Prices delight in that migrant touch
While Ireland's foreign workforce may be boosting demand for housing, a market slowdown is much needed for the long-term health of the economy
A few nights ago, I missed my flight from Dublin to Galway and had to take the late bus -- and when I say late, I mean late.
We left Dublin Airport at midnight after the last flights from various cities in Eastern Europe had arrived. It was an eye-opening experience. I reckon that of the roughly 40 passengers heading west, I was the only Irish national. Even the driver was Polish. Several young couples alighted in both Maynooth and Athlone; a whole family travelling with what looked like all their worldly possessions got off in Loughrea.
Immigrants like these have contributed enormously to the growth of our economy over recent years. Not least, their demand for housing has added to the boom in homebuilding. But how might immigration affect the housing market over the next few years?
Two new sets of figures released during the week shed light on the interaction between immigration and the property market. The housing volume of Census 2006 shows that of the nearly 1.5m occupied dwellings in the country, 10 per cent are occupied by foreign nationals (at least, they were on 23 April 2006 -- the night the census was taken). I say "occupied" because another 300,000 homes are empty. Some of these are holiday homes, but the bulk of them are probably vacant properties owned by investors.
Of the 146,000 dwellings occupied by foreign nationals, nearly 36,000 units are lived in by immigrants from Eastern Europe. This is a remarkable figure, since most of these people would only have arrived in Ireland over the last two years or so after these countries became members of the European Union in May 2004.
To put things in context, over the same two-year period we built about 150,000 new homes. Immigrants from Eastern Europe have clearly been providing a significant boost to the overall demand for housing.
Not surprisingly, many of these immigrants are from Poland. Almost 19,000 dwellings are resided in by Polish nationals. Of these, more than four out of every five units are rented, mostly from private landlords. Strikingly, less than 800 homes are owned by Poles. Immigrants from Lithuania inhabit nearly 7,300 dwellings and have a similar rental profile to Polish nationals. They also have an extremely low rate of owner-occupancy.
Over time, Eastern European nationals will presumably buy more properties as they settle in this country and build credit records. What's interesting, however, is that there are many anecdotes suggesting that nationals from Eastern Europe working here are increasingly buying properties back in their home countries. Evidently, they know a bargain -- and a rip-off -- when they see one.
The question is for how long can immigrants from Eastern Europe provide such strong support to the housing market. The worry is that many of these people work in cyclical industries that are sensitive to the normal ups and downs of economic activity. According to the latest Quarterly National Household Survey, about 26,000 Eastern European nationals work in the construction sector -- and some insiders believe the real figure is much higher. Another roughly 18,000 are employed by hotels and restaurants.
As our economy and growth in employment stalls next year (as looks increasingly likely), shouldn't we expect the flows of immigration from Eastern Europe to slow markedly?
The point is that claims that significant inward migration will continue to underpin the housing boom suffer from an element of circular thinking. A slump in housing will drag down GNP -- and immigration will surely slow to a trickle in response.
The census also showed that about 18,000 dwellings are inhabited by immigrants from Asia. Of these, less than 60 per cent are rented. Asian nationals own no fewer than 4,000 dwellings. Immigrants from Asia have lived in this country longer than those from Eastern Europe, which goes some way towards explaining their dramatically higher rate of owner-occupancy.
Another explanation can be gleaned from new figures published by the Irish Mortgage Corporation. It seems that almost one in five first-time buyers during the first half of this year was a foreign national, with the largest percentage coming from Asia.
House buying is especially popular among those working here who come from the Philippines and India. It is probably a safe bet that many of these people are working in hospitals. No matter what happens to our economy over the next few years, demand for doctors and nurses will stay strong.
There is one other, often overlooked, aspect of the relationship between immigration and housing. Evidence suggests that sky-high house prices are discouraging some potential immigrants, especially high-skilled workers. If the low rate of CAO applications for third-level science and engineering courses are anything to go by, our knowledge-based economy is going to need all the high-skilled immigrants it can get. A knowledge-based economy or a property-based economy? Take your pick.
In this regard, ongoing declines in house prices, though painful in the short term for some, are probably just what the doctor ordered for the long-term health of our economy.
Alan Ahearne is a former senior economist at the US Federal Reserve Board. He lectures in economics at the Cairnes School of Business and Public Policy at NUIG
