Demographics and Housing Demand

The presumption that Irish housing demand is somehow underpinned by favourable demographics has always been suspect, but recent data are unambiguousdly negative. The headline pop estimate for April shows population growth at 37,300 on the year. But the QNHS, also published this morning, gives figs for the 15+ population which show that growth ceased last Summer. The last five obs on seasonally adjusted 15+ pop are: Q2 08 – 3520.5; Q3 08 – 3529.5; Q4 08 – 3530.0; Q1 09 – 3529.9; Q2 09 – 3529.5.

Thus the growth over the year in the adult population all took place in the first quarter, and was in any event less than a quarter of the growth in total pop. Children don’t buy houses. The figs imply substantial out-migration of adults, at the rate of about 7 to 8000 per quarter recently.

Today’s release also gives pop estimates for April by age-group. The age groups up to 14 show healthy increases. But the groups 15-19, 20-24 and 25-29 are all falling. The 20-24 group fell, between April 2007 and April 2009, from 347,800 to 304,800, that is, by 12.4% in two years. Difficult to see how estimates of strong underlying flow demand for housing can be sustained.

26 thoughts on “Demographics and Housing Demand”

  1. Children don’t buy houses. But the 15-19 and 20-24 demographic will be a key factor in aggregate demand for residential (and indeed commerical/retail) property in ten years’ time.

    Now, what was it about 10% increase in property assets over 10 years????

  2. A bit off topic, but does anyone have data on the correlation between public sctor pay and house prices?

    Based on anecdotal evidence I would have thought that the Government wouldn’t want to be reducing the pay of those that are most likely to qualify for mortgages, considering our (the tax payers) future on this island will soon be inextricably linked to the price of property (via Nama).

  3. @Mr Curious,

    To my thinking, the idea that the govt can prop up house prices by overpaying civil servants is nearly as wrongheaded as the idea that that it can prop up the property market by overpaying for reckless development loans.

    It follows, then, that such a correlation, if it existed, would likely be spurious.

  4. @Geckko,

    Are you not assuming that there will be sufficient numbers in these age cohorts still in Ireland in 10 year’s time to have an appreciable impact on demand?

  5. But the authors of Nama are undeterred. They will be adding in a new clause:

    Long Term Economic Valuation can take account of

    1) The Market Value

    2) Demographic trends

    3) The Possibility of Massive Numbers of Dutch Climate Change refugees flocking to Ireland, due to an ice shelf collapsing, pushing up sea levels and flooding the Low Countries.

    4) The valuers will also not that factor (3) is increasingly likely, given the amount of hot air being generated in the debate around this Bill

  6. @ Graham

    Right you are. I didn’t for a minute mean to suggest it should be done i.e over pay. Though a cut in pay for so many employees would surely not have a positive affect of the housing market. At least giving some more weight to the argument that prices have more to fall, rather than the ministers line that we’ve ‘reached the bottom’ due to ‘high yields’.

  7. As I suggested they might, on this site last Friday, today’s CSO figures for population and migration blow some of the ridiculous exaggerations of recent months and weeks completely out of the water. The only one who actually managed to predict the figures accurately was Colm McCarthy himself in the ‘endogenous migration’ thread put up last week (link below).

    http://www.irisheconomy.ie/index.php/2009/09/18/migration-is-endogenous/#comments

    The figures show that, in the year to April 2009, there was a net outflow of 7,800 persons from Ireland, a tiny fraction of what was being forecast by various media pundits. However, before the Dublin City Ramblers get any ideas about recording a new version of their 1980s hit ‘Flight of The Earls’, it should be pointed out that the net outflow consisted ENTIRELY of foreign nationals going home. Among foreign nationals, there was a net outflow of 7,800 (about 2% of the total). Among Irish nationals, there was a net outflow of precisely ZERO.

    In all humility, while I made no predictions about the actual figures myself, I did predict in that same thread that Colm’s predictions would prove accurate and the rest nonsense. In fact, I beseeched some of those making wildly exaggerated claims of population decline and net emigration to wait until the CSO published the official figures today, ‘lest they appear foolish when the CSO figures are published’ (my exact words).

    To no avail!

    In decreasing order of absurdity, the following are some of the predictions made for net emigration from Ireland in recent months:

    (1) Joan Burton, Labour TD, predicted net emigration of 500,000 and a fall in population greater than in the 1950s. Just as well Joan is not Minister of Finance or she’d have budgeted for a population almost 500,000 less than it now actually is. Despite the small net emigration of 7,800, the total population is actually up 37,000 (due to a 45,000 excess of births over deaths).

    (2) The progressive-economy.ie website estimated last week that the population was allready down 200,000, due to massive emigration This was referenced in the same ‘endogenous migration’ thread put up here last week (link above). Their estimate was based on mobile phone numbers. From today’s CSO figures, we now know that the population is up 37,000, not down 200,000. I suppose it would never occur to them that, during a recession, there might be a fall in the proportion of the population having multiple mobile phones.

    (3) In November 2008, IBEC estimated that there had been a net outflow of 100,000 persons from Ireland up to that point in 2008 and that that was the reason for the downturn in retail sales and other economic activity. Again, shown by today’s CSO figures to have no foundation whatsoever.

    (4) On this very site back in early summer, Richard Tol posted an analysis of passenger movements and estimated net emigration of around 80,000 in 2008/09. I’m trying to find the thread, but Richard will know the one I mean. I posted a reply at the time, rubbishing the ‘80,000 net emigration’ figure and showed that, over the past two decades, net immigration was consistently much larger than crude passenger movement figures would indicate. So, it has proved again in 2008/09.

    (5) In their Quarterly Economic Bulletin in June 2008, ESRI predicted net emigration of 50,000 in the year to April 2009. Well done, ESRI. You were only out by 42,200.

    (6) In August 2008, in his Irish Independent column and also on his website (link below), the media economist, David McWilliams, published the results of his ‘analysis’ (I use the word ‘analysis’ very loosely) of GAA inter-club transfers. Based on this, and under the heading’ Paddy is leaving again for Foreign Fields’, he concluded that 1980s-level emigration from Ireland was allready under way even then (August 2008).
    Again, today’s CSO figures blow his August 2008 ‘analysis’ out of the water. To repeat, among Irish nationals, there was ZERO net emigration in the year to April 2009.

    http://www.davidmcwilliams.ie/2008/08/20/paddys-leaving-again-as-gaa-leads-to-foreign-field

    After this series of debacles, might I respectfully suggest that analysis of and predictions of migration trends in Ireland be left to experts like Colm McCarthy and Brendan Walsh. Politicians, media commentators, political activists, clergymen, and financial economists with no grounding in demographics, lack the necessary expertise to analyse and predict migration figures.

    Re the small net outflow of 7,800 foreign nationals, it should be pointed out that in today’s Wall Street Journal there is a report that the number of Mexicans living in the U. States has fallen in 2009, for virtually the first time ever. Should one now assume that, over the next decade, there will be net emigration from the U. States to Mexico? I think not. That’s what happens in global recessions. When unemployment rises, people go home. Or, to be more precise, a small proportion of them go home. To assume that that trend will continue during the global upturn is extremely unwise and risks repeating the mistakes made in the late 1980s, when various reports predicted that the population would fall between then and now.

  8. John,

    I wonder whether you can be so confident the CSO has all the answers.

    For one thing, the migration estimates are based on QNHS data. QNHS population data is based on the concept of “usual residence”.

    When economies collapse, and people flood out of them, they tend to remain “usually resident” at “home” until they get established abroad. I have several cousins who are now working abroad or in the process of packing their bags to take jobs overseas, after having been laid off. Had the QNHS people come a-knocking, they would have been “usually resident”, but very much absent from the Irish economy in any meaningful sense of the word.

    This is likely to explain a lot of the discrepancy between the EU-12 cohort and the Irish cohort – Poles maybe never felt they were “usually resident” here.

  9. @John
    While I don’t disagree with you about the exagerrated claims people make about emigration, house price falls, deflation etc etc you are in danger of going the opposite direction.

    The figures as I understand it are for a year. I checked the CSO site and they don’t break it down by quarter but it is reasonable to assume that over the year immigration declined and emigration increased. The figures for the first 4 months for 2009 are likely to be much higher than the net 7,800 (and before you get excited much lower than some of the other figures being bandied about).

    You are also right this may be a blip but it may also be the start of a trend. I wouldn’t start shutting schools and delaying infrastructure projects but I wouldn’t be spending based on an increase either. Anyway we have an infrastructure deficit even if the population drops 10%.

    The data on population and employment figures do not currently support the thesis of a rising housing demand at this moment. After that it’s crystal ball time.

  10. @John

    That’s what happens in global recessions. When unemployment rises, people go home. Or, to be more precise, a small proportion of them go home. To assume that that trend will continue during the global upturn is extremely unwise and risks repeating the mistakes made in the late 1980s, when various reports predicted that the population would fall between then and now.

    The relative degree of upturn in various countries is surely the important factor. If the US, UK and Australian economies start to recover strongly while Ireland remains in torpor, I’d expect that we’ll see a strong net exodus of Irish nationals just as we did during the 1980s and early 90s.

    Central European nationals are better equipped linguistically and psychologically to head for mainland Europe if the recovery manifests itself there. I suspect that Latvians and Lithuanians, whose economies are in far worse shape than ours, are staying put.

  11. @John,
    Net outward migration averaged about 20k per annum over the 80s, and peaked at a bit over 40k in 1989. I left in 1987 myself.

    The CSO’s migration figure for 2009 represents the a period that started with substantial net inward migration, and ended with some net outward migration, if the QNHS data for the 15+ population can be relied upon. My read of the Q2 QNHS data is it probably reflects levels of net outward migration comparable to the peak years of the 1980s.

    The natural increase (no migration) in the 15+ population should be running at something like 27k per annum, based on the CSO’s M0 population scenarios. Q2 QNHS data shows a fall of 7.7k over the quarter. If this is repeated over the next three quarters, net outward migration among the 15+ population over the year should be around 58k – higher than in the 1980s.

    Now, maybe you are right, and the current increasing trend in net outward migration will be reversed. But it is also reasonable to postulate the opposite.

    I think it is also worth noting that some of the commentators you have criticised have focused on measures of gross rather than net migration.

  12. @Con

    It is very dangerous to analyse the figures on a quarterly basis since, as Colm McCarthy pointed out last week, they are NOT seasonally-adjusted.

    The following are the raw figures (i.e. not seasonally-adjusted) for the population aged 15+ for each quarter since 2003 Q3 (from CSO website). In brackets, I’ve put the quarterly increase, which I’ve calculated myself from the raw CSO figures.

    2003 Q3: 3,166.1 (+16.5)
    2003 Q4: 3,184.3 (+18.2)

    2004 Q1: 3,194.9 (+10.6)
    2004 Q2: 3,207.2 (+12.0)
    2004 Q3: 3,228.9 (+21.7)
    2004 Q4: 3,253.6 (+24.7)

    2005 Q1: 3,270.0 (+16.4)
    2005 Q2: 3,287.9 (+17.9)
    2005 Q3: 3,314.5 (+26.6)
    2005 Q4: 3,342.8 (+28.3)

    2006 Q1: 3,362.9 (+20.1)
    2006 Q2: 3,376.1 (+13.1)
    2006 Q3: 3,401.9 (+25.8)
    2006 Q4: 3,424.1 (+22.2)

    2007 Q1: 3,442.9 (+18.8)
    2007 Q2: 3,462.5 (+19.6)
    2007 Q3: 3,487.6 (+25.1)
    2007 Q4: 3,512.3 (+24.7)

    2008 Q1: 3,519.7 (+7.4)
    2008 Q2; 3,514.9 (-4.8)
    2008 Q3: 3,529.7 (+14.8)
    2008 Q4: 3,533.9 (+4.2)

    2009 Q1: 3,531.5 (-2.4)
    2009 Q2: 3,523.8 (-7.7)

    As can be seen, the increases in Q1 and Q2 are invariable considerably less than in Q3 and Q4. No exceptions to this pattern for any year. So, clearly, there is a seasonal element and it is statistically invalid to just take the difference in the raw figures between 2009 Q1 and 2009 Q2. Not just my opinion. Colm McCarthy himself pointed that out in the thread he opened last week. Ideally, someone could do a seasonal adjustment of all the CSO quarterly figures going back to 1997 (when they start). That would tell us exactly how the known 7,800 outflow in the year to April was distributed between the 4 quarters. Alas, I don’t have the time. However, the following is a very crude attempt to get some idea of the seasonal effect.

    average increase in Q1: +14.66 (average of 5 years 2004 Q1 to 2008 Q1)
    average increase in Q2: +11.56 (average of 5 years 2004 Q4 to 2008 Q2)
    average increase in Q3: +23.14 (average of 5 years 2003 Q3 to 2007 Q3)
    average increase in Q4: +23.62 (average of 5 years 2003 Q4 to 2007 Q4)

    comparing these 5-year averages with what actually happened in the past year, we find:

    2008 Q3: +14.8 compared with 5-year average of 23.14 – down 8.34
    2008 Q4: +4.2 compared with 5-year average of 23.62 – down 19.60
    2009 Q1: -2.4 compared with 5-year average of 14.66 – down 17.06
    2009 Q2: -7.7 compared with 5-year average of 11.56 – down 19.02

    I fully accept that the above is very crude. If anyone does a proper seasonal adjustment of the CSO figures and posts them, I’ll accept those figures. However, my conclusion from the above is that the known CSO figure of 7.8 for the total net outflow in the year to 2009 Q2 was roughly equally distributed between 2008 Q4, 2009 Q1 and 2009 Q2. Therefore, it was probably in the region of about 3.0 in each of those quarters.

    All this is no doubt confusing as the CSO published 2 sets of figures today. One is the QNHS figures for 2009 Q2. The other is the Population and Migration Estimates. The annual figure for net emigration of 7,800 comes from Population and Migration Estimates. Unless you are like Graham and believe the CSO has published inaccurate figures, the 7,800 figure for the net outflow between April 2008 and April 2009 is indisputable and is far lower than various ‘experts’ predicted, as I pointed out in my previous post. The only relevance of the QNHS figures is, not to override the 7,800 figure, but to get some very crude idea of how it is distributed over the 4 quarters 2008 Q3, 2008 Q4, 2009 Q1 and 2009 Q2 that make up the year between April 2008 and April 2009. Based on my very crude analysis, it looks as though the net outflow started in 2008 Q4, but has remained at about the same level of around 3.0 per quarter in 2008 Q4, 2009 Q1 and 2009 Q2.

  13. Caution is the watchword here. I suppose you could postulate that an increase in population (of a specific age cohort) would correlate to an increase in demand for domestic dwellings (both rental + purchase). But would it? – in the context of the very unusual 2002 – 2007 credit bubble.

    If mortgage lending practices (for domestic dwellings) revert to their usual cautious nature – what will be the outcome for the price levels? Down? You might believe that a decrease in price would translate into an increase in demand. Yes it would, but you have to have the required cash deposit, and the required income (long-term income, that is – not short term contractual stuff). Then again you might have to consider the possibility (or is that a probability?) that mortgage interest rates will increase. I guess they will – possibly in excess of 10% if you believe the parlous state of the financial institutions.

    The mad spree in the building of domestic dwellings (multiple and single) has left a very varied distribution throughout the country. Will all of these now vacant dwellings actually be purchased as the specific population cohort increases? I doubt it, since many of the dwellings are not in convenient locations for the formation of family units – and that’s the rub!

    So there are some, potentially confounding, variables. I am sure there are others. As I said, caution. Let things sit for a while. Install a few extra oil storage tanks and dig out your own water well. I had a ‘vision’ that both rationed!

    Brian P

  14. Well done John. The country experiences net emigration for the first time in over a decade and you make it sound like positive news. In income terms we are a wealthy country. Shouldn’t we be experiencing significant immigration? It makes no sense. Unless we’re going through that vicious downturn you keep denying.

  15. @John,
    Like I say, you may be right. Personally, I’m not at all sure that the seasonal patterns of the high immigration past will continue. I’m open to any number of different interpretations.

    Ideally, one would look back to a time of net outward migration from Ireland to see what the seasonalities were then, but I don’t think suitable data are available. It is possible to look at seasonality in estimates of population based on the QNHS (published by Eurostat), back as far as 1998 but that is not far enough back. My reading is that they show rising seasonality up to around 2006/7.

    Anyway, my point is that the range of population outcomes that are consistent with the available statistical evidence is particularly wide right now, and that it is possible for a reasonable person to take quite a negative view as to current population trends, just as it is possible for a reasonable person to argue that the Q2 results are the result of seasonality or of sampling error. The Q3 outcome will be interesting.

  16. @John
    Your prediction so, for emigration over the next 12 months is 12k or less. That it has not accelerated in the past 6 months even though unemployment spiked dramatically in early 2009. Fair enough.

    But you know if I were the government or anyone else making plans based on an increasing population I would wait another year to see if you’re right.

  17. @Stuart

    Where did I predict that? I can’t see where I made any predictions for future quarters. I generally don’t go in for predictions, except in occasional moments of weakness. I normally content myself with analysing recent trends based on data from reputable sources like the CSO. Based on that, I estimate that:

    (a) there was net emigration of just under 8K in the year to 2009 Q2.

    (b) this consisted of approximately 4K net immigration in 2008 Q3, and approximately 4K net net emigration in 2008 Q4, 2009 Q1 and 2009 Q2.
    In other words, it was pretty stable from 2008 Q4 to 2009 Q2.

    I’ve made no predictions beyond 2009 Q2, for the very good reason that I don’t know. It might accelerate or it might not. If I knew, I’d be off to Paddy Power’s. But, I didn’t post initially to highlight my powers of prediction, or lack of them, in relation to migration. I did it to highlight the utterly abysmal powers of prediction of certain others who, amazingly, are considered by the media to be experts in the matter and, therefore, worthy of having their predictions treated as credible, no matter how far-fetched and absurd. The bottom line is this: for the past year we have been subject to a series of far-fetched predictions about the level of emigration. These have ranged from around 50,000 to 500,000. We’ve been told ad nauseum that the 1950s and 1980s were allready back in relation to emigration. Given the normal tendency of the Irish media to exaggerate, this has given the impression that a mass exodus from the country has been under way. On this site, I repeatedly challenged this view and said that there was no evidence to support it. Yesterday’s CSO figures show that I was correct. But, I’m not going beyond that and predicting now what next year’s figures will be.

  18. @ Mr. Curious. You wont get figures for changes in public sector pay affecting house prices but your right to mention incomes and changes in income as factors.

    Both the Bacon models and ESRI identify Real disposable income per capita as an important factor.

    Regards population growth, the key demographic is 25-44 years. Analysing births and deaths can be interesting but if the people born arent here in 25 years, there not buying property.

  19. The discussion about demographics as a factor for demand is interesting but I still feel there are some things not fully explored:

    There might be more people wanting housing but how much will they be able to pay for the housing?

    If even the current price levels are to be maintained then I think it would be fair to assume that:
    -new jobs created would have the same entry level salary as in 2007
    and
    -banks would need to be willing to extend the same level of credit

    I believe that the new jobs that are being created are lower paid than the ones created during the boom years. I also believe banks are now (and also possibly in the future) reluctant to offer 100% mortgages.

    If NAMA is introducing a price floor -> Property-costs for wealth generating businesses will remain high -> Economic activity will be hindered -> Demand will be hindered as new entrants simply can’t afford to enter market

    A marketer might say: If the target market can’t afford it, the demand isn’t there.

    I can’t see how demographics alone can justify the current prices but I do see high property prices as a possible cause of an increase in outward migration.

  20. Take the chance to point out a video, since it relates to the topic.
    It is the re-run of three news shows (on US TV) in which financial experts,
    the pundits, forecast and advise in 06 / 07, before the crash. Most of them
    were incredibly wrong. Their opinion was parroted all over the world.
    One of them, Peter Schiff, diagnosed right and warned in good time.
    The video is very popular, it obviously makes a lot of sense seeing this
    one for a number of reason (ie. how the media, pundits, manipulated),
    and everybody now can figure out the expert bluff that went on and still
    lurks occasionally. It can be really recommend:

  21. It is now possible to derive a seasonally adjusted 15+ population number out of Table 3 in the spreadsheets that CSO publishes after the QNHS release. The population works out almost exactly flat between Q1 and Q2 2009 at 3,532k. Given that the natural increase in population should be running at about 27k, and assuming that the various errors that could have crept in unavoidably are actually zero, this suggests that effective annualised rate of net outward migration was about 27k in Q2 2009.

  22. Con: ‘effective annualised rate of net outward migration was about 27K in Q2 2009.’

    That’s (roughly) what I said in the original post Con: read it again! Last three quarters seem to have seen net outward flow in 15+ group of 7 to 8000. A scenario where this continues, for even a couple of years, puts a hole in prospective household formation, cet par.

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