Thursday 19 September 2019

There is no property bubble to burst, despite doomsayers

Tom McEnaney
Monday Morning

Once again 'The Economist' is claiming that the Irish property market is a bubble ready to burst - and once again 'The Economist' is wrong.

It's in good company. Davy Stockbrokers seems to have published reports suggesting that Irish property prices must be due for a fall once a year for the past decade. One once a year for the past decade Ireland's largest stockbroking firm as been wrong.

Not only is Irish property bubble not about to burst, but there are very good reasons to believe that it doesn't exist. Yes, of course Irish property prices are rising faster than anybody predicted, but we are only looking at a bubble if that rise is not justified by the fundamentals.

In simple terms a bubble happens when people are buying on the wrongful assumption that prices will continue to increase.

There are very good reasons to believe that Irish house prices will continue to increase for some time before plateauing off. Good reasons which any analysis based on simple indicators, such as house prices relative to income, or to rent, are likely to miss.

The simplist of these is projected population growth. Last month, the Central Statistics Office published its 'Regional Population Projections 2006-2021'. It states: "Major increases are projected in all regions between 2002 and 2021 for those aged 25 to 64."

If we narrow this range further to relect the time of life when people tend to buy homes we see that the number of people aged 25-44 is expected to increase by 26pc to 1.4m between 2001 and 2021.

Much of the increase is expected to come from non-Irish people coming here to bolster our economy. With the economy expected to continue to thrive in the coming years we can expect that influx will continue.

It is unwise to look at population without looking at family sizes. In simple terms were family sizes to double over any period that would mean that the population had doubled, but this would not lead to a doubling in the demand for property.

In fact, the size of families is not only falling in Ireland but is falling faster here than in any other country in Europe. The average Irish family now has only three members. The average Irish family headed by one or more professionals is only 2.1.

So the projection is that we will have a fast-growing economy leading to a fast-growing population made up of smaller and smaller family units.

So much for demand. Now let us relate that to supply.

It is often stated that the percentage of home ownership in Ireland is higher than anywhere else in Europe.

While true this is a misleading statistic. Let me give you a more appropriate one.

Ireland, for its population, has the lowest availability of housing units of any country in Europe. This is a fact which was first highlighted by the ESRI way back in 1998, but which rarely makes its way into public debate on the housing market. It has been backed up many times since.

In 2002, the EU housing statistics showed that Ireland had 337 dwellings per 1,000 people in the population. Compare this with the UK, which had 417 dwellings for the same number of people, or Germany, which Spain, which had 462. And none of these can compare with Greece, which had 505 dwellings per 1,000, making it the most housed country in Europe.

To those who suggest that the Irish property market is a bubble just waiting for somebody to come along with a pin, we might reasonably ask the question: "Why does Ireland need fewer houses for equivalent numbers of people than anywhere else in Europe?"

Why does a country which has produced more jobs in the past eight years than it did in the previous 80 need fewer houses than Greece, or the UK, or any other European country you care to mention?

If interest rates were expected to rise you could understand, if not agree, with their position.

But in recent weeks the German economy minister's voice has been added to those who are calling on the European Central Bank to reduce rates. Interest rates may change, but if they do it is more likely to be downwards.

Now let us put all of the statistics to one side and look at the politics. Home owners vote.

Non-home owners are much less likely to turn up at the polls. The Government knows this and this is why it will never address Ireland housing problem.

Leaving aside land-swapping gimmicks which play well to a trade union audience, there are many things which the Government could, and should, do to solve Ireland's housing problem.

But if it were successful house prices would fall, and, although this would be great for those who are less inclined to vote, home owners would not be a happy lot.

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