Is it cheaper to buy or rent?

Introducing the daft report earlier this year, Gerard O’Neill discussed the possibility that we might become a nation of renters. On the other hand, there is a lot of talk at the moment, particularly from those selling homes such as these guys in Palmerstown, about how it is significantly cheaper to buy than to rent. I thought it would be worth investigating this a little more, because at the end of the day, despite all the crazy economic goings-on of the past three years, people still have to make a decision about where and how to live. Is it cheaper to buy than rent, and if so by how much? How do things look now compared to the boom years and how will things look if house prices and rents continue to fall?

To do this, I had a look at average prices and rents for three-bedroom properties around the country from the start of 2006 on. I wanted to calculate the annual premium for owning your accommodation as opposed to just renting it, bearing in mind mortgage interest relief, prevailing interest rates and changing property values and rents. After all, economic theory would suggest that if you get to own the asset at the end of thirty years of living there, you should pay more than if you don’t.

The graph below shows the difference between renting and buying in annual terms for four regions – south County Dublin, Limerick, Dublin’s commuter counties and Connacht/Ulster outside of Galway. It’s calculated for a first-time buyer couple, with mortgage interest relief based on the first year of repayments. I’ve taken ECB+1% as the benchmark interest rate – something which of course may only hold for the first year.

 

Annual savings for owning rather than renting, 2006-2009

Annual savings for owning rather than renting, 2006-2009

Even with property prices the way they were, it was cheaper to buy your house in 2006 than it was to rent it in everywhere around the country except South County Dublin. Generally, first-time buyers in Dublin could expect to save at least €2,000 over the course of their first year, while elsewhere they could expect to save about €1,000. Only in South County Dublin were first-time buyers actually paying any premium on ownership – in the order of €4,000 over the year for their three-bedroom home.

Sometimes I look back at 2005 and 2006 and wonder what we were all up to. Given those maths, it’s a bit easier to understand again. Of course, things didn’t stay that way. ECB rates started increasing and by mid-2007, potential first-time buyers were faced with the prospect of a premium on ownership in order of €1,000 over the first year – this at a time of uncertainty over capital values. In South County Dublin, the premium on home ownership for the first year was almost €10,000. It should be noted that in a couple of areas, South Dublin city (i.e. all areas with even postcodes), West Dublin and Limerick, it was cheaper to buy than rent – even when interest rates were at their highest. These areas have repeatedly exhibited the highest yields on residential property (about 4% over the past couple of years – high is relative).

Since late 2008, though, as lower interest rates have kicked in, there has been a dramatic swing in the maths back in favour of home-ownership. In late 2008, if you paid the asking price and got ECB+1% for your mortgage, you could expect to save €1,000 in most parts of the country – and more than €3,000 in Limerick or West Dublin. What’s worth noting is that this is at a time of rapidly falling rents as well as house prices. Looking at Q1 figures, that trend is growing with first-time buyers able to save in the region of €3,000 in their first year of ownership. Even in South County Dublin, a household will save money if they buy rather than rent.

How will these figures look in a year’s time? I’ve put in figures marked 2009 Q2 and Q3 to give an indication of how the buy-or-rent decision might look. I’ve assumed another 20% fall in house prices – that’s about a 40% fall from peak to trough. (If that sounds drastic, probably best not to read David McWilliams’ latest comparison of Ireland and Japan.) For rents, I’ve gone for 33% peak-to-trough fall (again, there are those who argue it could be more). In that scenario, buyers would continue be better off than renters in every part of the country. First-time buyers of three-bedroom properties would expect to save anywhere between €1,800 (West Leinster) and €7,000 (Dublin city centre).

To some extent, this is being driven by mortgage interest relief, which is greatest in Year 1. However, Q1 figures indicate that even if there were no mortgage interest relief, there are areas of the country where it is cheaper to buy than rent. And if house prices fall 40% from peak to trough, and rents fall 33%, it will be cheaper to buy than rent, even with no mortgage interest relief, in all areas of the country apart from South County Dublin.

What about the downside? If there are indeed significant swathes of vacant properties around the country that will continue to put pressure on rents for the next 3-5 years, could both rents and house prices halve from their peak values? If that were the case – meaning the typical three-bedroom home in south Dublin city would cost about €900 a month to rent or cost about €275,000 – the maths in favour of buying still look convincing in Dublin but elsewhere it’s a much tougher call. Without mortgage interest relief, homeowners would have to pay around €1,000 a year over what they’d pay to rent.

The tax system as it currently stands certainly strongly favours home ownership. If the government decides that the balance of emphasis when correcting its fiscal black hole should be on raising taxes rather than cutting expenditure, it may abolish mortgage interest relief and bring in a universal residential property tax. This could significantly alter the maths of buying versus renting and bring about the ‘nation of renters’. As it stands, though, even if rents were to halve over the coming year, the premium people pay to actually own their home appears too small for that to happen.

How much are rents falling around the country?

The latest Daft.ie Rental Report is out today. It shows that rents across the country fell by more than 5% in the first three months of the year. The national average rent now stands at €840 per month, compared to just over €1,000 per month a year ago. Nationwide, rents have now fallen for 14 consecutive months. The fall since the peak early last year has been faster than the rise before that, and with rents 17.5% lower than the peak in early 2008, rents are now back mid-2005 levels.

The largest falls in rents have been in the cities. In Dublin and Limerick, rents fell by up to 6.5% in the first three months of the year. In Waterford and Cork cities, rents fell by 5.3% and 5.1% respectively. In Galway, the fall in rents was smaller, at 4.3%. Rents in Dublin’s commuter counties and in West Leinster (i.e. Laois, Longford, Offaly and Westmeath) – presumably an indication of their role as Dublin’s outer and further-outer commuter belts – have fallen by about 6%, more than the national average. At the other end, South-East Leinster (Carlow, Kilkeny and Wexford) and the counties of Connacht and Ulster have seen rents fall by less, typically by about 3.5%. Rents in Leitrim and Roscommon fell by less than 1.5%.

The county-by-county changes are outlined in the map below. As you can see, it’s the extended Dublin area that’s being hit most. For the full details on average rents by county and how much they’ve fallen in the last three months and in the last 12 months, check out the Manyeyes visualization here.

Change in rents by county, 2009 Q1

Change in rents by county, 2009 Q1

The reason for all this is clear – the rental market is feeling the brunt of too much supply and not enough demand. On the supply side, the number of properties available for rent is now over 23,000 – an all time high, certainly compared with the 5000-6000 range we saw on the site up to 2007. This means that landlords are having to fight for tenants, pushing down rents – and rent-a-room income – pretty much everywhere. Add to this falling demand, as Ireland’s most footloose workers head off to pastures new, and it’s pretty clear that the pressure on rents throughout 2009 and maybe into 2010 will be downward pressure.

This report’s commentary is provided by Brian Devine, Chief Economist at NCB Stockbrokers. He highlights the challenges and perils of forecasting facing economists today:

In relation to the property market there have been plenty of forecasts regarding how far residential prices (ranging from -35% to -60%) and to a lesser extent residential rents (ranging from -20% to -35%) are going to fall from peak to trough. Some studies/views on how far prices will fall are based on historical comparisons with previous OECD housing busts. Others invoke the idea of a “fair value” for housing based on, for example, one or more of the following: income-price ratios, mortgage repayment burden, rent-price ratios, rental yield, credit availability, population growth, interest rates and growth in per capita disposable income.

The problem with trying to forecast prices/rents based on the concept of fair value is that prices overshoot and undershoot fair value. The magnitude of the overshoot/undershoot is ultimately determined by psychology. While the psychology of never ending price rises fuelled the market on the way up, economic/job uncertainty and the expectations of further price falls will be the important psychological factors on the way down.

Next week’s property market post will have a look at affordability, i.e. the maths of buying versus renting, based on these figures, and how yields have been affected by the latest falls in rents.

How many Irish homes are in negative equity?

Just over 500,000 thousand homes have been built since the start of 2002. Probably the same number again of second-hand homes have been bought in the same period. With the guts of one million properties having changed hands since 2002, how many of those are worth less than now than when they were bought? And how many owners find themselves owing more to the banks than they if they had to sell now?

Taking the daft.ie asking prices by county from 2006 on, and Dept of Environment regional figures before that, it’s possible to construct regional average prices going back in the 1980s. Fortunately, we don’t have to go back that far – but we do have to go back into the first half of this decade. By my calculations, of the half a million homes built since 2002, about 50% are now worth less than when they were bought. That’s based on current asking prices. If asking prices are – as some contend – about 10% above actual closing prices at the moment, the number of homes worth less now than when they were bought rises to 340,000 homes – or two thirds of the houses built since the start of 2002.

But that’s only half the story. Or slightly less actually, as loans for new homes account for just under 50% of all loans. If that ratio is correct, another 286,000 second hand homes now have asking prices less than the prices they were bought for. Again, if asking prices are 10% above what’s actually trading out there, that figure rises to about 382,500. In total, that represents about 725,000 homes that have been bought since 2004 that are now worth less. Depending on whether you take Census or Dept of the Environment figures, that represents between 37% and 43% of homes in the country. Put in plain English, two in five homes in Ireland are worth less now than when they were bought.

How far back has Ireland’s property market rewound? The graph below shows average home values in eight regions for the period 2002-2009. There are three shades of colour used – the lightest (further to the right) are house price gains that been wiped out, the medium shade represents current asking price levels, while the full colour lines represent asking prices less 10%. Overall, the asking price for the typical home in Ireland now is similar to what the home was worth in March 2005. If you believe asking prices are overstating true prices, the typical home in Ireland is now worth the same as it was in July 2004. The two years of bust have undone the last two and a half years of boom. Homes in Connacht and Ulster are worst affected – they are worth the same now as they were five years ago in early 2004.

When were Irish homes last worth what they're worth now?

When were Irish homes last worth what they're worth now?

Negative equity is, however, something more particular. It refers to the outstanding debt that someone owes the bank. In other words, if they sold the house now, would they be able to pay off the remaining debt from the sale price? Naturally, this is a much more complicated exercise. Dept of Environment figures suggest that the typical loan-to-value of new homes since 2002 has been about 75%, while for second-hand homes it’s been closer to 73%. Fortunately, the figures give something of a breakdown. Making some ballpark assumptions for different years, for example any 95%+ mortgage in 2004 or any 70%+ mortgage in 2007/2008, it’s possible to give a rough estimate of the number of homes in negative equity.

Roughly speaking, about half of the homes that are now worth less than when they were bought are in negative equity, in the financial sense of the word. (This makes intuitive sense, as two out of every five mortgages is less than 70%, suggesting a substantial amount of households with some equity still knocking around.) That’s 340,000 homes where if the homeowners have to sell, they will not be able to pay the bank back solely through the money they get from selling the house.

The punchline is that about one in five homes in Ireland is now in negative equity.

How many months supply is sitting on the property market?

The US leads the way for many types of statistics – and in particular for their timeliness. The housing market is no different, with a plethora of measures such as prices and volume of transactions out every month.

In Ireland, though, we have to labour under a dearth of timely statistics on a range of economic indicators – including the housing market. Naturally, the Daft Report tries to make its contribution, publishing one week after quarter’s end so that people have the latest asking price and stock/flow information. One that I’m increasingly asked for is the number of months of supply currently sitting on the property market, a measure that’s well established in the US. It’s probably time we tried to put some numbers on it.

To do that, we need to answer two questions. The first is: what is a normal volume of transactions for the Irish property market? The second is: how many are on the market now?

On the first, the natural way to go about it would be to use the recent level of transactions. The only problem with that, though, is that the number of transactions has fluctuated wildly over the past four years, making that a somewhat erratic measure. To counteract that, the Department of the Environment have a long-run series on loan approvals, which for all intents and purposes tells us how many people are buying property every year. The numbers still vary hugely over the past two decades, in line with the vicissitudes of Ireland’s property market. In 1990, there were just 35,000 transactions – less than 3,000 a month – while in 2005, there were over three times as many transactions, 120,000 in total.

Taking the 2005 figure – or indeed anything since about 2000 – leaves open the accusation that one is deliberately underestimating the problem by overestimating the “typical” month. Then again, anything pre-1999 – and certainly anything close to 1993 – is probably not too appropriate either. To overcome this, one can view the last 15 years of Ireland’s property market as two stylized periods: a (relatively) healthy property market in the 1990s, where monthly transactions averaged 4,400, and a hyperactive property market, 2000-2007, where monthly transactions averaged 7,800.

Using the 2000-2007 figure gives us a lower bound, while using the 1993-2000 gives an upper bound. Given that Ireland is the guts of 700,000 residents bigger now than in 1993 (even allowing for outward migration), it probably makes sense to use the average of the two figures (about 6,000 transactions a month) as some sort of post-2007 reasonable estimate of what one could expect would pass through the market in a healthy post-crunch Ireland.

To answer the second question, how many properties are currently on the market, I’ve taken the daft.ie series of stock of property for sale. An adjustment has been made, given the way new developments are listed on the site, to make sure that vacant new builds are better captured than the raw figures may suggest.

After all those preparations, where are we? The chart below shows the best estimate (orange) of the number of months property sitting on the market from early 2007 to April 2009 – alongside upper (red) and lower (green) bounds, based on whether one believes that the 2000-2007 level of transactions is ‘normal’ or in fact when everything dies down we’ll see a return to much lower 1993-1999 levels of transactions instead.

Estimated number of months supply on Ireland's property market

Estimated number of months supply on Ireland's property market

In a normal property market, one might expect to see three or four months supply sitting on the market – that’s about how long it takes for a property to go through the cycle of litsing, viewing, agreement, closure. The graph above – if you accept the middle ground presented – is that there has been a over a year’s supply of property sitting on the market since this time last year, compared to about 5 months at the start of 2007.

Good news? These days, good news is really just absence of new bad news! The good news is that while there is about three times as much property on the market as normal, this has levelled off – and indeed fallen slightly – in the last six months.

The first cut is the deepest – Dublin’s falls and Ireland’s property paradox

This week’s daft.ie report revealed some intriguing findings in relation to the current state and trajectory of Ireland’s property market. As was discussed yesterday, for example, while east peaked earlier than west, north has fallen further than south since the peak. One of the conclusions of both these findings is that Dublin and its commuter counties have experienced falling prices first and deepest.

This goes somewhat counter to conventional wisdom, although conventional wisdom hasn’t done too well in the last couple of years it must be said! Conventional wisdom would suggest that whatever about the Section 23 wastelands and ‘ghost estates’ of Ireland’s mid-West and elsewhere, the capital – as focal point for Ireland’s public and internationally trading sectors and their upstream and downstream employers – would be alright, at least in relative terms. In an Ireland where prices fell 20% in the crash, Dublin might be 15% or so while “somewhere else” would be worst hit.

While easy to mock, there is something in this from a long-term perspective. I have argued before on this blog – in December and again in February – that the ‘overhang’ of property looks a lot worse, even with just approximate calculations, in the mid-West than in the capital or indeed any of Ireland’s five cities. With stock falling slightly in the last six months, no harm revisiting the ‘overhang per county’ chart again, with stock levels taken from today.

Percentage of property for sale by county, Ireland, April 2009Again, the message is pretty clear – Cavan, Donegal, Leitrim and Roscommon have significant property ‘overhang’ compared to the likes of Monaghan, Kilkenny and Dublin and its commuter counties. The conclusion that I would draw is as follows: as it is home to the vast majority of Ireland’s top earners, to the extent that Dublin’s property market priced in expected future GDP and wage growth – i.e. confidence – it is to be expected that prices will fall most there, as confidence collapses from a high in late 2006 to a low in 2009. (The implication is that prices would be more likely to turn around faster, were confidence to somehow rematerialize.)

Taking a longer term perspective, though, unless prices adjust faster in places like Donegal, they face the prospect of longer peak-to-trough. Indeed already, some on theproperty.com are fretting about the future of places like Roscommon. On a thread entitled “Rents getting very cheap in the west“, mikewest’s message makes glum reading for property holders in Roscommon:

The house prices down here are still utterly crazy because something the developers never noticed is that there is shag all work in Co. Roscommon and if you dont have work then nobody wants to live there. People talk about the ghost estates in Longford and Leitrim but they don’t hold a candle to Roscommon. Every village and town has empty or virtually empty estates and / or apartment blocks…

There is another teeny tiny problem in the west. There are one or two houses too many in some towns right now so asking prices for rents are really more aspirational than actual but not quite as aspirational as asking prices for houses.

Lopping the top half off & Ireland’s property market in a global perspective

On Monday the latest daft.ie report came out, showing that asking prices had fallen just over 4% in the first three months of the year. Yesterday, I changed focus on the blog a little, as it was Budget day, and tried instead  to put some numbers on what a potential property tax could raise.

Today, I hope to give a little more detail on the findings from the report itself, in particular regional trends, and then give an international perspective also – or at least start to give one, which I think is always instructive. Below is a graph showing the quarter-on-quarter change in asking prices for the last two quarters, i.e. Q4 2008 and Q1 2009, in each county.  The most obvious finding – probably not a surprise to anyone – is that asking prices fell in almost all counties in both quarters. A second clear finding is that there does not appear to have been one or two counties more affected in the last six months than elsewhere (although one could make the argument that Munster has got off relatively unscathed since September).

Quarter-on-quarter changes in house prices, 2008q4-2008q1

Quarter-on-quarter changes in house prices, 2008q4-2008q1

What also jumps out is that the two quarters saw very different patterns. In the final three months of 2008, a few counties – such as Galway, Westmeath and to a lesser extent Donegal and Leitrim – saw the largest downward adjustments in asking prices. Two counties, Mayo and Tipperary actually saw no fall in their asking prices. This quarter, Mayo and Tipperary actually had slightly larger falls than average – perhaps a sign that sellers there had been holding for the start of the year before acceding to the realities of the market. On the flip side, sellers in Galway and Westmeath believed in Q1 that their large adjustments in late 2008 did not need to be followed up with more adjustments straight away.

Sligo has been the worst hit county in terms of falling house prices, with a fall in the region of 10%in three months alone. (Dublin city centre and Waterford city actually saw bigger falls but they are lessened by other parts of their counties.) Aside from that, it seems that Dublin generally and the counties around it were among those with larger adjustments since the start of the year.

This leads on to perhaps a more interesting question – how have counties fared since their property prices peaked? To do that, I’ve set up another Manyeyes dataset (which anyone can access) with the percentage gap between house prices in a given quarter and the peak, for each county. Where a county is sandy coloured, that means it has peaked. The deeper the blue, the bigger the fall. (One little trick with these figures is that for a county’s earlier “blues”, prices are still going up. By the second row, that’s no longer an issue.)

Change in asking prices from the peak, 2007-2009

Change in asking prices from the peak, 2007-2009

A couple of findings emerge, based interestingly on alternate axes of the country:

  • East peaked before west, on average, and by almost six months. If you draw a line from Cavan down to Wexford, 10 of the 13 counties peaked in the first half of 2008, more than half the country in population terms, including all of Dublin and its offshoots. Cork, Galway, Limerick and a few other counties actually peaked in the second half of 2007, while a couple of stragglers – Tipperary and Westmeath to be precise – only peaked in early 2008. (Interesting to note, in passing, their sellers’ totally different reactions to conditions in late 2008, as per the first chart above.)
  • North is falling faster than south, on average. If you draw a line from Dublin over to Galway, 9 of the 10 worst affected counties so far come from that half of the island. The top half of the property market – literally! – has been lopped off more than the bottom half. This means that the north-east – essentially Dublin-plus – fell first and is falling hardest, while the south-west – Munster – was last to fall and has fallen least so far. It will be interesting to compare these emerging trends, two years into the property crash, with the final statistics on Ireland’s property readjustment/crash/Armageddon/return to sanity/fill in name here.

Speaking of writing the history books, perhaps it’s no harm to have a quick look to our left and our right and see how other property markets are faring. Below is a chart of about 20 countries (with two different measures in there for the US, the first is the OFHEO measure, while US* is the Case-Shiller national index). I’ve based this on data posted on the Economist’s website, but have surreptitiously replaced the 2007/2008 ESRI data, about which there is a lot of scepticism currently, with daft.ie data. The bars show the annual rate of change in house prices, including a 1997-2008 average, and figures for 2007 and 2008. (As per the Economist website, some of the Q4 08 figures are actually Q3 08 while a couple, including Ireland, are Q1 09.)

International comparison of property markets, 1997-2009

International comparison of property markets, 1997-2009

Replacing the ESRI data with the daft.ie had the effect of moving Ireland from the “Club of Moderates” such as Denmark and the Netherlands, to the “Bleeding Edge” group with Hong Kong, the UK and the US (at least one measure for the US at any rate). I will do my best to try and track down the original data for this series so that a change-from-peak measure can be contructed as again that may be more instructive than a year-on-year change, particularly in six months time.

In the meantime, though, I’ll leave this up here and ask for any insights, comments or queries, as per usual! Fire away…

Intergenerational outsourcing and the consequences of building 10% too much: A look at Ireland’s property market in 2013

With Davy Stockbrokers predicting a 70% fall in Irish construction activity from its peak over the coming ‘medium term’ (2009-2011 or so), I though it might be timely to review some headline statistics for Ireland’s property overhang.

Recently, I’ve been peddling the idea that between 2004 and 2007, we were building twice as many homes as we needed and building twice as many for 3/4 years implies building half as many as you need for 6/8 years to return to equilibrium. Does that stack up? Or, put another way, if we start in 2002 with Census statistics on the stock of housing, use Dept of Environment statistics for the period 2002-2008 and turn Davy’s figures into ballpark estimates for 2009-2013, how bleak will things look in five years time?

The answer, much to the chagrin of those who loathe two-armed economists, seems to be that it depends – in this instance on what part of the country you’re talking about, but also about what you think is the appropriate long-term need for new houses in this country. If we take 2001 figures (technically March 2002 figures) as our ‘departure from normality’ point, how far off course are we? Between 2002 and 2008, we churned out over half a million properties, off an existing base of just 1.3 million households. Back-of-the-envelope estimates, based on an overview of economists’ figures on this topic, suggests that we should have been building perhaps 300,000 households in that same period. (That’s using an equilibrium figure of 40,000 properties a year, rising temporarily after the accession of new EU member states.) So, enough with all the stats, what’s all this for, you wonder. Well, I was hoping to use all this to answer two key questions:

  • Where suffered worst from Ireland’s properties building bonanza? Where is housing inventory lying around most?
  • How long will we have to sit around building hardly anything until we’re back to some semblance of normality in the property market?

Where did we build our extra properties? By the end of 2008, we were about 5 years ahead of schedule – i.e. we’d built 12 years supply in just 7 years. To give a regional flavour, based on insights gleaned from the property overhang per county figures I calculated in December, I split Ireland into three regions – Dublin, Connacht/Ulster and the rest of the country. (The data allow for a full county-by-county analysis, however time constraints and poor formatting in the various external sources has prevented me from threatening another heatmap!) Over the period in question (2002-2008), more houses were built in Connacht/Ulster than there were in Dublin, which has almost twice the population! As a result, in terms of years of “pre-production”, if you will, while Dublin had under 2 years excess supply by end-2008, Connacht/Ulster had almost 8 years. Once more emphasis: builders managed to produce 15 years output in Connacht/Ulster in just 7 years.

How long will we have to sit around building nothing? It’s all very well for someone to come along after the fact and say “You shouldn’t have done that”. What’s more interesting is to shed some light on where the adjustment will come first and where it will be hardest. One option would be just to close up our construction sector for a few years until inventory shifts sufficiently and prices start to rise. Practically, of course output doesn’t and shouldn’t collapse to zero and, as per Davy’s figures, will be in the range of 10,000 to 25,000 over the coming 5 years.

Therefore, I’ve assumed output of 20k in 2009 (still slowing down), 10k in 2010 (bottom of the market) and then a simplistic 5k increase in output every year after that, rising to 25k in 2013. Let’s call this the ‘post-Section 23′ scenario. This is contrasted with a ’20:20 foresight’ scenario where steady-state output in construction remains 40,000, apart from a minor blip of 35,000 in 2009 due to global economic circumstances. In both scenarios, new houses are allocated according to a region based on its Census weight – crucially, and we can relax this later, even in our post-Section 23 world, output resumes in Connacht/Ulster, not at the distorted rates we saw but in proportion to its size. The result of all this is the chart below. The figures show the excess of properties as a percentage of the total property stock in each of the three regions.

Ireland's excess properties, % of total properties, by region, 2003-2013f

Ireland's excess properties, % of total properties, by region, 2003-2013f

The results are pretty clear:

  • Even with some major internal restructuring of the construction industry (i.e. rebalancing output of houses according to a region’s weight in the economy), Connacht and Ulster will still have a significant property overhang, more than 10% by 2013 – and that itself based on a drastic 70% contraction in building activity from peak levels.
  • For most of the country – and indeed the country on average – the overhang will have halved by 2013 but will still be in the region of 5/6%.
  • In Dublin, shortages in housing may emerge as quickly as 2012.

Objections to the above might include one along the following lines: construction will not only contract 70% but also no-one will be building in Connacht/Ulster for years to come so even the rebalancing of output described above is not an accurate forecast. In that case, the overhang will just take the full 8 years from 2008. Section 23 and the property boom will have taken construction jobs from 2009-2015 and left them in 2002-2008 – a sort of integenerational outsourcing.

Another objection is that the optimistic (if 2012 is optimistic) scenario painted for Dublin hinges on that long-term need of 40,000 units a year (which translates into about 12,000 new units in Dublin annually, based on its Census weight). Significant and persistent net outward migration from Dublin from 2009 on – which incidentally is why I believe that Dublin Bus, so clearly an ‘inferior good’ in the economist’s sense of the word, is losing money when incomes fall – might mean that the demand for housing in the period 2009-2013 may fall to 20,000. Replacing 40,000 with 20,000, from 2009 on suggests that the average percentage overhang for the country stays stuck at 10% and Dublin – while still much lower – remains stuck at 3-4%.

In sum, we are where we are. We’ve more than enough houses everywhere in the country and plenty of houses in places where we won’t need them for another 10 years or so. Therefore, it would be wise for the Government to take this crisi-tunity, as Homer Simpson would say, to harness both supply and demand sides of the market.

  • On supply, it should focus the efforts of the much-trimmed residential construction industry, when that sector starts to medium-term plan in 2010/2011, on Dublin and other areas around the country most likely to show a shortage of property this side of 2015.
  • On demand, the Government should attempt to deliver balanced regional development, taking property overhang as an opportunity for affordable housing to create new centres of employment. Taking this to its most logical conclusion, firms outsource because they want to free up resources to specialize on what they’re good at. Therefore, we must adopt a mentality along the following lines: “Let’s take this opportunity to treat our property boom as intergenerational outsourcing, which has freed us up to focus on what we’re good at.” (Just don’t say all we’re good at is construction!)