The Labour Market

I’m not sure what inference to make on the ‘state of the job market’ from this clip. If anything a few hundred people queuing for 150 positions is a positive sign. I competed against two dozen people for a single minimum wage position in a book shop in Carlow a few years ago. Compared to that this ratio of 4 or 5 candidates per job is fantastic.

@Karl Deeter, maybe all the financial guys are sending their cvs here: hr@nama.ie

Erratum – Should be completed units still 2,600/month in 2009 to date but will fall to annual pace of just 15,000 dwellings max. next year

If, as Derek Brawn says, 125,000 construction workers are to lose their jobs and that new house completions will fall to 15,000 next year (and I have no idea if he’s correct or not), then it shows that the Government should give total priority to reviving the housebuilding industry asap. So, why aren’t they? If 125,000 jobs were forecast to go in the chewing-gum manufacturing industry, every effort would be made to save them. But, if its in the house manufacturing industry, the attitude of many with influence in Ireland today is one of ‘good riddance’.

A total of 15,000 is less than in 1970 when the population was one-third smaller and real national income was about a fifth of what it is today. Its far below the rate of new household formation, which in recent years has averaged close to 50,000 annually. Its nowhere near adequate for future needs. Its barely enough to replace old houses that fall into disrepair and obsolesence. It would mean that Ireland had the lowest rate of housebuilding in the EU, even though its population is by far the fastest-growing in the EU.

In addition, a total of 15,000 new house completions, if maintained for a year or two, will inevitably lead to a new housing shortage, an increase in homelessness and overcrowding and the start of the next and undesirable house price boom. Remember that the house price boom did not start with bank lending practices (although they eventually took it over). It started in the mid 90s when, after 15 years of barely any population increase, population growth took off and by the late 90s was growing at 2pc a year (v 0.25pc elsewhere in the EU). For a time housebuilding failed to match population growth and, if anyone reads the media archives for around 2000, they will see that the ‘housing crisis’ then was one of shortage and rising prices because of the shortage.

So, if what Derek Brawn says is true, its very bad economically and socially. More unemployment in the short term, and a renewed upsurge in house prices in the medium-term.

So, why is the Government doing nothing to help?

I’d say its because of the rampant political hostility to the construction industry among sections of the media and the liberal political class. There is no other industry employing thousands of workers in Ireland, where there are a large number of websites and media conomists/commentators
devoted to its destruction, and where every occurrence of a company laying off employees or going bust is greeted with such jubilation. I’m not very hopeful the Government will act to help the construction industry. While Fianna Fail have traditionally being close allies of the construction industry (Galway tent and all that, which is probably one of the reasons
why the media and liberal political class have it in for the construction
industry), Lenihan’s new master, Alan Ahearne of this parish, seems to share this loathing of the construction industry.

There is a modest overhang. Its nowhere near the 300k claimed by the likes of David McWilliams and Morgan Kelly. Its about 50k. It might be a couple of hundred thousand if we include old houses built decades ago – if we include every ‘tumble-down shack in Athlone’. But, if we are talking about houses built to modern design and convenience and with central heating since, say, the early 90s, its a fraction of that, probably around 50k. Which, given Ireland’s rate of population growth, is manageable. Since 2002, annual new household formation has averaged close t0 50k, plus 10k to 12k for obsolesence plus holiday homes.

This can easily be got rid of by building 5k less than new household formation growth (plus obsolesence and holiday homes) warrants for 10 years or 10k less for 5 years. That would still leave new house completions at a respectable 40k to 50k, i.e. no need for any further drop beyond current completion levels, which are about 30k (barely 1970s level).

That would be the sensible way to do it and, with a modicum of planning, could be done. Instead, the plan appears to be to build virtually no houses
at all for the next couple of years and make 125k building workers unemployed in the process in an effort to get rid of the overhang in the time it takes to say ‘Tom Parlon’. After which, since it will then take several years to get housebuilding back up to a level to match new household formation growth (plus obsolesence and holiday homes), we can expect a new and undesirable boom in prices.

I think Mark may be disappointed to find that natural population growth in Ireland will in the long-run require lots of fields to be paved over, regardless of whether or not that growth is boosted (as I hope it will) by lots of immigrants from Poland and elsewhere.

One of the little-known facts of Irish life (only Garret Fitzgerald and Mark Coleman have ever commented on it) is the recent dramatic explosion in natural population growth, thanks to a unique (in the developed world) combination of a soaring birth rate and falling mortality rate. In the mid-90s, just as the Celtic Tiger was getting under way, births in Ireland were 50k annually and deaths 35k, a natural increase of 15k. In 2008 births in Ireland were 78k and deaths 28k, a natural increase of 50k, and rising every year. It would be wonderful if we could get up to 100k in the near future. Its not just the birth rate that’s soaring, but the fertility rate (those with knowledge of demography will know the difference). Uniquely in the developed world, Ireland’s fertility rate has resurged since 2006 to its 1980s level, having declined throughout the 1990s and early 2000s. No country in the developed world comes even close to this rate of natural population increase or these demographic trends. And, as a result, natural population growth in Ireland (50k annually and rising) is now on a scale that has never been experienced before in Ireland.

So, regardless of whether or not there is continued net immigration, the population is going to soar. That means lots of houses, and schools, and hospitals, and shopping centres, and roads and so on. Talk about pressure on infrastructure, you’ve seen nothing yet. So, despite what David McWilliams, Morgan Kelly, various environmentalists and Property Pinheads may wish, Ireland’s construction industry has a very bright future once the current recession is over. The real question, which those in government should be discussing, is whether or not it should be run down to virtually nothing in the next couple of years to eliminate any overhang and then have to be restored quickly to its former level after that, or whether it should now be stabilised at its current relatively low level for a few years before the population growth referred to necessitates a resumption in its growth.

@John
While we have disagreed before I find myself agreeing with you now. We do need to find some way of managing the effects of the stop/start boom/bust cycle. I used to work for 2 PLCs working in the building supplies sector. They not surprisingly took a very close interest in the house building side.

80,000 houses were too many, 15000-20000 too few. I seem to remember a figure of 40,000 as being about right for the population growth and need for replacement stock.

Of course what the government should have done is dampen down the bubble a couple of years ago (instead they fuelled it) and then when things got quiet add a bit of fuel to the fire.

There should be an increase in activity when people believe the bottom has come in terms of prices. Anyone’s guess when that will be but it will presumably happen when renting and mortgage costs tip in favour of mortgage costs. I’m sure the economists who contribute have some brilliant model in relation to this.

@Mark
If we want people to live in higher density housing i.e apartments, then we’re going to have to look at the European model and make them more attractive to families – i.e bigger, with green space and facilities close by. The apartments built in the Sandyford are an appalling example of how to do it. Big blocks of apartments and little else.

@Stuart

One of the problems is the lack of CSO statistics in Ireland on the annual increase in the number of households (which, of course, is the main determinant of housing demand). You said you worked in the construction-related sector. Yet, you were basically having to guesstimate the annual increase in the number of households in order to estimate the annual housing requirement. You shouldn’t have been put in this position. The CSO should be providing more comprehensive and more up-to-date statistics. I’m not criticising them. They are obviously not resourced to do it. But, even the N. Ireland equivalent of the CSO (called NISRA) does it.
CSO statistics are deficient in the following respect:

They don’t publish annual figures for the number of households. They do publish annual figures for population, but not number of households. Its not as easy for the layman to estimate the number of households from the published population figures as one might think, as average household size is continually in decline. Nearly every other country in the EU publishes annual figures for the number of households, including N. Ireland. In contrast, the CSO here only publish number of households figures for census years.

We now know from Census 2006 that the number of households increased by 182,500 between April 2002 and April 2006, or about 46k annually. So, allowing 10k to 12k for replacement and second houses, we now know as fact that annual new housing requirement between 2002 and 2006 was just under 60k. But, the point is that this was not known at the time. It only became known in 2007 or 2008 when the CSO published detailed household figures for Census 2006. Had it been known on annual basis between 2002 and 2006 (as it is everywhere else), then it would have been known just how much supply was exceeding demand.

As for what’s happened since April 2006, again we are back in the same position. It is not really known what the annual increase in the number of new households since April 2006 actually is. We do know the increase in population since April 2006, as the CSO publish it annually, but not the increase in number of households. So, people are just guessing, and their guesses are influenced (even if only subconsciously) by whether or not they are pro- or anti- the construction industry. My own guesstimate (and its only a guesstimate) is that new household growth since April 2006 has been about 40k a year on average rather than the 46k a year we now know it was between 2002 and 2006. Obviously it could go lower in 2009 and 2010. I simply don’t know if it will or not. Neither does anyone else. The point is, we won’t know until about 2012, when the CSO publishes the results of Census 2011, what the annual increase in number of households since April 2006 has been. Too late!

Future population growth will depend on net migration trends, as has been the case since the Irish Famine. Discuss.