estimating ireland’s · use the scenario based on the total fertility rate decreasing from 1.8 to...
TRANSCRIPT
1
Estimating Ireland’s long-run housing demand
April 2019
Long-run projections of Ireland’s housing demand
2
Long-run projections of Ireland’s housing demand
3
Key findings
• CSO projections show the population reaching 6 million by 2051;
• New household formation averages nearly 32,000 per annum between 2019 and 2051. This
compares to previous estimates of 25,000 new households per annum;
• The number of households reaches close to 2.8m by 2051;
• More than half of these new households are headed by a person aged over 50 years old;
• Average household size declines to 2.12 persons per household by 2051;
• Pent-up demand between 2011 and 2018 amounts to nearly 65,000 units;
• Much of the growth in households will be in one or two-person households;
Long-run projections of Ireland’s housing demand
4
Contents
Introduction .................................................................................................................................... 5
Population Projections ................................................................................................................... 6
By 2051 the number of households in Ireland is projected to reach close to 2.8 million .......... 8
Census trends and the Irish Housing Market ............................................................................. 12
Number of Persons per Household ............................................................................................. 12
Housing tenure............................................................................................................................ 15
House type .................................................................................................................................. 17
Testing the impact of Alternative Assumptions ......................................................................... 18
Appendix 1: CSO Population Projections Assumptions............................................................ 19
About Property Industry Ireland .................................................................................................. 20
Long-run projections of Ireland’s housing demand
5
Introduction
Projections of future housing demand provide an important input to housing policy. We have seen the role that population projections and the associated housing demand has had in preparing the National Planning Framework. This paper takes a longer-term perspective, looking at housing demand based on demographic trends out to 2051. We also look at how the projected household demand might divide amongst the different types of housing tenure – owner-occupancy, private sector rental and social housing/renting. For Census purposes a private household comprises either one person living alone or a group of people (not necessarily related) living at the same address with common housekeeping arrangements - that is, sharing at least one meal a day or sharing a living room or sitting room. A permanent private household is a private household occupying a permanent dwelling such as a house, flat or bed-sit.
The projections contained in this paper are based on population trends and trends in household formation. They do not take account of changes to government policy or the impact of economic changes on household formation. However, projections of future household growth can play an important role in determining the future demand and need for housing and associated services.
The demand for housing is a result of a range of factors. Population growth, including migration flows, is a driver of demand. Other demographic and socio-economic change also influence the demand for housing such as rising life expectancy, or an increasing number of single-person households reflecting improved longevity as well as relationship breakdown. Affordability can influence both the decision to set up an independent household and the tenure choice. If housing is considered unaffordable then you can get young adults continuing to live with their parents, moving back into the family home or sharing households with others. A comparison of affordability between owning or renting, and the availability of mortgages can also influence tenure choice once the decision is made to set up an independent household. For example, if mortgage service costs or deposit requirements are high this can increase the demand for rental housing. The demand for housing is also influenced by factors including economic conditions, interest rates, income levels, and changes to income and personal taxation. The interaction between demand, affordability and the viability of supply is outside of this briefing note but is an important factor determining effective demand.
This analysis is based on the projection forward of trends observed between various Census. Changes in policies or the introduction of new polices, economic conditions etc will impact on household formation decisions and so change the future outcome.
The trend of fewer people per household has slowed in recent years. This, in part reflects affordability constraints. An ageing population is likely to contribute to smaller household size in the future. Our projections assume that the proportion of the population living in private dwellings remains at the average of recent years. However, population ageing is likely to contribute to an increase in the number of people living in communal (non-private) dwellings. We are likely to see a greater focus on living within the community with some independence rather than in nursing homes.
Ireland currently faces the challenge of needing to increase housing supply to meet demand. It is necessary to look at whether the dwellings are of the right type and in the right locations to meet forecast demand. The trend towards an increase in one and two-person households may also contribute to a demand for smaller units. The composition of the existing stock should be taken account of, in conjunction with population forecasts, when planning the type of housing units we deliver in the future.
Long-run projections of Ireland’s housing demand
6
Population Projections
In this analysis of housing demand, we use the most recent CSO population projections (published July 2018) which project population by age group and gender to 2051. These projections are based on a range of assumptions regarding fertility, mortality and net migration (set out in Appendix 1). The range of these projections is shown in Figure 1. Depending on the assumptions, Ireland’s population could increase to between 5.6 and 6.7 million by 2051. For our housing projections we use the scenario based on the total fertility rate decreasing from 1.8 to 1.6 by 2031 and remaining constant thereafter to 2051 and an assumed net inflow into the country of +20,000 per annum to 2051 (M2F2). Based on these assumptions Ireland’s population is forecast to increase to 6 million by 2051. However, we recognise that the most recent Population and Migration Estimates (August 2018) suggest that the net inflow (immigration minus emigration) for the year to April 2018 amounted to +34,000. Therefore, as one of our alternative scenarios we look at the implications for housing demand if the net inflow is assumed to be +30,000 per annum to 2051.
Figure 1: Population Projections for Ireland, 2016-2051
Source: CSO, Population and Labour Force Projections
The population projections indicate a significant change in the structure of Ireland’s population. The number of people aged over 65 years will more than double by 2051. Close to a quarter of the population will be aged over 65 years by 2051, compared with just over 12% in 2016.
Long-run projections of Ireland’s housing demand
7
Figure 2: Population structure compared, Ireland, 2016 and 2051
Source: CSO
The strength of the growth in Ireland’s population contrasts with the projections for many other EU
countries. Forecasts by Eurostat, see Table 2, show Eurostat population forecasts to 2050. Ireland’s
population growth is one of the strongest and contrasts with a number of other EU countries, where
projections suggest that population growth will be moderate or that the population could contract.
Long-run projections of Ireland’s housing demand
8
Table 1: Population projections to 2050, 2015=100
2015 2020 2030 2040 2050
European Union 28 100 101 103 104 104
Belgium 100 103 109 115 118
Czechia 100 101 101 100 99
Denmark 100 104 111 116 118
Germany 100 103 104 104 102
Ireland (Eurostat) 100 105 111 117 123
Ireland (CS0) 100 105 117 129 140
Spain 100 100 101 104 106
France 100 102 106 110 112
Croatia 100 97 94 90 87
Italy 100 100 99 99 97
Netherlands 100 103 109 113 114
Austria 100 105 113 118 119
Poland 100 100 98 94 90
Portugal 100 98 95 92 88
Slovakia 100 101 101 99 97
Finland 100 102 104 105 104
Sweden 100 106 115 123 130
United Kingdom 100 104 110 116 120
Norway 100 105 114 121 127
Source: Eurostat Note: Difference between Eurostat and CSO population projections mainly reflects difference in migration assumptions.
By 2051 the number of households in Ireland is projected to reach close to 2.8 million
Converting population projections into estimates of housing demand requires us to have some
estimate of the propensity of people to form an independent household – household formation.
Using data from the various Census between 1996 and 2016 we calculate headship rates for each
age group and gender. Headship rates are the proportion of those within each age group who
identify themselves as head of an independent household.
Given all that has happened in Ireland’s housing market in recent years a key assumption is over
what period do we take the trend in headship. The change in headship between 2011 and 2016 has
most probably been influenced by the economic crash and the lack of available accommodation.
The period between 2006 and 2011 will have been impacted upon by the economic crash that
commenced in 2007, while the period 2002 to 2006 will have seen headship rates reflecting the
housing market boom. Thus, we use the change in headship between 1996 and 2002. Although the
housing market grew strongly over the period the general view is that much of the activity reflected
conditions at the time and an economy and housing market that was catching-up with its European
neighbours. To take account of the difference in headship between the late-1990s/early 2000s and
2016 we “unwind” the impact of the crash on headship rates over the period to 2025 by using a
weighted average of the change in headship rates 2011-2016 and 1996-2002, with the weight
Long-run projections of Ireland’s housing demand
9
applied to the 1996-2002 period increasing over time. From 2025 on, the change in the headship
rate between 1996 and 2002 is applied1. The implied headship rates for 2051 are shown.
Table 2: Proportion who are heads of household, by age group 1996-2016
1996 2002 2006 2011 2016 2051
% within age cohort
All ages 31.0 32.9 34.7 36.2 35.9 46.6 Under 25 yrs 2.9 4.2 4.4 3.6 2.5
14.1
25 - 29 yrs 29.3 31.2 33.8 35.3 29.9 44.7
30 - 34 yrs 42.4 42.9 45.0 47.0 43.7 47.1
35 - 39 yrs 48.2 47.8 49.2 51.2 49.8 44.2
40 - 44 yrs 51.0 50.8 51.3 53.4 52.9 49.1
45 - 49 yrs 52.5 52.4 53.5 54.5 54.8 51.5
50 - 54 yrs 54.5 53.4 55.1 56.3 56.1 45.1
55 - 59 yrs 56.2 55.2 56.1 57.5 57.6 47.3
60 - 64 yrs 59.1 56.9 57.6 58.6 58.7 41.7
65 yrs + 62.6 61.9 62.6 63.5 62.9 56.9
Source: PII analysis based on Census data
We estimate that the number of households in Ireland in 2018 was just over 1.75 million. Combining
the assumptions outlined above with the population projections, we find the following:
• The number of households reaches close to 2.8m by 2051;
• New household formation averages nearly 32,000 per annum between 2019 and 2051;
• The majority of these new households are headed by a person aged over 50 years old.
1 We use the same approach as the UK Office for National Statistics, see “2016-based household projections for England: changes to methodology” June 2018.
Long-run projections of Ireland’s housing demand
10
Figure 3: New household formation, annual average
Census 2016 shows that average household size stabilised in 2016, with the average number of
persons per household at 2.75, compared to 2.73 in 2011. This represents the first growth in
average household size since the foundation of the State. It likely represents, for the most part
changes imposed on individuals’ living arrangements due to the housing crisis rather than any
change in peoples’ preferences. Our projections suggest that the long-run decline in average
household size recommences. Average household size declines to 2.12 persons per household by
2051.
The number of households headed by someone aged 65 years and over are projected to increase
by 174% between 2018 and 2051. Households headed by those aged under 65 years will increase
by just over 23%, although much of this is driven by households headed by someone aged under 25
years, just 6% of households in 2051.
Long-run projections of Ireland’s housing demand
11
Figure 4: Average household size
Close to 71% of the growth in households between 2018 and 2051 will be in households headed by
someone aged 65 years and over. This is in line with the projected ageing of the population. Ireland
is not unique in facing this situation. Projections by the UK Office for National Statistics show a
similar story for England2.
2 Office for National Statistics, (2018) Household projections in England: 2016 based, Statistical Bulletin
Long-run projections of Ireland’s housing demand
12
Figure 4: Number of Households by age of household head. 2016 and 2051
Census trends and the Irish Housing Market
In the analysis above, we set out the growth in the number of households based on population projections and household formation trends. We now look at the implications for the housing market from census trends in housing tenure and household size. As with the analysis above these projections are trend based and do not take account of how changing policies or economic factors would impact. For example, rising unemployment could lower the demand for owner-occupation.
Number of Persons per Household
Firstly, we look at the number of persons per household. Census data show a decline in the proportion of households consisting of 4 or more persons. Since 2006 this has represented approximately 30% of households. In 1996, the proportion was close to 40%.
In contrast we can see that the proportion of households with 2 or less persons has risen. In 1996, this proportion was over 44% and by 2016 had risen to 52%.
Long-run projections of Ireland’s housing demand
13
Figure 6: Number of persons per household, distribution
Looking at the proportion of households by number of persons also illustrates the extent of change
in Ireland. As is shown in Figure 7, the proportion of one-person households has risen to a higher
proportion than 3-person households. A further indication of the changes experienced is the decline
in 4+ person households as an overall proportion. Two-person household has risen to a proportion
similar to that of 4+ person households. It is evident from the graph that there has been some
flattening of the trend between Census 2011 and 2016. This is most probably due to the impact of
the economic crash on the housing market – lower housing supply, high unemployment, affordability
challenges and difficulties accessing mortgage credit.
0
20
40
60
80
100
1926 1936 1946 1961 1966 1979 1981 1986 1991 1996 2002 2006 2011 2016
%
1 person 2 person 3 person 4 person +
Long-run projections of Ireland’s housing demand
14
Figure 7: Change in household types: Ireland, 1961-2016
We apply the average change in proportion between 1926 and 2016 to our projected number of households to 2051. Based on these trends we can expect to see that much of the growth in households will be in one or two-person households (Figure 8) and by 2027 the number of one-person households will be higher than households consisting of 4+ persons. These households would increase from 52% of households to just over 67% of households in 2051. In contrast, the number of households consisting of 4+ persons decline, to just 15% of households in 2051.
Figure 8: Households by number of persons
Long-run projections of Ireland’s housing demand
15
Housing tenure
Census data show a decline in the proportion of households in owner-occupancy. Having been close to 80% of households in Census 2002 and 2006 it has now fallen to 67% in Census 2016. We have also seen an increase in the number of households renting. The rental sector now accounts for just over 28% of households. Just under 20% of households indicate that they are renting in the private rented sector and an additional 9.5% are renting in the non-market sector i.e. from a local authority or a voluntary association (see Table 3). What is striking is the lower level of homeownership in Census 2011 and 2016 when compared with Census 2002 and 2006.
Table 3: Household Tenure, 2002-2016
2002 2006 2011 2016
Owner occupied with loan or mortgage
529,557
593,513
583,148
535,675
Owner occupied without loan or mortgage
461,166
498,432
566,776
611,877
Rented from private landlord
141,459
145,317
305,377
309,728
Rented (LA/Voluntary Body)
88,206
155,989
143,975
159,943
Occupied free of rent
21,560
21,701
25,436
27,440
Not stated
37,669
47,344
24,696
53,002
Total Households
1,279,617
1,462,296
1,649,408
1,697,665
Projecting this forward (Table 4) suggests that by 2051 Ireland’s housing market would be very different to 2018, with over half of households in the rental sector, and just under 48% in owner-occupancy. However, the decline in the penetration of owner-occupiers with a mortgage and the increase in penetration of renters and unmortgaged owner-occupiers between 2011 and 2016 may well reflect the market conditions that prevailed at the time and so could be driven by the low level of transactional activity in the new and second-hand homes markets during this period. As a result, older people paid off mortgage debt and younger people had in many instances no real option but to rent. Thus, it is worth restating that these are projections based on trends and take no account of policy or behavioural changes that may occur. However, it does suggest that a continuation of current trends would see a dramatic transformation in housing tenure in Ireland.
Long-run projections of Ireland’s housing demand
16
Table 4: Ireland’s projected tenure change in a European context
Owner, with
mortgage or loan
Owner, no mortgage/housing
loan
Tenant, rent at market
price
Tenant, rent at
reduced price or
free
%
EU 26.6 42.6 19.9 10.8
Belgium 41.1 30.2 20.0 8.7
Denmark 47.4 14.3 38.3 0.1
Germany 26.2 25.5 39.8 8.4
Ireland 32.9 36.8 13.2 17.1
Ireland 2051 16.2 31.4 35.7 16.7
Spain 30.9 46.9 13.8 8.4
France 31.0 33.8 19.2 16.0
Croatia 5.8 84.3 1.6 8.4
Italy 15.9 56.3 16.8 11.0
Netherlands 61.0 8.0 30.3 0.7
Austria 25.2 29.8 29.7 15.3
Poland 11.6 71.8 4.5 12.1
Portugal 36.7 38.5 12.9 11.8
Finland 42.0 29.5 13.0 15.4
Sweden 54.8 10.4 34.0 0.8
UK 35.5 27.9 18.0 18.6
Source: Own analysis and Eurostat data
Long-run projections of Ireland’s housing demand
17
House type
Data from Census 2016 show that 12% of households in Ireland live in a flat or apartment. This compares to 8.6% of households in 2002. Eurostat data show the proportion of the population living in flats or apartments which indicates that this is much lower than many other European economies, (Figure 9). The National Planning Framework includes among it aims an emphasis on compact growth, renewing and developing existing settlements with a target of at least 40% of all new housing to be delivered within the existing built-up areas of cities, towns and villages on infill and/or brownfield sites.
As with our previous analysis we project the trend seen between the different Census forward to 2051. On this basis the proportion living in apartments would increase to close to 20% of households in 2051. The proportion living in houses would be 80% in 2051, based on current trends, compared with 86% in 2018.
Figure 9: Proportion of population living in Flats/Apartments, 2016
Source: Eurostat, Housing Statistics
Long-run projections of Ireland’s housing demand
18
Testing the impact of Alternative Assumptions
The discussion above is based on the assumptions outlined. We test the sensitivity of the household projections to our assumptions by looking at the outcome using alternative headship rates as well as the population projections with the high and low migration assumptions. CSO data show that the net inflow in the year to April 2018 was 34,000, up from 19,800 in the previous year.
Figure 10 shows the range of outcomes. If migration were to be higher, with a net inflow of 30,000 per annum, the number of households would increase to 3 million by 2051, an increase of 35,000 per annum on average.
In contrast, if headship rates were to continue the trend seen between Census 2011 and 2016 the number of households would only increase to 2.3 million, an increase of 15,000 per annum on average.
Figure 10: Number of Households, Alternative Scenarios
Long-run projections of Ireland’s housing demand
19
Appendix 1: CSO Population Projections Assumptions
The assumptions agreed by the Expert Group to project the population forward from 2017 - 2051
are summarised below.
Fertility Assumptions Agreed
F1: Total fertility rate to remain at the 2016 level of 1.8 for the lifetime of the projections
F2: Total fertility rate to decrease from 1.8 to 1.6 by 2031 and to remain constant thereafter
to 2051
Mortality Assumptions Agreed
Mortality rates for males and females are assumed to improve at 2.5% and 2.0% per annum
respectively in the short-term to 2040.
The long-term rate of improvement is assumed to be 1.5% per annum (unchanged since the
last report). The short-term rate declines linearly over a 25-year period to the long-term
rate.
These rates are assumed to apply to all ages up to age 90.
These assumptions will result in gains in life expectancy from:
- 79.3 years in 2015 to 85.6 years in 2051 for males
- 83.3 years in 2015 to 88.3 years in 2051 for females
Migration Assumptions Agreed
M1: Net migration +30,000 per annum to 2051
M2: Net migration +20,000 per annum to 2051
M3: Net migration +10,000 per annum to 2051
Long-run projections of Ireland’s housing demand
20
About Property Industry Ireland
Our vision: A sustainable Irish Property Industry which is creative, responsive, competitive and well-integrated in meeting the socio-economic needs of all the stakeholders in the built environment Our mission: To be the trusted partner and provider of “evidence based” information, policies and strategies for the property industry at National level, to the Oireachtas, Government, Local Authorities and Agencies, and for the benefit of the people of Ireland. Our objectives are to: 1. Be the Leadership Forum in the Industry for the discussion on National Property Issues 2. Develop, propose and support a National Property Strategy, policies and solutions to issues for the benefit
of the nation as a whole 3. Be a research led organisation, which collates and commissions relevant and innovative research on
Ireland's construction sector in order to promote & sustain a competitive economy 4. Be the go-to organisation for Government and the Oireachtas on all aspects of property 5. Work with all stakeholders in the industry to restore it to a sustainable position in the economy 6. Increase membership through demonstrating the achievements and outcomes in relation to national
strategy and policy PII Council: Tom Phillips, Tom Phillips + Associates (Chairman) Aidan O’Hogan, Property Byte Ltd. Patricia O’Brien, BHK Solicitors Tony Reddy, Reddy Architecture + Urbanism Padraic Whelan, Deloitte Michael O’Flynn, O’Flynn Group Jim Gallagher, Lafferty Mark FitzGerald, Sherry FitzGerald Ivan Gaine, Sherry FitzGerald David O’Connor, David O’Connor Consulting David Clarke, Goodbody Stockbrokers Paddy McElligott, Activate Mark McGreevy, John Sisk and Son Policy Committee Chairs: Technical and Construction Issues – Jim Gallagher, Lafferty Planning and Development – John Spain, John Spain Associates Funding Initiatives – Paddy McElligott, Activate Market Supply and Demand – Ivan Gaine, Sherry FitzGerald Executive: David Duffy, Director David Howard, Policy Executive
Recent publications: • The Property Industry – Rebuilding Ireland’s
Economy (2011) • Development of infrastructure Bonds (2011) • Real Estate Investment Trusts for Ireland
(2012) • Putting the Residential Property Market on
a Sustainable Footing (2012) • Planning a better future: a report on reform
of the Irish Planning System (2012) • Towards a National Property Strategy
(2013) • Delivering Ireland’s Property Needs (2014) • A National Spatial and Development Plan
for Ireland (2014) • The Cost of Construction in Ireland: A
European comparison (2014) • Investing in Social Housing (2014) • Housing Manifesto (2015) • Policy Reform to Increase the Delivery of
New Housing (2016) • Delivering Rebuilding Ireland: PII Pre-
Budget 2017 Submission (2016) • Tax Treatment of Rental Income (2017) • Rental Strategy Response (2017) • Pre-Budget 2018 Submission (2017) • Submission to Rebuilding Ireland Review
(2017) • Property Industry Ireland (PII) response to
Draft Ireland 2040 – Our Plan National Planning Framework (2017)
• Brexit and Ireland’s Property Sector (2018) • BCAR – Recommendations for Reform
(2018) • Better housing: improving affordability and
supply (2018) • PII Submission on Land Development
Agency (2018)
Long-run projections of Ireland’s housing demand
21
The majority of PII’s work, whether it is briefings on policy, discussions with experts or preparing of positions and deliverables happens through these four policy committees. Each Committee meets roughly every two months to discuss the main issues facing the industry.
The Market Supply and Demand Committee exists to review, monitor and advise PII Council and external stakeholders on market supply and demand and required public policy changes in relation to:
• Current and future supply of commercial and residential property
• Current and future demand for commercial and residential property
• Analysing data gaps and research requirements in relevant areas
• Measures to enhance market confidence and achieve a sustainable level of activity
The Planning and Development Committee exists to review, monitor and advise the PII Council and external stakeholders on the Irish planning and associated regulatory system and required public policy changes in relation to:
• Promoting a positive pro-active planning and associated regulatory system
• Driving necessary reform of the system
• Incorporating best international practice into Irish planning
• Ensuring the financial elements of planning are robust and appropriate
The Construction and Technical Committee exists to review, monitor and advise the PII Council and external stakeholders on technical and construction issues and required public policy changes in relation to:
• Promoting activity in the industry, notably in relation to the Government Jobs Action
Plan
• Exploiting sustainable growth opportunities in Ireland and overseas
• Improving the industry cost base and competitiveness
• Responding to specific industry issues as they arise
The Funding Initiatives Committee exists to review, monitor and advise the PII Council and external stakeholders on potential property funding initiatives and required public policy changes in relation to:
• Attracting international capital into Irish property
• Encouraging greater institutional investment in property
• Enhancing domestic bank lending & investment
Remember if you are unable to attend a committee meeting you are welcome to appoint an appropriate alternate.
Long-run projections of Ireland’s housing demand
22
Notes
23
Long-run projections of Ireland’s housing demand
24
Property Industry Ireland
84 - 86 Lower Baggot Street
Dublin 2 Ireland
01 605 1666
www.propertyindustry.ie