Household formation among young adults

A guest post from Reamonn Lydon and Apostolos Fasianos of the Irish Economic Analysis division here at the Bank.

The overall population increased by 4% between 2008 and 2016. At the same time, the number of young adults aged between 20 and 34 fell by a quarter– from 1.15 million to 860 thousand (see Table 1. See also the excellent study by Glynn, Kelly and MacEinrí (2015) on migration patterns for this group).

Table 1 CSO population estimates (Table PEA01)
 (`000s) 2008 2016 % change
Age <20 1209 1327.4 9.8%
20-24 373.6 226.8 -39.3%
25-34 777.8 633.6 -18.5%
35-44 662.2 733.2 10.7%
45-64 978.9 1127.2 15.1%
65+ 483.7 625.5 29.3%
4485.2 4673.7 4.2%

The large decline in the 20-34 population means that housing demand will be lower than the past.  However, there have also been significant changes in the household formation patterns of this group which are relevant when it comes to thinking about housing demand in the future.  As the figure below shows, just before the property crash just over 30% of young adults lived with parents, but by 2016 this had risen 37%.  Taking into account the population drop, this is around an additional 25,000 young adults versus the situation in 2006, and just under 320,000 in total living with parents in 2016.

F1Census data for 2016 is not yet available to calculate the latest figures, so we have drawn on the QNHS and Household Finance and Consumption Survey (HFCS, 2013) to try and complete the picture to 2016.  The HFCS is particularly useful as it allows us compare Ireland with other countries (Figure 2).  Ireland looks similar to both the EU and US (although the US data is for 18-34 year olds living with relatives, not just parents), but is somewhat higher than the UK. We know, however, that UK third level students are more likely than their Irish counterparts to live away from home.  Southern European countries, with relatively high rates of youth unemployment – such as Spain, Portugal and Italy tend to have a higher proportion of young adults living with their parents.

rea2

What do these figures mean for housing demand?

The answer depends on the extent to which you believe the shift towards more young adults living at home is a cyclical or a structural change. Certainly, there is a slow-moving cyclical part to it – the proportion rose as the employment prospects for this group worsened and young people stayed on in education (Conefrey, 2011).  The CSO also reported a sharp drop in the proportion of 19-24 year-olds in shared accommodation (i.e. renting), from 22 to 18% between 2006 and 2011.  So there may be a jump in demand in the short term, because not only do the delayed entrants want to enter the market after a (cyclical) delay, but those who are younger will now start forming households at a younger age.  There is already some evidence of this in the 2016 QNHS, which shows the percentage of 20-24 year olds living at home falling for the first time in almost 10 years, from 70 to 68%.

However, there might also be structural changes to consider. For example, if the easy credit of the bubble years meant that buyers got on the housing ladder at a younger age than previously, and this has since been reversed, then the ‘pent-up’ demand might not be so large.  We know that the average age of FTBs has risen in recent years, having fallen during the boom.  In this case, young adults could continue to form households at a rate similar to what we are now seeing.

In all likelihood, the shifts we have witnessed are a mix of cyclical and structural changes. However, how much is cyclical does matter. As Table 1 showed, there were just over 860,000 20-34 year-olds in 2016. Ignoring immigration flows which could increase the size of this age cohort further, each 1% fall in the proportion living at home means an additional 8,600 individuals looking to rent or buy. This is a large figure in the context of current estimates for annual housing demand, which range from 20,000 and 40,000 units.

Funding social housing through bust, boom and bust

There is a lot of debate about the impact of the shortage of social housing at the moment, so I thought that this UCD Geary Institute for Public Policy working paper on the funding of this sector might be of interest:

https://ideas.repec.org/p/ucd/wpaper/201615.html

In it my colleague Mick Byrne and I argue that the causes of our current difficulties in funding and delivering social housing are older and more complex than is commonly understood.  Rather than policy decisions made during our most recent economic crisis, they are the result of reforms to social housing financing methods initiated during our last major economic crisis in the mid 1980s.

For most of the 20th Century social housing was funded by local government borrowing which were repaid using rents (which reflected the cost of providing housing), rates (local government property taxes) and central government subsidies.  This financing method made social housing delivery affordable for government by spreading out the cost over an extended period and drawing on several sources of funding.  This enabled government to build large numbers of social rented dwellings even during periods when the economy was weak such as the 1950s and to use social house building as a counter cyclical economic intervention.

The replacement of this funding method with central government capital grants as part of Ray MacSharry’s package of budgetary reforms in 1987 changed social housing into a pro cyclical intervention.  From then on central government has paid all the cost of building/buying social housing in an up-front lump sum and to paraphrase another finance minister this meant that ‘when we have it we spend it’ and vice versa.  In relative terms social housing output was well below historic norms in the 1990s; although it rose again during the property boom, the value for money achieved in return for housing investment at this time is open to question and of course output collapsed in tandem with the economic collapse from 2007.  Inadequate social housing output also necessitated increased reliance on rent supplements and other housing allowances for benefit dependent private renting tenants which help to inflate rents and enabled the radical expansion in buy-to-let lending which was a key driver of the house price boom.

Merry Christmas and happy new year everyone.  I hope 2017 will finally see homes provided for those who are without them this Christmas.

Preliminary Census Results

The CSO have published some preliminary findings from last April’s Census.

The population was measured to be 4.76 million up from 4.59 million in 2011 giving an increase of 170,000 (+3.7%).  The natural increase was just over 198,000 so the estimate of net migration over the five years since the last census is –28,500.  This is the second consecutive occasion where inter-censal population estimates were out by around 100,000.

The housing stock increased from 2,003,914 to 2,022,895, a rise of less than 20,000 over the five years.  On census night just over 1.7 million units were occupied with 45,000 units where the occupants were temporarily absent and there were 60,000 unoccupied holiday or second homes.  There were just under 200,000 “other vacant dwellings” a drop of 30,000 in this category since 2011.  There is a wide variation in vacancy rates by area.

There is plenty of interesting detail available by following the link.

Climate change in the 32nd Dáil

The 32nd Dáil has already thrown up some, eh, interesting views on climate change , which I previously responded to here. The new Dáil also sees the return of the Green Party, with two TDs elected.

With the formation of the new government on Friday we now have a Department for “Communications, Climate Change and Natural Resources“. Denis Naughten, independent TD for Roscommon-Galway, has been appointed as Minister.

On the one hand, having a government department with climate change in the title seems like progress. Continue reading “Climate change in the 32nd Dáil”