Not certain about how many homes need to be constructed per annum in Ireland? You’re certainly not alone. Current predictions vary greatly – anywhere between 33,000 and over 80,000. How do we dissect such divergent figures and what implications do they have for policy-making in this crucial sector? There are distinct reasons why it is a challenge to determine the demand for housing and understanding the basis of varying projections is paramount.
Background
For some time now, it has been obvious that the Government’s Housing for All scheme targets – provisionally set at an additional 33,000 homes each year – have become obsolete. Since the scheme’s unveiling, population growth rate estimations have been revised upwards, thereby increasing the demand for housing. But the question remains: how much should we increase the previous figure by?
Various influencing parties, such as the Economic and Social Research Institute (ESRI), have been consulted by the government to provide insights into this area in line with revising the National Planning Framework for the country. A Housing Commission was also formed, tasked with assessing future construction needs. Additionally, financial analysts have added their predictions to the mix.
Estimations provided by both the ESRI and the Housing Commission are given in ranges as opposed to specific figures. ESRI estimates that, primarily considering varying assumptions of immigration into the country, the annual housing need could be anywhere from 35,000 to 53,000. Their research suggests that the mean figure would be approximately 44,000. The Housing Commission has an even broader prediction, ranging from 33,400 to 81,400 per annum. However, a slight difference in their calculation method exists, which will be explored further. Meanwhile, recent reports from Davy stockbrokers suggest annual housing demand could be as high as 85,000 new homes.
Let’s delve into the two main reasons for such variation in researchers’ estimates:
Ambiguity around immigration levels.
The demand for housing hinges greatly on the size of a population which is primarily contingent on patterns in births and deaths. These trendlines exhibit a slow pace of change and tend to be somewhat predictable, albeit with some room for error. However, net migration, the differential between the number of people exiting and entering a country, poses a far more unpredictable element. This component has dramatically impacted Ireland’s population over the years. For instance, the Irish population witnessed a considerable increase during the ‘Celtic Tiger’ era in the early 2000s, predominantly due to immigration from new Eastern European EU members like Poland and the Baltic States after 2004. As a result, by 2011, one in every eight individuals residing in Ireland were not born in the nation, representing more than double the number from 2002. However, the financial downturn led to a reversal of this trend, which has in recent times been revived, with an influx, particularly from Ukrainian refugees over the last two years.
Migration is exceptionally challenging to forecast, and the different estimates are primarily responsible for the wide-ranging predictions of new housing needs – a fact highlighted by ESRI researchers. By 2040, they anticipate a 400,000 difference in the Irish population under their highest and lowest inward migration scenarios. Conversely, Davy research anticipates a fast-paced economic expansion driving the population from roughly 5.3 million currently, to 5.9 million by the end of the decade due to high levels of inward migration supporting job opportunities. What remains to be seen is whether the housing deficit might limit such an influx.
Other dynamics also contribute to the varying projections in housing needs, including the average household size, expected to decrease from the current Irish average of 2.74, and the obsolescence rates. The rate at which housing stock deteoriates and needs replacement annually, and the pace at which vacant properties may be made available are other critical factors to consider. The backlog in housing remains an issue.
Another crucial consideration is the current insufficient housing supply due to decreased construction activity stemming from the financial crash. This issue has resulted in young people being forced to continue residing with their parents. The ESRI’s recent assessment does not include this shortfall in its calculations, as it lies beyond the scope of its recent study which primarily focuses on future population expansion and demand. The report does, however, acknowledge this shortfall in a limited sense when assuming that average household sizes will decrease.
The Housing Commission endeavoured to factor in this housing shortfall in its calculations, suggesting that it necessitates drastic steps to deliver a significant volume of housing as quickly as possible. The commission estimated a shortage of around 235,000 homes based on the assumption that, given adequate supply, average household size would drop to 2.4 to 2.45 and continue to decrease significantly in the upcoming years.
Determining the exact number of homes in deficit is tricky due to its intrinsic nature, although various estimates have been made. Often, researchers refer to global housing size trends and the deceleration of this number’s reduction since 2011, when house construction experienced a notable slowdown.
The ESRI’s predictions instigated a discussion, spotlighting the critical issues. Both Dermot O’Leary from Goodbody and Dr Ronan Lyons from TCD, former members of the Housing Commission, have suggested that ESRI’s estimations for annual housing needs (centred around 44,000) are on the low end. They argue that this is mainly because the ESRI’s analysis does not fully encompass the historical housing shortfalls and its related assumptions about household size.
Lyons suggested revising the commission’s research could result in an updated shortage figure of around 300,000 today, up from the reported 235,000. He critiqued ESRI for misunderstanding the significance of the housing deficit in their estimation of housing requirements till 2040. Similarly, O’Leary underscored this issue and alongside Lyons cited concerns with ESRI’s migration estimates, deeming them lower than recent trends.
Dr Adele Bergin, an ESRI researcher and co-author of the recent report, stated the objective of the study was to assess the so-called ‘structural demand’, comprising potential future requirements influenced by population growth and trend analysis, as explicitly detailed within the document. However, she acknowledged the deficit problems would need to be addressed when establishing national parameters. Dr Bergin highlighted that the examination of the contentious subject of household size within the report is rooted in past ESRI studies, which deduced that the current high count of Irish households and the relatively large household size were indicative of both Ireland’s comparative youthfulness by European standards and the high fertility rates present in the country. Dr Bergin noted predicting the inherent trend if a sizable supply existed is far from simple.
Ripple effects
The National Planning Framework is anticipating incorporating the ESRI findings to evaluate where appropriate housing and associated infrastructure development needs to take place. The Climate Advisory Council has emphasised the utmost importance of finalising this process and the need to hasten construction in areas with convenient public transportation, nearby shops, schools etc., with the aim of reducing car usage. The government will have to take these factors into account when setting new housing targets. Both the ESRI and the Commission reiterated that the chosen figure or range will necessitate continual amendments to match current trends.
However, the fundamental question is, where should the process begin? A peculiar feature of the Housing Commission’s report was the substantially broad range provided for the annual housing requisites – estimated to be anywhere from 33,400 to 81,400. It comes as surprising why a narrowed down figure wasn’t given to aid policymakers. A direct midpoint would be roughly 50,000, but the overall sentiment from the Commission’s report appeared to convey the higher end of the spectrum was more likelier. Notably, Housing Minister Darragh O’Brien previously suggested a similar figure of 50,000 per annum as a potential target following the ESRI report.
The choice made will have significant political repercussions and will heavily influence the upcoming general election cycle. Two aspects are particularly crucial. Firstly, attention must be given to not just setting a target, but ensuring the correct homes are constructed in the suitable locations – taking into account factors such as reducing emissions and catering for a growing number of smaller households. Secondly, the emphasis needs to be placed on execution. In the forthcoming campaign, voters should base their decisions more on the candidate with a well thought out plan and the capability to execute it, rather than one who merely pledges to achieve the largest figure. As a starting point in policy issues, the Commission on Housing provides reliable guidance.