Posted 05 March 2010
Managing an Unstable Housing Market
The gross estimated vacant housing stock in Ireland currently stands at 345,000 or 17% of all housing, according to an evidence based report published this week. Allowing for holiday homes, obsolescence and an expected market vacancy rate, over 170,000 of the housing stock in Ireland can be categorised as an excess vacant supply.
The findings in this study, part of the research undertaken for the Urban Environment Project by researchers at University College Dublin and Dublin Institute of Technology, show a striking difference between vacant housing stock in Dublin and the rest of the state. In particular, rural areas outside of Dublin are identified as having a major over supply of housing. This is reflected in continuing downward price pressures in the new homes market.
Demographic and statistical analysis by Brian Hughes of DIT developed in the report indicate that vacancy levels in the Greater Dublin Area remain at 11.5% in 2009/10 compared to 20.83% in the rest of state.
Any market recovery is most likely to occur first in the Dublin second hand market where supplies at selected locations are limited. This would be followed by the new homes market at locations with good tranport access, with other areas trailing behind.
The findings have significant implications for NAMA and national and regional policy surrounding development lands, planning and development.
“The identified vacancy levels have major consequences for the future prospects and valuations of development land,” says Dr Brendan Williams from the UCD School of Geography, Planning and Environmental Policy, the lead author of the report.
“Valuations of development land based on the expected sale of completed developments will need to be revised severely downward to reflect their current use and limited development potential.”
“This may be resisted by vendors and suppliers who have committed to development costs which will not be reflected in price reductions.”
"Suppliers and vendors were unwilling in the short term to adjust prices, but such shifts become inevitable. In the light of an excess supply of 170,000 this shift is expected in the near future.”
According to Dr Declan Redmond, also from UCD, and a co-author of the report, affordability of housing has continued as a major problem as prices continue to remain at very high multiples of average incomes and loan to value ratios move from 100% to lower levels.
“Public policy interventions aimed at maintaining price levels in such circumstances can prove ineffectual and wasteful,” says Dr Williams.
"Interventions including those of the National Assets Management Agency (NAMA) which attempt to prevent downward price corrections can often delay rather than prevent the normal market recovery process occurring," he continues.
The report also highlights that a major issue, under-recognised in the debate on housing market prospects, is the regional and market sub sectors dimension.
During the upward movement in property market the tendency is to view the national property market as a moving in a unified manner. But according to the report, ‘this can mask significant regional and intra urban differences which are most apparent in weaker market conditions.’
“While individual areas have their own housing strategies, the taxation interventions supports and interventions are national in scope,” explains Dr Williams. “Such interventions risk the wasteful allocation of resources to areas not in need and inactivity in areas most in need.”
“It is evident that the current zoning/rezoning processes operating in the Irish planning and development process have failed. The largely unregulated property finance industry combined with a development-led planning process contributed to an outcome that is unsustainable in terms of oversupply and quality of development.”
Co-authored by Dr Brendan Williams, UCD, Dr Brian Hughes, DIT, and Dr Declan Redmond, UCD, the Housing Markets report is part of the UCD Urban Institute working paper series.
The report includes statistics and data on: housing stock and densities across Ireland, value of residential mortgages issued, and multiples of house prices to average earnings. It is available for viewing here.
(Produced by UCD University Relations)
