.
Other posts of interest: