Managing Housing Bubbles in Regional Economies under EMU: Ireland and Spain


Today Thomas Conefrey and myself publish a working paper entitled “Managing Housing Bubbles in Regional Economies under EMU: Ireland and Spain”. It is available here .

With the advent of EMU, monetary policy can no longer be used to prevent housing market bubbles in regional economies such as Ireland or Spain. However, fiscal policy can and should be used to achieve the same effect. This paper shows that the advent of EMU relaxed existing financial constraints in Ireland and Spain, allowing a more rapid expansion of the housing stock in those countries to meet their specific demographic circumstances. However, the failure to prevent these booms turning into bubbles did lasting damage to the two economies, damage that could have been avoided by more appropriate fiscal policy action.

The failure to tighten fiscal policy in Spain and Ireland in the early years of this decade laid the ground for the housing market bubbles in the two economies. The Stability and Growth Pact proved a distraction: government budgetary balance was not an appropriate fiscal target for those two economies. By contrast, Finland, having learned from its mistakes twenty years ago, ran substantial government surpluses to prevent domestic overheating. Specifically in relation to overheating in the housing market, we consider that a temporary tax on mortgage interest payments (first suggested in 2001) should have been used to target overinvestment in housing, investment which seriously crowded out the traded sector of both economies. This tax would have mimicked an increase in interest rates. Obviously it will be a very long time before such a tax might be needed in either Spain or Ireland to limit overinvestment in housing.

The paper shows that demographic circumstances in both Spain and Ireland meant that it was appropriate that investment in housing in those two economies should have been somewhat higher than in their neighbours. Even after the housing bubbles have burst, the relatively low endowment of housing infrastructure in the two economies (relative to adult population) means that there will be a need for additional investment in the next decade, when the current excess supply has been worked off.

In the paper we also include a graph taken from our paper “Recovery Scenarios for Ireland” published in May  which, inter alia, considered likely housing demand over the coming decade. Our model included estimated 2009 population numbers which were quite close to the latest estimates published by the CSO. We assume that between 2009 and 2015 there will be cumulative net emigration of up to 120,000. Our analysis would suggest that the underlying population increase would lead to somewhat higher demand for housing than Brendan Walsh has estimated in a recent post for the period to 2015. In addition to the pure “demographic” effect we also factor in some increase in headship on the basis of the recent rise in the number of households, which possibly reflects falling rents.


30 thoughts on “Managing Housing Bubbles in Regional Economies under EMU: Ireland and Spain”

  1. This is the definitive paper on future demand for new housing in Ireland that we’ve all been waiting for. Congratulations to the authors on a great job. I hope that copies are sent to NAMA as soon as possible. And, I hope that it gets proper coverage in the mainstream media, to balance the nonsense we’ve had in recent months from David McWilliams and Morgan Kelly. I doubt if the paper will get much coverage on the Property Pin website though. I also anticipate that it will get an undeserved hostile reaction from some posters (but certainly not me) on this site.

    The forecasts contained in the paper blow apart recent claims by Morgan Kelly. He wrote in the Irish Times several months ago that Ireland would not need to build any new houses for a decade. In fact, he claimed that we’d knock down more houses than we build in that time. I think the phrase Morgan used was ‘more destruction than construction’. Very clever phrase, hahaha, but rubbish!

    The forecasts contained in the paper for future annual housing demand in Ireland are as follows (figures are approximate as I’m reading them from a chart rather than a table):

    2007-2011: 48,000
    2012-2016: 42,000
    2017 2021: 57,000

    The lower figure for 2012-2016 is because of an assumption that there will be a moderate level of net emigration in that period. That, of course, remains to be seen. There might be, or there might not be. The figures are much higher than the likely number of houses built in 2009 and 2010 (probably about 20,000 in both years). Therefore, if the forecasts prove accurate, we will see a major resurgence in the construction industry from 2011 on, and maybe even before.

    The forecasts for future annual housing demand are broadly similar to those I’ve made on this site, but much higher than those of some other posters, or those made by certain media economists. This is because they take account of two important factors, both of which I’ve highlighted in my posts in recent weeks. These are:

    (1) The number of households in Ireland is increasing much faster than the population, because average household size is falling. This, in turn, is because:

    (a) separation and divorce rates are increasing, although still low in comparison with most EU and English-speaking countries,

    (b) falling prices are now making it more affordable for people to live separately from other family members or friends – for example: a young married man might be content to live under the same roof as his mother-in-law if the new house he seeks costs 350k – but, he might find her charms more resistible if that house costs 200k.

    (2) Ireland has an exceptionally low and falling death rate, resulting in the number of habitable houses vacated each as a result of death being also exceptionally low and falling.

    To repeat, these aren’t just my points, although I have indeed made them in my posts on this site in recent weeks, they are points forecfully made in this paper itself. I have only one quibble with this excellent paper. Could ESRI just occasionally produce a paper that doesn’t make unfavourable comparisons between Ireland and Finland (like this one does)? For the record, GDP in Finland was down 9.4% y-o-y in Q2, manufacturing output in Finland was down 25% y-o-y in Q2, exports from Finland were down 35% y-o-y in Q2. All these are much worse than Ireland, particularily the last two.

    I’m off now to buy shares in construction companies.

  2. It’s been mentioned John alright but we’ve filed it under ESRI.

    Good luck with those construction shares and the ESRI forecast for housing completions, I mean, when has an ESRI forecast ever been wrong…


  3. @John (not Fitz),
    I’d suggest a little care in interpreting Prof. Fitzgerald et als’ numbers. When I try to break them out by year, it seems to me that a disproportionately large part of the net demand they depict for the period 2007 to 2011 is already in the past, and that the front end of the period 2012 to 2016 may not look altogether healthy either.

    Good luck with the construction company shares.

  4. @John
    “I’m off now to buy shares in construction companies.”

    Just 3 Irish quoted shares strongly affected by Irish house building – Abbey, McInerney and Grafton. All well run companies in my opinion and both have lost a serious amount of value over the past year or so. McInerney had dropped to 7c and are now back at 20c

    Grafton I know very well (used to work for them) and new house builds are a major factor in their performance. They’ve lost about 70% of their value in 18 months (I own a few!). A resurgence in 2011 may be a bit optimistic but they will benefit when the bounce comes and should offer a good return. I will buy more but am in no rush as yet.

    I think there are a few more twists and turns to the Irish construction story yet (particularly as Nama gets into gear) which will have a bearing on share price.

    But they are an opportunity to put your money where your mouth is.
    By the way US house builder shares have soared in recent months (sadly don’t own any).

  5. This is a very interesting analysis by the ESRI.

    I think however the policy suggestion of temporary tax on interest payments gets to the heart of the difficulty in leaving the management of a housing bubble to the political system, which is under immense pressure to ‘help make housing affordable’ at such times. Put another way, what chances realistically would there have been of introducing such a measure 5 years ago, regardless of the economic merit?

    Should we be looking at more technocratic rules here which don’t depend on elected politicians putting taxes on struggling homebuyers, and the same polticians getting destroyed by the media for so doing?

    The one area that got very little profile during the boom was the scale of planning permissions (though their relatively rural location did cause comment). Would something like a ‘national envelope’ of planning permissions be more appropriate? Or a flat tax on house commencement notifications? Something that hits quantitatively at the housing supply, rather than on demand which is politically unrealistic.

  6. Once land is rezoned from agricultural use, levy a flat-rate tax on that portion of the site that dwellings will be built on. The amount of tax payable is based on the quotient of total site area/total area of dwelling. The tax is payable from date re-zoning is granted. The tax payable cannot in any circumstances be used as an offset against any type of income. In the circumstances where a dwelling is demolished, the tax is still levied until the land is re-zoned back to agricultural use. Multi-dwelling developments would have to have some sort of alternative system.

    Brian P

  7. This debate will be useful in 2 two decades or so. I hope someone gets an academic career out of it, but reform is now too late if Nama passes.



  8. John,

    Good analysis.

    But I profoundly disagree with your premise “With the advent of EMU, monetary policy can no longer be used to prevent housing market bubbles in regional economies such as Ireland or Spain.” EMU was the key factor behind the housing market bubbles here and in Spain.

    See the graph on page 6 of John B Taylor’s “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong” for the crystal-clear connection between interest rate stimulus and construction market respose within EMU. You can find the article here:

    Irish academic economics (and dare I say it, the ESRI) suffers from a fiscal / demographic fixation. But fiscal and demographic realities are more likely to be responses to monetary conditions than independent variables in their own right.

    Applying the Taylor Rule to Irish economic conditions now would imply that an appropriate policy interest rate for Ireland would be minus 5%. The actual ECB policy rate is +1%. Implication: the collapse of the Irish propoerty/construction sector has transformed a situation where EMU gave us interest rates that were inappropriately low to one where we will get rates that are inappropriately high. That may prove a major headwind for the Irish economy over the next decade. We should consider that in our forecasts for the future.

  9. @Cormac

    The zero bound on interest rates means that no regime can deliver the Taylor-indicated minus 5%: it is not specifically a critique of EMU. Moreover, if we were outside EMU, it is likely that interest rates would be very much higher, since capital flight and currency risk premia would drive up the interest rate of a small open economy experiencing a huge recession and severe fiscal problems.

  10. @ Futuretaxpayer

    The fact that interest rates are zero-bound is valid but doesn’t alter my central point: EMU gave us interest rates that were inappropriately low for a decade (’97-’07) and may give us interest rates inappropriately high for some time (’07-’17???). Given that cheap interest rates had such an effect on our economy in the past, we need to factor expensive interest rates into our forecasts for the future.

    Please look at the graph in the Taylor article referred to above – it makes clear that EMU interest rates were probably the major cause of the property bubble here (and in Spain and Greece …)

    In my opinion, monetary factors have a much, much greater inpact on economic affairs than fiscal factors. But, with some few exceptions, Irish economics seems bereft of monetary analysis. Why? Is the memory of Margaret Thatcher and Milton Friedman really so upsetting that a compelling field of analysis is to be pretty much wholly ignored?

  11. “…Irish economics seems bereft of monetary analysis. Why?”

    Maybe because Ireland has never really had an independent monetary policy (as distinct from a currency board-type central bank).

  12. Two points on the idea of using fiscal policy to counter-act property bubbles:

    1) quite aside from Ronnie O’Toole’s point (politicians’ incentives may make such policy unlikely to emerge from the political system), it seems to me that there was never much of a consensus that Ireland was experiencing a property bubble in the first place, certainly until it was too late for policy to do much about it. Whether this was due to the scarcity of good and up-to-date data on the property market or a failure of analysis by economists I don’t know.

    2) if the source of the problem is ECB monetary policy unsuitable to the Irish economic cycle, what’s to stop fiscal policy targeted directly at restraining property (over)investment from merely shifting the bubble to some other class of asset?

  13. The OECD said last year that Ireland was the only member country that allowed households tax deductions for mortgage interest payments while not taxing property values or capital gains.

    There was VAT on new house purchases and also stamp on purchases with exemptions.

    As we know, the capital gains tax rate was halved on investment property, at a time when property tax incentives were also boosted for higher income tax earners and 5-year interest only loans were widely made available to property speculators.

    @ Cormac Lucey

    “Irish academic economics (and dare I say it, the ESRI) suffers from a fiscal / demographic fixation.”

    I get the impression that you are in search of a post hoc rationalisation, which would absolve political leaders from responsibility for reckless mismanagement.

    The insiders were on a roll and none of them had the courage to shout stop.

    I argued recently that the Central Bank had declared its impotence even before the launch of the euro.

    In 2006, the peak year of the boom, symbolised by the biggest bank selling part of its headquarters to an overstretched developer, you were a special adviser to PD leader Michael McDowell, when he said the Exchequer was collecting too much money.

    I wrote at that time: “McDowell doesn’t know what the position of the Exchequer finances will be after a slowdown or slump in the property market and increase in unemployment…There is no plan for what will happen when 100,000 currently in a construction sector of 262,000 – 17% of the private sector workforce – will need work elsewhere in the next 10 years and so much more.”

    Brian Cowen was prudent by comparison:

    “As Minister for Finance, I am very conscious of the need to ensure that any proposals that would reduce revenue raising from one area would be compensated in some area,” he was quoted as saying in the Irish Times.

    “We have seen an increased contribution from capital taxes so we have reduced the burden, if you like, on personal taxes and shifted that burden to a contribution from capital taxes,” he added.

    Of course, membership of a common currency had some negatives but the crutch of the Taylor rule does not negate the irresponsibility of the political class.

  14. @ James Conran

    The fact that we have limited influence over monetary policy may be used to rationalise a lack of interest in monetary matters. But it’s only a rationalisation. We don’t apply that logic to the weather which we analyse in detail even though we have no influence over it. We analyse it becuase it is important to us. I fear that we don’t analyse monetary economics becuase we fail to comprehend how important it is to us.

    The fact that neither of our two main organs of opinion formation – RTE and the Irish Times – has an economics editor at present shows that, as a society, we lack even a proper interest in understanding economics. The Kildare Street Punch & Judy Show is so much more fun.

    @ Michael Hennigan

    You have many valid arguments. But let me offer three observations:

    1. You do not gainsay the fact that the EMU economies in most trouble today (Ireland, Spain, Greece) are those which got the greatest interest rate stimulus from EMU membership. See graph on page 6 here:

    This shows that we are outliers in what is a broader phenomenon. If we carry the analysis to the present day (i.e. estimate what Taylor Rule interest rates for Ireland today should be) we will be better equipped to understand what’s actually going on i.e. overly high interest rates, delveraging, a collapse in the demand for credit (as well as its supply) and deflation.

    2. I am not Michael McDowell. I was his advisor. My private advice matched what I wrote publicly in Magill magazine in their April/May 2005 edition:

    “We risk maxing out on debt and thereby making ourselves vulnerable to any short-term economic set-back. The closest parallel may prove to be the Japanese economy. They too experienced a growth miracle built on a credit bubble induced by politically-determined interest rates. Their bubble was pricked in 1991. If their experience is anything to go by, the bursting of the Irish bubble would be a nightmare. The economy would prove impervious to monetary and fiscal stimulus, as individuals and corporations sought to curtail spending in order to reduce their bank borrowings. A downward spiral of asset prices, forced liquidations and further falls in asset prices could result. Growth would prove elusive and the financial sector would be in permanent crisis.”

    Sadly, it looks like I was right. But where was the Irish economic establishment all that time? I am a chartered accountant – I am not an economist. Why would a minister take my advice when (a) it was against his short-term interests and (b) it flew in the face of the official (Central Bank, ESRI) view?

    3. (This point isn’t aimed at you Michael, it’s aimed at some others who post on this site …) Efforts to shoehorn responsibility for Ireland’s crisis onto dodgy FF politicians / dodgy developers and dodgy bankers may make political sense and may provide emotional gratification. But it is not economic analysis. Not every post that is suitable for may be relevant to

  15. The comparisons with Spain are very useful but there is one graph which shows that Ireland was a unique case.

    Figure 3 on p. 17 shows the trend in net foreign indebtedness of our banks. Something remarkable happened in mid-2003, a clear break with previous trends, which did not happen in Spain or Portugal. This is well after the introduction of the Euro. It is the undue dependence of our banks on foreign borrowings which has led to our current debacle.

    If someone can explain what happened in 2003, they will have explain a lot about our current predicament.

  16. Thanks for the useful comments.
    Yes the stable door has closed and the horse has bolted in Ireland and Spain – this time. While there is most unlikely to be another property bubble in Ireland or Spain in the coming decade, one cannot rule out a return of hubris at some distant date in the future.
    One of the conclusions of the paper is that Poland and some other potential EMU entrants are in a similar position to Ireland and Spain in 2000 – they could suffer a housing bubble in the next decade. With this in mind, an earlier version of this paper was published in Spring 2006 as part of the EUROFRAME group of institutes’ ( forecast prepared for DG Ecofin.
    Ronnie O’Toole raises important issues as to what would be the best instrument to prevent a housing bubble developing in a regional economy within EMU. As discussed in our paper, while ECB monetary policy would be the best instrument to prevent a Euro wide housing bubble developing, such a conjunction of bubbles has never happened before and is not that likely in the next decade. For this reason monetary policy cannot be relied upon to prevent regional economies in EMU suffering from bubbles. The proposal in this paper is to use fiscal policy to mimic monetary policy at a regional level: specifically to raise the cost of borrowing for households, using taxation rather central bank action on interest rates (e.g. cutting mortgage relief and, if necessary, taxing mortgage interest payments) .
    However, as Ronnie points out, there are other possible fiscal instruments that might be used. The UK Treasury suggested stamp duties. The problem with all such instruments is that they would be unpopular and, without wide-scale debate before hand, difficult for government’s to impose. Since I first proposed such a tax in 2001 the repeated objection has been that it is not acceptable. While medicine is not always pleasant it is generally worthwhile to prevent or to cure a disease. Any other similar measures, which would have prevented the bubble, would have been unpopular. We now see the consequences of not taking some appropriate medicine.
    Immediately after we published our Medium-Term Review in December 2005 the editorial in the Irish Independent said:
    “No one will be accusing the ESRI of a surfeit of seasonal spirit this Christmas, thanks to the gloomy report on the economy it issued yesterday. So is it a case of Bah Humbug? Has Ebeneezer Scrooge taken up residence in the ESRI offices? Time will tell, but there is a great deal in this report that we should be chewing on with the turkey. An obvious point is that a boom which is increasingly reliant on a high level of activity in the construction sector, cannot go on forever.”
    The following day Brendan Keenan in the same paper reported:
    “Builders and estate agents yesterday took issue with the claims by the Economic and Social Research Institute (ESRI) that the property market poses a threat to the economy and should be cooled down. …. The ESRI recommended an immediate end to tax reliefs for property and possible introduction of a property tax and abolition of mortgage interest relief. … But it (ESRI) says another five years’ property boom will damage the economy’s competitiveness, even if there is no recession. ”
    The writing was on the wall in late 2005. The research warning of the dangers the economy faced was widely reported in the media – don’t blame the media. The problem was that the solution was considered too unpalatable. While the economy is recovering it will be important to discuss how such a disaster can be avoided again in the dim and distant future – through an appropriate use of fiscal policy. It is only through such a discussion that a proper understanding of the need to occasionally take unpleasant medicine to prevent bubbles will be understood, if not welcomed.
    A number of comments have focused on the demographic drivers of housing demand in Ireland following on the significant points made by Brendan Walsh in an earlier post. Our work on this topic was published in the report in May, referenced above. In that paper we suggested that after the world economy recovers next year house building could average around 30,000 a year over the next decade. However, the recovery in house building in Ireland will lag well behind the world recovery – don’t hold your breath! As Brendan Walsh points out, there are a lot of empty houses out there, many of them in low demand locations. Nonetheless, the detailed analysis of the demographic drivers suggests that the demand could possibly be closer to 40,000 a year over the next decade once the recovery gets under way. Here too Brendan’s point about the effect of changing age structure on the types of accommodation needed should be taken into account.
    Finally an important point is raised about why it was in 2003 that the net foreign liabilities of the Irish banking system began to climb (whereas they had started climbing earlier in Spain). We discuss some of the factors which gave rise to this change in behaviour in our paper published last May. However, this is an important issue for further research?

  17. Two other changes which could have a stabilisation effect (maybe research already exists to suggest whether these were major factors in helping this time round):

    1. Switch to mortgages with long term interest rates, so avoiding the boom and bust fluctuations of being linked to the policy rate. This does not require a ‘decision’ at some point in the future to cool a property boom;
    2. Property taxation – does high levels of ‘hausgeld’ in Germany act as a dampener on property prices? In Ireland you pay for public services to your property via your decision to provide labour, not your decision as whether or not to buy a fourth investment property.

  18. If I’m reading the very colourful charts in the excellent ESRI report correctly, ESRI are actually forecasting that annual demand for new houses in Ireland will be a lot more than 40,000 when averaged ‘over the next decade once the recovery gets under way’ (I assume by this is meant the decade from 2011 to 2021). The ESRI forecast seems to be: (a) average annual demand of 40,000 between 2011 and 2016 (b) average annual demand of 57,000 between 2016 and 2021. This is clear from Figure 2 on page 7 in the report. So, the 40,000 figure is only for the first half of that decade. As I say, that is not my forecast, but ESRI’s.

    So, lets see how this compares with current new house building rates.

    In their Quarterly Economic Bulletin published in July, ESRI estimated that the number of new house completions in Ireland would be 20,000 in 2009 and 12,500 in 2010. But, if average annual demand is going to be 57,000 between 2016 and 2021, implying a bit lower than 57,000 between 2016 and 2018 and a bit higher than 57,000 between 2019 and 2021, that means that the number of new house completions in Ireland will more or less quintuple between 2010 and 2020/21. WOW! To repeat, not my forecast, but ESRI’s. I don’t quite see how this fits in with the statement: “the recovery in house building in Ireland will lag well behind the world recovery”. Call me a pessimist perhaps, but I don’t see the global economy quintupling in size between 2010 and 202/21.

    So, to summarise the ESRI forecasts:

    The annual number of new house completions in Ireland will fall to 12,500 by 2010, a fact which has been well documented in the media and which forms the basis for the extremely gloomy forecasts of economists like Morgan Kelly.

    BUT, much less well documented in the media, and totally ignored by economists like Morgan Kelly, from that 2010 low-point, ESRI are forecasting that there will then be a steady rise throughout the subsequent decade in the annual number of new house completions to close to 60,000 by the end of that decade.

    I wonder if ESRI have any plans to quantify what this means in terms of GDP, employment and migration. I don’t see how the annual number of new house completions can quintuple in a decade without it having a major effect.

    As I say, these aren’t my forecasts, but my interpretation of the ESRI forecasts given in chart form in Figure 2 on page 7 of the ESRI report. If the authors of the report think that my interpretaion of their forecasts is wrong, and are specific about exactly where it is wrong, then naturally I will amend what I wrote above.

  19. @John
    The numbers underlying the graph are given in Table 1 on p.36 of the Paths to Recovery paper published in May. That paper represents our latest thinking on the medium term prospects for the economy. As I indicated in an earlier comment above, in that paper in the “World Recovery” scenario we suggested housing completions would average something over 30,000 a year over the next decade.
    However, The demographic pressures represented in the table would suggest that this could be an underestimate of possible demand. Much will depend on the stock of vacant dwellings and the extent to which they are eventually utilised. Much will also depend on how headship changes – a function of price – lower prices increase demand. Finally, the supply of dwellings is also a function of price, lower prices reduce supply.
    The purpose of this piece of analysis was to indicate that when it comes to forecasting future investment in housing there is a possibility of significant errors on the upside as well as the downside.

  20. @John
    Back in the days when things hadn’t gone so nuts 40,000-50,000 was considered to be the annual housing demand for Ireland. A big proportion of these, over a third, was one off house builds (i.e not apartment blocks or housing estates). These tend not to appear in the stats for home bond registrations but do appear in the planning permissions.

    60,000 looks too optimistic but I agree with you we will see pick up from the current low. One off house builds don’t need to see the overhang clear out. This though will bring us back to where we were before the madness began. Better than now but not “wow”. Maybe then we can concentrate building an economy that is not based on construction.

    By the way I found this comment from Noel Ahern:-
    “Noel Ahern, T.D., Minister for Housing and Urban Renewal, announced today that the total number of house completions for 2005 at 80,957 units, up 5.2% on 2004. The Minister is pleased to confirm there has been yet another year of record house building. “We are building more than double the amount of houses in 2005 than in 1997” the Minister announced. “In fact Ireland is now producing houses at a rate of 20 per 1,000 residents. That is a phenomenal level. It also indicates that the strong demand for housing is being met by a strong supply.”

    I hope he’s learnt!

  21. Guys . There are at likely 350,000 EMPTY homes in Ireland today , including Holiday homes . Estimates of the latter range from 50,000 to 90,000 .

    Nor do we count near completes or shell and core premises or “builders finishes” in that overall empty figure as they have no ESB connection at present and are uncounted in official stats .

    1.95m+ homes have an ESB connection, lets round down to 1.95m

    The population is 4.46m see

    The average household size in 2006 was 2.8 , on trend it should be 2.7 but maybe families are bigger and we are holding at 2.8 .

    ONLY if we can prove that households have NOT continued their long term shrinkage trend to a current 2009 average size of 2.7 can we reduce the estimate of empties to nearer 300,000 than 350,000 .

    4.46m / 2.8 = 1.6m Households spread across 1.95m HOMES = 350,000 empties
    4.46m / 2.7 = 1.65m Household spread across 1.95m HOMES = 300,000 empties

    Key Source number 1 is John F himself .

    Key Source Number 2 is

    The 2006 census enumerators officially encountered 300,000 empty homes across the country [1] .Of these, 275,000 were vacant year-round, save for some holiday homes. Irish Holiday homes do tend to be rather empty in April.

    Based on the extraordinarily high level of building completions since that census, it is now estimated that up to 350,000 homes remain vacant or largely empty in Ireland today.[1][2][3][4]

    Industry mouthpieces assert this is a misrepresentation of the reality on the ground, claiming that only 35,000 new homes are for sale which would leave the average person to conclude that Ireland either has 315,000 holiday homes or 315,000 extra empty units in a market ready state. Or in “turn-key” condition to use the industry parlance…

    Were the former true it would mean that 15.8% of all homes in Ireland are holiday homes or that almost 1 in 5 households owns an Irish holiday home on average.

    If, however, the latter is the case, then buyer perception that more value is on the way because of a massive housing oversupply would surely not be misplaced.

    It also has been estimated (largely in the 2006 census )[1] that only 50,000-60,000 of the total figure of 350,000 empty houses can possibly be accounted for as holiday homes.

    That means, that of the 350,000 empty homes today:

    1. 35,000 belong to Tom Parlon’s Members
    2. 60,000 are ‘Real’ holiday homes.
    3. 255,000 are ‘Pure’ empty.

    Furthermore the ENTIRE rented sector in April 2006, at the time of the census, was:

    Private, Rented, Furnished and Unfurnished = 145,000 Homes
    Local Authority Rented = 105,000 Homes
    Voluntary Body Rented = 50,000 Homes

    TOTAL RENTAL SECTOR 300,000 Homes [1]

    Making Ireland the ONLY country in Europe with more empty homes than rented homes of all kinds.

    (Census 2006 Data All of the tables in sections 21.3 onwards )
    (For updates to Population Information from Census )
    (House Completions)
    (Houses with ESB Connections to end 2006 )

  22. I may not have been reading these contributions with sufficient care, but I am still missing an explanation of the relationship between the housing ‘boom’ and immigration in recent years.

    Obviously we are all now working with the benefit of hindsight, but there may be a need to begin to discover some of the major errors that were made in relation to economic policy, and to begin acknowledging those mistakes. If nothing else, a crisis like this could present opportunities for growth in humility!

    If my memory is not playing tricks on me, most experts argued in the recent period that the inflow of a few hundred thousand Eastern Europeans to Ireland was, on the whole, a very positive development for the economy.

    Obviously, since these people were EU members (if not citizens), they were free to come here and live.

    But was this significant in-flow necessarily a good development, and even a necessary one for economic development? What was driving economic growth which made it necessary to encourage a large number of immigrants to come to Ireland?

    At the time of enlargement of the European Union, the Irish government was seen as adopting a more enlightened view than other member states, by facilitating immigrants from Eastern Europe to come to Ireland.

    It is likely that many immigrants were working at or in some cases below the minimum wage. In some cases they were taking up employment (meat processing), which others were not willing to take. At a time when Irish incomes were creating major issues of competitiveness for business, employers were probably happy to have some competition coming into the labour market from immigrants who would be prepared to work for less money.

    Remarkably, immigrants were widely distributed throughout the country, in most towns and villages as well as in the main cities.

    It was pointed out at different stages during this period, that immigrants were creating a significant demand for housing and to some extent were involved in their construction. At the time this may have been seen as a ‘virtuous circle’, but few people might see it as such at this juncture.

    John FitzGerald notes that at the peak of this constriction boom, only 20% of the workforce in construction was immigrant.

    The issue I would like to see better clarified is the extent to which the housing boom was the result of a significant demand from immigration, and why this development was not seen as not having long-term sustainability.

    The argument is being made that other policy instruments should have been used to dampen the speculation in property and the overheating of the market.

    The unfortunate culture of property speculation, which was encouraged by a ‘policy environment, greatly influenced by political parties, property developers and bankers, obviously thrived on the significant demand for housing during this period. While many people were aware of the many negative aspects of this culture, the reality is that many people with fairly modest incomes were able to get involved in buying a number of houses for investment, which all contributed to the mess we are now in.

    While most ‘experts’ did see the negative dimension of our property speculation culture, they apparently failed to see that the demand in housing, which was created by the significant inflow of immigrants, was not sustainable in the long-term.

    Rather than interpreting these remarks as some form of opposition to immigration, they merely seek to ask for a re-examination of some of the policy thinking in recent years.

  23. @ John Fitz Gerald,

    Sorry, I know this is off topic, but your paper references “a sharp decline in market share for their (Ireland and Spain) exports”, which I think is untrue.

    The expansion of China from 3% to 8% of world trade over the last decade has resulted in the reported trade share of most western countries in terms of global trade declining correspondingly.

    Looking at total Irish exports as a share of EU15 exports (which therefore excludes the China effect), shows that ireland’s trade share has been largely flat. The 2009 figures will likely have Ireland at a new record in terms of its share of EU15 exports (2002 is the current record at 3.7%).

    The explanation for the CA deficit is much easier to see in imports than in exports, which I have argued in a previous post.

  24. Hopefully the findings are correct and that the madness over the past 10 years will have meant something, though I doubt that we’ll ever see the kind of increases in house prices again. On a personal level it is terrible on young people who started families and now have 40 years of debt hanging around their necks because the industry was allowed to go out of control.

  25. It’s wonderful to read serious analysis of the housing sector. While some posts make my eyes water trying to get to grips with figures, overall the quality of the debate makes the mainstream media outlets little more than puppet shows for the masses. Well done to you all, I’ll be following future debates.

  26. These are my best estimates of the housing stock, the number of vacant houses (excluding holiday houses) and the vacancy rate, i.e. the number of vacant houses (excluding holiday houses) as a percentage of the housing stock, in April 06, April 07, April 08, April 09, October 09. My puny effort is, of course, very amateurish. I would like to see a proper professional job done by, say, ESRI. They did a great job in the report with which John Fitzgerald opened the thread. But, that only included projections for annual housing demand. It would be good to see it extended to include projections for the vacancy rate. If my estimates are accurate, then this is going to plummet over the next few years. Unless there is a massive increase in the number of new houses built from the excessively low number of 12,500 that ESRI forecast for 2010, then there is going to be a housing shortage a few years into the next decade.

    For these estimates, I have assumed:

    (a) A housing obsolescence rate of 7.3 per 1,000. That is, of every 1,000 houses, 7.3 become obsolescent each year. These are, of course, mainly very old houses dating from pre-1919. The figure of 7.3 per 1,000 comes from the Dept of the Environment website and roughly corresponds to that shown in Figure 2 in the ESRI report.

    (b) That 5% of houses bulit since April 2006 are holiday houses. This is a guess. Looking at the distribution of new houses built since April 2006, with a disproportionate number being in coastal and ‘tourist’ counties, like Kerry, Mayo and Donegal, this seems a conservative estimate.

    (c) That the number of households has increased by 40,000 annually since April 2006. Again, this roughly corresponds to that shown in Figure 2 in the ESRI report, and matches provisional and tentative figures given by the CSO. Its less than the 46,000 annual increase in the number of households that we know occurred between April 2002 and 2006.

    April 2006 (actual figures from census):

    housing stock: 1,769,613
    of which holiday houses: 49,789
    housing stock excluding holiday houses: 1,719,824
    number of houses occupied or residents temporarily absent: 1,503,291
    number vacant: 216,533
    vacancy rate: 12.6%

    April 2007 (estimates based on above assumptions):

    housing stock: 1,848,238
    of which holiday houses: 54,366
    housing stock excluding holiday houses: 1,793,872
    number of houses occupied or residents temporarily absent: 1,543,291
    number vacant: 250,581
    vacancy rate: 14.0%

    April 2008 (estimates based on above assumptions):

    housing stock: 1,906,765
    of which holiday houses: 57,967
    housing stock excluding holiday houses: 1,848,798
    number of houses occupied or residents temporarily absent: 1,583,291
    number vacant: 265,507
    vacancy rate: 14.4%

    April 2009 (estimates based on above assumptions):

    housing stock: 1,938,271
    of which holiday houses: 60,238
    housing stock excluding holiday houses: 1,878,033
    number of houses occupied or residents temporarily absent: 1,623,291
    number vacant: 254,742
    vacancy rate: 13.6%

    October 2009 (estimates based on above assumptions):

    housing stock: 1,946,091
    of which holiday houses: 60,982
    housing stock excluding holiday houses: 1,885,109
    number of houses occupied or residents temporarily absent: 1,643,291
    number vacant: 241,818
    vacancy rate: 12.8%

    The trend is clear. What matters is the vacancy rate as a percentage. This peaked in April 2008 at 14.4%, but by October 2009 was down to 12.8%. Just as with unemployment, where the full employment rate is 5% or 6%, at which rates employers find it very difficult to recruit staff, so a housing shortage will emerge when the vacancy rate is down to 5% or 6%. It doesn’t have to be 0%, any more than the unemployment rate has to be 0% for labour shortages to emerge. In the U. Kingdom, the vacancy rate is about those levels, and there is a massive housing shortage, with quite astronomical numbers homeless, or on council housing lists, or living in substandard accomoodation. Nearly every EU country has a vacancy rate well above this 5% or 6% theshold. Ireland is in no way unique.

    As shown, the vacancy rate in Ireland peaked at 14.4% in April 2008, but has since fallen to 12.8% in October 2009. Based on the ESRI forecasts for new house completions and growth in number of households, it is going to plummet over the next few years. ESRI forecast that the number of new house completions in 2010 will be 12,500 and (I think) they forecast something similar in 2011. This is actually less than the number of existing houses that will become obsolescent in 2010 and 2011 (based on the Dept of the Environment’s 7.3 per 1,000 obsolescence rate). In other words, if ESRI’s forecasts for the number of new house completions in 2010 and 2011 prove accurate, the housing stock will actually fall in size over the next few years. But, ESRI are also forecasting that the number of households will increase by about 40,000 annually. So, the maths is quite straightforward. The vacancy rate will be down to about 6% by the end of 2012, at which point a housing shortage will emerge. That doesn’t even take into account the fact that the vacancy rate is much higher in coastal and ‘tourist’ counties than in the big conurbations where people actually live and whose populations are growing much faster.

    It could be argued that we should allow this to happen, then, when the housing shoratge does emerge around end-2012, increase the number of new houses being built. The problem is, it takes 18 months between a decision to increase the number of new houses being built, and those houses actually being completed. In the mid and late 90s there was a housing shortage in Ireland because the number of new houses built in the late 80s and early 90s fell far below population growth. Is history about to be repeated?

    I composed all the above last night. Since then, DAVY have dramatically revised UP their forecasts for economic growth in 2010 and 2011 (and presumably beyond). This has implications as well. If the growth occurs, the predicted annual net emigation of close to 20,000 which ESRI forecast for the period 2009 to 2016, and on which the above estimates are based, may well not occur.

    As I say, I don’t claim to be Einstein. If a reputable organisation like ESRI does a similar analysis, I’ll replace the figures shown above by their figures. But, I doubt they’d be much different.

  27. @John

    Thank you for that John , good stuff.

    Any net increase in population is now occuring in the younger non household forming age groups rather than in the Over 19s which is a bit of a nuisance to model.

  28. Re- Seamus:
    In the early 1990s I had occassion to inspect the various county development plans for the greater Dublin area, and was amazed to see the extent of land that had been, or was soon to be, rezoned as residential. And an extraordinary amount of it was also marked on the maps as ‘high-density residential’; something that only existed in small pocket-estates in poorer areas at that time, as most of us can remember.
    The upshot was that the councils, as far back as at least 1991, were envisioning something extraordinary happening to the population of Dublin; many already large suburbs were to double and new towns were to grow in what were only townlands with populations measured in the low dozens.
    The timescale that this was to happen in was presumably over decades, though – I guessed; rather stupidly; for since when did the comprehension of an Irish council encompass such a far reaching concept of time.
    Soon afterwards we had the beginnings of immigration in Ireland – mainly from Africa ( – a statement of fact; not a criticism ). They began to be housed in some of the new estates of semi-detached estates that were then being built in what was one of the largest building sprees that had been seen in Dublin, up to that point. These estates were predominantly residential, but with the housing of the immigrants we witnessed the beginnings of the expansion in residential landlords (ie; from hitherto relatively small numbers, and extending beyond ‘traditional’ rental areas like the City Centre & environs). I’d put this at a beginning of arounf 1997, and not becomming a largely noticeable phenomeneon ’til the turn of the millennium. There followed a rumbling of concern from some quarters over the number of asylum-seekers (which virtually all of these new immigrants were), and the length of time it took to have their claims assessed, etc. There followed the citizenship referendum, etc.
    It is unclear if this first wave if immigration was ‘planned’ or the product of independent factors, but what is certain is that it hastened the rate of residential construction, including the advent of large-scale high-density projects which occurred up to 2008.
    In between we had the accession of the new eastern countries into the EU, and the arrival of large numbers to work in construction (30,000, I think, is one figure guessed at the time), but also of course hotel/catering and other industies. There has since been a widening out of the type of employment that immigrant groups enter, but in the early days there was certainly no planning or thoughts of sustainability given to the issue.
    In the background, and crucially, of course, was the tax concessions given to landlords and resultant buy-to-let boom. Having worked in social wefare-related areas during these years I can say without hesitation that it was an industry operating like a conveyor belt. Nor was it a phenomenon wholly associated with our new immigrants — Landlords were receiving 10,000 p/a from the Dept of social welfare to have their mortgages paid, or, if you prefer, Banks were now freely accessing a large portion of the country’s Welfare Budget to secure a return on mortgages issued.
    The freely available housing benefit enabled many of the immigrants outside the construction industry (although these too were often the victims of evasion of accepted wage rates) to survive on what were for the most part very low rates of pay (often sub-minimum) in what was then a very expensive country. Later this did have a knock-on effect on wages in other sectors and among Irish-born citizens.
    ‘Race-to-the-bottom’ with regard to earnings & employment standards is one of the bogeymen of anti-immigration groups, but it is also a certain fact that cannot be ignored. There are also a curiously large group of businesses, employers and lobbyists in existence here who are either ignorant of the fact or do not care that husbanding large, economically disadvantaged communities or sectors of society is one of the costliest things you can do to a country, for myriad reasons.

    Thus it transpired, and so we go on.
    When the fall came a very large number of constuction sites froze – the developers went bust, presumably, and workers walked or were told to wlak off site. New estates around parkwest, Citywest, Tallaght & Liffey valley I remember from my own particular observations; they were left unfinished for almost a year in some cases. Of what followed, the details are sketchy, and suspect, as with all matters pertaining to local authorities & govt. policy in relation to planning/housing, but in a very short period of time the Councils stepped in, the estates were finished and the transfer of tenants from privately-owned properties, who had been in receipt of hous. benefit, into these new properties (now Council-owned stock) began.
    I am not aware of how the current numbers of privately-leased properties tied to welfare is, as compared with about four years ago, before this change.
    There does remain a reluctance on the part of the govt. to intervene in the rates of housing benefit, which is propping up rents which have only moderately dropped as compared to property prices (10-15%, as compared to 50% + ). More than likely because it is ‘social welfare for the the banks’, and by extension their creditors; who remain entrenched against acknowledging the ineviatable and absolutely necessary devaluing of their mortgage loanbook.
    As regards the presumed or likely rate of vacant properties, as before, this will most likely be determined by migration policy rather than naturally realligning itself. While there are in existence policies designed to attract immigrants to specific and required skills areas, the system in practice grants welfare and residency to new arrivals unrelated to the economic environment, and these are, added to existing witing lists, guided along a smokey system that ends in local authority housing. I presume that this is only in part due to the lower cost as compared with private landlord-tied payments, due to the dessication in the market for new buy-to-let investors (the ending of the tax-breaks has been delayed…)
    With regard to projected population demographics, it remains a little hard to tell. Large numbers of our emigrants are on working visas and most will be forced to return. They may well add to housing demand if they do so.
    As most of our immigrant groups are between 20 & 40, they will most likely add to the baby boom created by the earleier arrivals.

    What is desperately needed, and of course remains lacking, is the removal of housing, particularly, from the unregulated, free-market environment.
    We also need to see the ending of the notion of economic growth tied to population growth, as either producers or more especially as consumers in an expanding spiral – with all of the potential there rises in tandem an exponential growth in liability.
    Growth should only be understood in terms of, and sought for, the progressive well being of a stable population. There needs to be the recognition that there is an optimim, just like a tree in its growth, that relates to acheiving balance and proportion within the twin complementaries of gravity and organic upward and outward-spreading growth. All needs to be harmoniously curtailed by need, just as much as it grows by need. And all within the framework of it’s ‘forest’ of neighbours and the resources which sustain it.

    More immediately, there needs to be a disengagement from the european project, which is tied to a socio-economic eugenical ideology and blinded by it. ‘Europe’ is not, nor does it need to be, the E.U.

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