Belfast Telegraph

Friday 24 October 2014

View from Dublin: No worries over housing problem

The problem with the problem is that it is not, strictly speaking, a problem. The questionable problem in question is the decline in house-building in the Republic of Ireland.

The reason for the little word play is that this is not the usual kind of economic difficulty. Indeed, it is not a difficulty at all, per se, even though the impact could be very damaging.

Building houses is not the same as most other kinds of economic activity. It serves a finite demand for somewhere to live. Once the customer has moved in, the demand is satisfied.

Okay, not entirely. There are some similarities with the production of other goods and services. There, clever firms can create new demand, based not on need but on wants. How many of us change our car only when the existing one is clapped out? As for clothes...

There is an element of this in housing, too. The desire to live in a particular kind of house or area far outweighs the mere necessity of a roof over the head.

That is certainly reflected in the different prices of new houses, but not so much in the total actually built.

Right now, that is the problem which is not a problem. Have we been building too many houses, and is it time to cut back?

Certainly most analysts were surprised by the number of houses constructed in the last 10 years. But the Census appeared to show that not many were unintentionally unoccupied. There was more need than had been thought.

Estimates for factors from divorce to immigration were hastily increased. But few thought the building rate of the last five years could be permanent.

Perhaps there was some catching-up to do. Immigration was rising faster than the statistics could keep track. But the rate of building would have to slow some time.

Now it has. That is why it is not, strictly speaking, a problem. You need houses. When you've built them, you stop. If you've got the numbers and the timing right, that is success.

Well done, the building industry. Except that it is going to be very awkward for a while coping with the consequences of this success.

It may help if we bear in mind that it was a success, not something which went wrong (at least in terms of the numbers built).

The example of Germany is instructive. One of the biggest building booms of all time took place after reunification in 1989.

The subsequent decline in construction dragged down German economic growth for a decade.

But it was not the cause of Germany's economic problems. It did though make those problems look worse by reducing headline GDP growth. With construction no longer in decline, it is also making Germany's recovery look better than it really is.

In Ireland the potential effect on GDP is dramatic. Every 10,000 fall in the number of houses built reduces GDP by about 1%.

If, as some think, we are looking at a fall of 20,000 houses a year, GDP growth falls by 2%; from 5% to 3%.

That is largely the basis for Davy Stockbrokers' forecast of 3% growth next year. But, as their chief economist Robbie Kelleher was quick to point out, that does not make them 'bears'.

Quite right. The outside world is full of bears predicting the demise of the Irish economy.

Davy, in fact, is forecasting no slowdown in the rest of the economy, made up of consumption, exports and investment. Instead, if its house forecasts are right, the rest of the economy will have to grow at 6% next year to make the total come to 3% growth.

I do not see why anyone should be too bothered if that turns out to be the case. It will put pressure on Government finances, but it is high time they faced a bit of discipline.

There will be job losses in building, but that has always been the nature of building. The industry will continue to have to build around 60,000 dwellings a year, leaving it much bigger than it was 10 years ago.

And that, by the way, is the bad news. Not everyone even agrees that we have been building too many houses. NCB Stockbrokers is among those who point to rapidly rising rents as a sign that we have not. Rents are growing at more than an annual 11%.

There is certainly a shortage of housing in Dublin, plus an affordability problem. The two may be driving up demand for rented accommodation.

The balance of financial power may have switched permanently to landlords from owner-occupiers but that still does not answer how many homes, rented or bought, will be needed?

NCB says that at current levels of immigration there will be demand for around 80,000 units a year. If that is the case, any brief fall in GDP growth will soon be wiped out by a rise again.

But immigration is a very big If. The fastest growth in employment has been in the building trade - up 11% in the 12 months to February.

Foreign workers account for more than one in eight of all building workers, and they made up a third of total labour force growth in that period.

Less building should therefore mean fewer immigrants. But it is worth noting that foreigners provide almost the same proportion of jobs in industry as in building and 30% of the workforce in the hospitality business.

Looking at the tourists swarming around the country this year is a useful reminder of how difficult it is to forecast how many foreign workers we will need and, therefore, how many houses they will need.

House-building may or may not subtract a good bit from growth for a year or two.

After that it will continue to employ over 100,000 people.

COMMENT RULES: Comments that are judged to be defamatory, abusive or in bad taste are not acceptable and contributors who consistently fall below certain criteria will be permanently blacklisted. The moderator will not enter into debate with individual contributors and the moderator’s decision is final. It is Belfast Telegraph policy to close comments on court cases, tribunals and active legal investigations. We may also close comments on articles which are being targeted for abuse. Problems with commenting? customercare@belfasttelegraph.co.uk

Comment

More

Company Profiles

More

Help & Advice

More

People on the move

More