Irish Property Market chat II - *read mod note post #1 before posting*

Apartment completions were drastically on the rise up 28% from the previous year and making up just over 1/3 of all completions. I agree that as a % apartment completions need to continue to increase and preferably outstrip scheme dwelling and single dwellings combined.

We're in total agreement on this then. But I think in order for apartment building to increase and surpass house building, the developers will need incentives to prioritise apartments. I cannot see the government saying we want more apartments and less houses and this is how we're going to achieve it. Politically that is a difficult policy, no matter the need for it.

However it still doesn't mean that we aren't in a sever deficit of available stock, 200k for arguments sake (low end of the report) and therefore need to drastically increase the supply.

The data we know to be correct does not support the severe deficit thesis. The idea of a current severe deficit of over 200k+ is only supported by assumptions and estimates.

It is intuitively preferable to rely on the correct data we have. Quite why everyone is so reluctant to do so is a mystery.

It is based on census data from last census, April 22. And most accurate information we do have about habitable stock as of that date.

For the purposes of calculating/estimating their 250k deficit they do not take into account the total population nor the total habitable housing stock at April 2022. These are obviously 2 of the 3 most important figures that would influence the calculation of any surplus or deficit.

If I am wrong, by all means correct me and point out the bit that I missed.

It seems like your complaint is that the housing commission are not omniscient and don't have a figure accurate to the unit of how many houses there are in the country suitable to live in.

Quite the opposite. They have this accurate figure. My complaint is simply why do they not use it for the starting point as an illustration of the accurate current surplus or deficit with regard to the known population size, housing stock and average household size.

Do you have any evidence to support your own thesis that we only have a liquidity issue and not a supply shortage?

Yes, plenty. Not least the consistently low turnover rate of the past decade. I've posted this many times on here.

The low turnover rate is a symptom of shortage of supply. In any market ever, shortage of supply impacts liquidity/turnover.

Which came first, the chicken or the egg?

Turnover collapsed in aftermath of 08 and it has never recovered since to anything approaching long term historical norms. Nobody was complaining a crisis shortage of supply when the turnover rate first collapsed. Quite the opposite in fact.

Problem back then was principally people weren't buying as they couldn't sell, problem now is principally people aren't selling because they cannot buy.

Either way that low turnover rate represents almost 15 years of pent up supply as much as it represents pent up demand.

The market has become increasingly clogged up, and it needs to be unclogged. Building an extra 10k houses a year won't do that.

Unlike monetary markets, you cannot just use QE for housing

Oddly enough, proposing the building 250k houses as quickly as possible to solve a liquidity problem is tantamount to an attempt at QE for housing.

Low turnover is a symptom not the cause. 

A symptom of what? If you're really suggesting that a lack of new build stock is the cause of the low turnover rate of existing stock, just stop and think about how absurd that belief is for a second.

A lack of new build stock is literally impossible to be the cause of the low turnover rate, unless you're suggesting that people only sell second hand homes to buy brand new homes. Which is equally absurd.

Liquidity may be a poor choice of phrase, but I mean liquidity of second hand stock rather than finance.

In a functioning market there are ample buyers and sellers. Hence those who wish to sell, whether to move up, down or sideways are happy to place their property on the market for sale, confident that their ample choice of something to replace it with. This keeps the market moving like one giant game of musical chairs.

What's currently happening in the second hand market is more akin to a game of musical chairs in which the music has stopped, and everyone's stuck in their chair.

The swapping of chairs between participants is like the buying and selling of second hand houses to each other on a grand scale - it is the turnover in the market. Long term historical annual average market turnover rate is about 5-6% - i.e somewhere around 5% of the entire existing second hand stock should be expected to change hands in any given year. That's what happens in a liquid market.

It's currently somewhere below 2% and has been for well over a decade. That's what I meant by an illiquid market.

Of course the longer it goes on the worse the problem becomes.

I made post some time ago with a very simple hyper local theoretical property market with only 3 houses to illustrate the point a little better, I'll see if I can find it and repost.

Ok, I agree all of the above, particularly this:

The situation can only be solved with more liquidity (i.e. more supply). Because we have a supply shortage.

But I think where we differ is on the idea the only solution is more new build supply. As you say the problem is all supply.

It sounds like we would agree it is theoretically possible to solve this supply problem by increasing the turnover rate of existing stock of second hand homes if they existed.

Your position is they don't exist because we have a current deficit of 250,000 in the existing stock - that's the problem.

My position is they do exist because there is no deficit in the existing stock, just the cumulative effects of a over decade of low turnover, means the existing stock is very inefficiently allocated - that's the problem.

Is that a fair summation of your position vis a vis mine?

@AdamD Eventually found the post I was referring to, and it was more made to illustrate point about being blinded by the narrative about what is for sale right now. You'll hear multiple times on here and in the media that the lack of current supply available for rent or buy is evidence of an overall deficit in the housing stock, but that's not necessarily true. And certainly the data would indicate otherwise.

Though it will equally illustrate the point I was making that you need a higher turnover in the second hand market in order to keep everybody moving around when they want to, ensuring an efficient allocation of stock.

Consider a hyper local micro property market consisting of just 4 properties, with no demand for people to leave the area, and no demand for new people to enter the area.

Apartment A - rented by Jill, single young professional

Apartment B - owned by Jack, single young professional

Semi-D house - owned by Paddy and Mary, couple with two small kids

Detached house - owned by Dinny and Denise, couple living with 20 year old daughter

They're all happy, nobody wants to move, they're all housed according to their needs. As everybody views the market as to what is happening right now, as far as they're concerned - all is well. The narrative is that there are no problems.

Fast forward three years.

Jack and Jill are now a couple, looking to buy a house to move in together and start a family, but they cannot buy because there is nothing on the market. As far as they're concerned, the market is in chronic undersupply.

Paddy and Mary's kids are bigger and they want to upsize but they can't because there is nothing on the market. As far as they're concerned, the market is in chronic undersupply.

Dinny and Denise want to downsize to an apartment and their daughter wants to move out and start renting. But they cannot buy because there is nothing on the market, and their daughter cannot rent because there is nothing on the market. So they're stuck too, as far as they're concerned the market is in chronic undersupply.

So now the narrative about the current market has moved in short order from no problem to chronic undersupply. Even though there are the same amount of people requiring to be housed and the same amount of properties in housing stock - I.e there has been no increase in demand or decrease in supply to the equation that has caused this chronic undersupply.

The housing stock is perfectly adequate to house everybody according to their needs. Jack and Jill would be very happy to buy Paddy and Mary's house. Paddy and Mary would be very happy to buy Dinny and Denise's house. Dinny and Denise would be very happy to buy Jack's apartment. And their daughter would be very happy to rent Jill's apartment.

The solution is obvious but nobody can see it because they're blinded by narrative that has been caused by what's available on the market right now - nothing.

So everybody is screaming chronic undersupply, we need to build more houses, increase supply to accommodate demand, it's absurd to deny it, otherwise how do you explain why there is nothing on the market available to buy or rent.

Politicians stimulate a developer to build two new houses and two new apartments to balance out the disparity in apparent supply demand.

Fast forward a few years.

Everybody put their house on the market so they could move into the new development. But as soon as they did so they discovered a problem.

There is now an oversupply of two apartments and two houses.

These are empty, languishing on the market but you cannot give them away because the market has moved into extreme oversupply, prices have crashed. There is now more than enough supply to house everybody according to their needs, but now they're not so happy, they're in negative equity, screaming that it's not fair, where's my bailout, how did nobody see this coming?

If politicians and the developer had listened to the data rather than narrative they would have seen there was no demand for the new builds no matter how strong the narrative seemed to be.

This is obviously a very simplistic example. But it illustrates the dangers of basing the entire narrative of the long term demand for housing stock on what is available to buy or rent on the property market right now today.

But there is an element of this happening on a huge scale in the Irish market. The data is being ignored in favour of the narrative.

It's been specifically designed as a simplistic example to illustrate a specific point - how the narrative can be misleading.

And you've rather neatly illustrated my other point about projections based on assumptions, by disregarding a known number of people with a known number of properties and saying, "Hang on, what if we make some assumptions about a different scenario rather than the scenario at hand. Hey presto we need to build more."

There's no doubt you can make assumptions to fit an argument for whatever figure you want to justify.