Just
ten years ago, Ireland was building around 34,000 dwellings or
around 9 units per 1,000 of the population. In 2006, an estimated
92,000 new homes were built, which equates to over 21 units per
1,000 of population. As a result housing has become a key sector of
the Irish economy. Residential construction accounted for around 66%
of total construction output in 2006 and, consequently, the
construction industry has become very dependent on the housing
sector. The gross value of housing output (new and repair and
maintenance) was just over €24 billion in 2006, which is equivalent
to almost 14% of GDP.
The
private housing sector accounted for over 93% of the total housing
output during 2005, while local authority housing accounted
for almost 5% and the voluntary and co-operative housing
sector for just 2% of total output. Social housing output was worth
just €1.2 billion in 2005.
New dwellings are now
being completed
at a rate of over 21 units per 1,000 of population in the Irish
Republic, adding around 5% to existing housing stock.
Housing output, which is now occurring at a faster rate than
household formation in the Republic, is currently running at four
times the European average and around 7 times the
UK average.
However,
despite Ireland’s exceptional rate of house building, its stock
still remains quite low (410 units per 1000) relative to the EU
average (475 units). Therefore, Ireland has been attempting to catch
up in recent years.
Rising
disposable incomes, record employment, greater competition in the
mortgage market and the low interest rate environment since joining
the EMU have been major contributory factors in the rise in
value of the Irish house building market. Even though interest rates
are set to rise again in 2007, it is thought that this is unlikely
to dramatically impact overall demand in the market. Other key
influences of housing demand going forward include population rises,
with inward migration now accounting for over 60% of the increase in
the most recent Census period in 2006. With net immigration expected
to average 50,000
per annum up to 2011, before slowing to 40,000 per annum up to 2016,
it is estimated that Ireland’s population will exceed 5 million by
2015, representing an average annual increase of around 2.0% and a
20% increase on the 2006 Census estimate of 4.2m.
On a
regional basis, Dublin accounts for the largest proportion of
houses built in the Irish Republic in 2005, with the East Region
(which includes the Greater Dublin Area) accounting for 35% of total
housing units completed.
Activity in the commuter counties around Dublin remains strong with
Kildare forecast to have around 5,000 completions in 2006, up from
3,584 in 2005 and in Meath completions are estimated to reach around
4,000.
Other regions experiencing high volumes of house
building included the
Southeast Region (Carlow, Waterford, Wexford,
Kilkenny, South Tipperary) with 10% of total completions and the
Southwest (Cork, Kerry), which accounted for 15% of total
completions, of which around 10,000 were estimated to be in Cork
City and County.
The
Northeast Region, which includes the counties of
Cavan,
Louth and Monaghan, recorded the
smallest proportion of
residential output in 2006, with just 6% of total Irish completions.
The
average price of a new house in Ireland rose by 11% to just
over €272,000 in 2005, with the average price of a new house in
Dublin rising to €386,000. More than a third (34.3%) of all
dwellings sold in 2005 cost in excess of €300,000.
The rate of
house price growth in 2006 is expected to be around 12% for the
year, and higher than expected, when compared to 9.3% for the full
year of 2005. These estimates would increase the national average
price of a new house to over €307,000 and to around €405,000 in
Dublin.
Looking
ahead, more moderate growth in house prices is possible over
the next few years, with increases of around 7% occurring 2007 and
between 3-5% in 2008 from 12% in 2006.
Over a longer term, planning permission data
indicates that there could be a significant downturn in housing
output. The number of permissions would appear to have peaked in the
first half of 2005 and the rate of slowdown in permissions appears
to be accelerating, with permissions down by 33% in the second
quarter of 2006. The
decline in the number of permissions granted highlights the impact
of delays and refusals in the planning process. Furthermore, there
are difficulties in obtaining suitable development land, especially
in the Dublin area.
Although the number of planning permissions exceeds that of actual
completions, the gap between the two is becoming less pronounced,
with just 13,200 units with planning
permission uncompleted in 2005, compared with 42,000 in 2000. This
declining trend in planning permissions, which commenced in 2005, is
one indication at least that Ireland will eventually build fewer
houses than it currently does
The supply structure for the Irish
house-building market is highly fragmented with a large number of
small to medium sized companies, many of whom specialise in repair
and maintenance activities. The sector is so fragmented that it is
estimated that no one player has more than 2% of the market. A
booming property market and surging house prices have generated
considerable profits for Ireland’s leading private builders.
Due to the highly fragmented nature of the Irish
house-building industry and the very small number of publicly quoted
house-builders, it is difficult to gauge the profitability of the
sector. There are just two publicly quoted firms Abbey and
McInerney and a higher number of smaller unquoted firms, of
which the larger include Ballymore Properties, Bovale
Developments, Castlethorn Construction, Gannon Homes,
Manor Park Homebuilders, Menolly Homes, Pierse
Contracting and
Shannon Homes.
Off-site manufacture (OSM)
of
house-building components has gained in popularity and the Irish
prefabricated housing market has now risen significantly from just
2% of the total housing construction market to 25% over the past 10
years. While still a relatively new concept in Ireland, the idea of
"flat pack" homes has been gaining support in recent times, with a
good many developments around the country. Specifically, Timber
frame housing in Ireland has increased its share of the total
housing market from 5% to around 30% over the past five years and is
now the key driver of the prefabricated or off-site sector in
Ireland. Around 26,000 new dwellings were thought to have been
completed in Ireland using timber frame as the primary method of
construction and forecasts predict that this figure will rise to
around 50% in the next 5 years.
Future demand
for new housing over the medium to long-term will be influenced by a
number of factors including overall economic stability,
affordability, population trends, household formation, migration
levels and investor activity. On the supply side, housing
completions will be very much dependent upon house prices,
construction costs and the price of housing and development land. A
further potential constraint facing the market is the cost of
consumer borrowing, which is expected to rise over the next year,
with Euro-zone interest rates expected to
rise to 3.75% by the end
of 2007, further increases in energy prices and the risk of the Euro
weakening against the US dollar.
The Irish house-building sector is therefore set to
slow gradually over the next two years, but will still remain a key
component of the Irish economy and construction industry.
Rising consumer
incomes and investment remain the drivers of growth, with funds from
maturing SSIA accounts, and the election in 2007, expected to
underpin construction activity in the short term while strong growth
in employment and consumption will boost the demand for
non-residential buildings.
An assessment of the current rate of house
building concludes that annual completion numbers seen to date
are unsustainable over the medium term and that Ireland will
eventually build fewer houses than it currently does.
Housing supply is forecast
to peak at 92,000 completions in 2006 and remain at relatively high
levels in 2007 (88,000 completed units) before declining slightly to
77,000 units in 2008, as economic growth slows and the impact of
maturing SSIAs begins to diminish and output falls more in line with
sustainable demand.
After
2008, a more sustainable rate of completions is forecast of around
65,000-70,000 units per annum up to 2011. This level of demand
depends on the continued decline of household sizes towards the EU
average and further affordability constraints due to rising interest
rates and increasing
energy
prices. Further rises in interest rates are forecast for 2007 with
the rate set to increase to 3.75% in early 2007.
The
weaker outlook for construction values is being driven by more
cautious prospects for the house building industry. Should housing
completions remain at around 90,000 per annum over the period to
2008 then this would generate much stronger growth in construction
output compared to current forecasts.
