Housing Bubble Bursting

faceman

beeno67 wrote: »

Sorry Calina. Births have been constantly rising for the last 15 years and deaths have been falling for a similar length of time. There are currently 35,000 more births than deaths every year

Im sure its higher than that?

Calina

beeno67 wrote: »

Sorry Calina. Births have been constantly rising for the last 15 years and deaths have been falling for a similar length of time. There are currently 35,000 more births than deaths every year

Current birthrate is 1.9 per woman which is below replacement. Additionally, 35,000 births is still below the rate of building expected this year which is a slow year for building. It is not going to bring the supply you expect. If it would, we wouldn't be so worried about pensions going forward either.

SimpleSam06

Also the birth rate has been falling since at least 2003, despite massive immigration.

beeno67

Calina wrote: »

Current birthrate is 1.9 per woman which is below replacement. Additionally, 35,000 births is still below the rate of building expected this year which is a slow year for building. It is not going to bring the supply you expect. If it would, we wouldn't be so worried about pensions going forward either.

http://www.cso.ie/statistics/bthsdthsmarriages.htm
Births 2006 64,327
Deaths 2006 27,479
Difference is 36,848

The pension problem while not as great as in other countries is precisely because the death rate is falling. People are pensioners for longer.

Calina

So let me see, 35,000 extra people are being born every year over the past X years during which time we were building far in excess of 35,000 houses a year, and in fact, in 2006 built close to 90,000 houses? And our current average household size is 3.

We have a monumental number of empty properties. Eight years of that excess birth over deaths will fill them if they get one each.

Glenbhoy

beeno67 wrote: »

People keep on saying emmigration is rising but no one can back it up with anything beyond personal opinion. I can see no evidence of this emigration. However lets assume 200,000 people emigrate from this country in next three years (as someone put foward yesterday). Given an average occupancy rate of 3 per household this would represent 65,000 households or so, either for sale or up for rent or 22,000 per year. When you consider that 88,000 new properties were completed in 2006 alone it is difficult to see this massive emigration having the dramatic effect on house prices that people predict.

I never said that immigrants had started returning yet, like everybody else here, I'm just speculating!! However, I believe that the Polish embassy has stats showing that the numbers coming here has dwindled to a trickle, they don't have figures on how many have left the country though.
The birth rate has fallen btw, whilst actual numbers may not have, the rate certainly has.
It's my belief that our population will stabilise, but possibly decline over the next decade and I see little or no growth potential. But then I'm one of the doom and gloom mongers who talked us into this recession:rolleyes:

beeno67

Calina wrote: »

So let me see, 35,000 extra people are being born every year over the past X years during which time we were building far in excess of 35,000 houses a year, and in fact, in 2006 built close to 90,000 houses? And our current average household size is 3.

We have a monumental number of empty properties. Eight years of that excess birth over deaths will fill them if they get one each.

But Calina houses are not built for babies. In the past 10 years the population increased by 600,000. Also the average size of household decreased from 3.14 to 2.8. This is because the 1970s baby boomers came of an age to buy property and so moved out of their parents houses to their own places thus resulting in a build up of housing demand. This demand eventually decreased but the amount of properties being built continued to rise, as you say reaching almost 90,000 in 2006 which was when supply outstripped demand and prices fell.

SimpleSam06

Citing population growth in the 1970s as the main push behind the house price boom really doesn't work when you consider that 40% of purchases were made by investors during the height of the boom, and more by trader uppers, and they still didn't buy all the houses built during that period.

Edit, actually, looking into it a bit further, at 35,000 births a year (assuming that remains stable and doesn't continue dropping), only 20,000 new homes will need to be built every year, taking 1.78 as the most recent new household size. Add 7000 houses a year to replace derelicts, according to FAS, and say 15% for second home demand, and you have just over 30,000 new homes a year needed.

Which still falls short of the projected 40,000 to 50,000 units projected to be built in 2008 and 2009, and doesn't even begin to eat into the overhang.

SkepticOne

SimpleSam06 wrote: »

That must be where I got it from so. In any case interest rates were rising throughout the period, which does represent a tightening of credit, whether or not commenters on here like it. The more spectacular recent collapses are what jimmy o'specuvestor sees in the newspaper, and thinks its all some new thing, as Calina pointed out.

Another possible reason for the confusion might be the fact that year-on-year drops based on the ESRI/PTSB figures only started in the latter half of 2007. Up until that point people may have felt it was just a temporary blip.

I would maintain that tightening credit was not the main reason for the bursting of the Irish property bubble but it may have brought forward the inevitable pop. Ultimately the bubble, like all bubbles, popped because it ran out of buyers. Even if base rates stayed at the all-time low of 2% there would still come a time when the market runs out of buyers it would just happen later and at higher prices. Interest rates, tightening of credit and so forth merely influence the timing.

SimpleSam06

SkepticOne wrote: »

Ultimately the bubble, like all bubbles, popped because it ran out of buyers.

Yes, but what qualifies a buyer? The desire to buy and the ability to pay. Its that latter half of the equation that tightening credit hits - buyers get their money from the banks, and the money supply of the banks is dependent on credit conditions.

SkepticOne

SimpleSam06 wrote: »

Yes, but what qualifies a buyer? The desire to buy and the ability to pay. Its that latter half of the equation that tightening credit hits - buyers get their money from the banks, and the money supply of the banks is dependent on credit conditions.

This is true, but let us imagine that the banks did not tighten credit and interest rates stayed low. Eventually prices would rise to the extent that buyers despite the strong desire to buy would no longer have the ability to pay, purely due to high prices. Without buyers the prices would be unable to rise further and, since rising prices is the thing drawing people into the market, prices start falling. All bubbles end this way.

SimpleSam06

SkepticOne wrote: »

buyers despite the strong desire to buy would no longer have the ability to pay, purely due to high prices.

Yes, but they no longer have the ability to pay because the banks no longer have the ability to lend them that much money, again going back to the credit situation. The practical cap on high housing prices is exactly how much the banks are willing to lend.

I think we're singing from the same sheet here, just looking at it from different angles.

SkepticOne

SimpleSam06 wrote: »

Yes, but they no longer have the ability to pay because the banks no longer have the ability to lend them that much money, again going back to the credit situation. The practical cap on high housing prices is exactly how much the banks are willing to lend.

Yes, but it is not due to any tightening on the part of the banks.

I think we're singing from the same sheet here, just looking at it from different angles.

I agree.

beeno67

SimpleSam06 wrote: »

Citing population growth in the 1970s as the main push behind the house price boom really doesn't work when you consider that 40% of purchases were made by investors during the height of the boom, and more by trader uppers, and they still didn't buy all the houses built during that period.

Of course it does.
1996 Pop 3,626,081. Household size 3.14 means 1,154804 homes needed
2006 pop 4,239,848. Household size 2.81 means 1,508842 homes needed
It doesn't matter who owns these homes whether investors or owner occupied. They still needed to be built.

SimpleSam06 wrote: »

Edit, actually, looking into it a bit further, at 35,000 births a year (assuming that remains stable and doesn't continue dropping), only 20,000 new homes will need to be built every year, taking 1.78 as the most recent new household size. Add 7000 houses a year to replace derelicts, according to FAS, and say 15% for second home demand, and you have just over 30,000 new homes a year needed.

Which still falls short of the projected 40,000 to 50,000 units projected to be built in 2008 and 2009, and doesn't even begin to eat into the overhang.

If you are correct (but I think you are wrong) and the new household size is 1.78 then we will need 2,381937 homes, or basically 800,000 new homes and that is before any population increase.

SimpleSam06

beeno67 wrote: »

Of course it does.
1996 Pop 3,626,081. Household size 3.14 means 1,154804 homes needed
2006 pop 4,239,848. Household size 2.81 means 1,508842 homes needed
It doesn't matter who owns these homes whether investors or owner occupied.

I'm fascinated by this. You're saying that 35,000 houses needed to be built a year for the last ten years, give or take. Have you got any actual figures as to the number of houses built per year over the last ten years?

beeno67 wrote:

If you are correct (but I think you are wrong) and the new household size is 1.78 then we will need 2,381937 homes, or basically 800,000 new homes and that is before any population increase.

Between 2002 and 2006, the number of households grew by 181,563. In the same period the population grew by 322,645. The figure of 1.78 is the figure of new households that can be derived from this, and is an extremely generous derivation given that an element of that population growth was in immigrants. It would however synch with the notion of new homeowners being singletons and young couples.

These are the figures for the long term housing requirement. I have no idea where you are getting 2.3 million homes from.

beeno67

SimpleSam06 wrote: »

I'm fascinated by this. You're saying that 35,000 houses needed to be built a year for the last ten years, give or take. Have you got any actual figures as to the number of houses built per year over the last ten years?

35,000 plus your figures which I will not argue with of 7000 for derelicts and 15% for second homes. So about 45,000. I am unsure of all figures but for most of this 10 year period but it peaked at 88,000 in 2006 which caused the property collapse as supply greatly exceeded demand

SimpleSam06 wrote: »

Between 2002 and 2006, the number of households grew by 181,563. In the same period the population grew by 322,645. The figure of 1.78 is the figure of new households that can be derived from this, and is an extremely generous derivation given that an element of that population growth was in immigrants. It would however synch with the notion of new homeowners being singletons and young couples.

These are the figures for the long term housing requirement. I have no idea where you are getting 2.3 million homes from.

As I said I based this on your figures which I felt were wrong

Calina

I'm actually lost now. beeno67, what *exactly* is your point? That house prices are going to continue to exist in a zone where the average house costs ten times the average salary? I know that SimpleSam06 expects a correction and I know I do but I can't actually see what your point is.

beeno67

Calina wrote: »

I'm actually lost now. beeno67, what *exactly* is your point? That house prices are going to continue to exist in a zone where the average house costs ten times the average salary? I know that SimpleSam06 expects a correction and I know I do but I can't actually see what your point is.

The main cause of the property slump was excess supply over demand. Obviously prices will fall.

miju

no that was a contributing factor to house price falls. In late 2006 before inventory started to build up we were noticing price drops over on AAM which led to them banning discussion on property market

beeno67

beeno67 wrote: »

The main cause of the property slump was excess supply over demand. Obviously prices will fall.

I meant to add that there is still demand for property out there and unless emmigration takes off (which there is no sign of) then prices will quickley settle again. Re MIJUs comment there was also oversupply in 2005 (80000 house completions) as well, but it came to a head in 2006

martian1980

beeno67 wrote: »

I meant to add that there is still demand for property out there and unless emmigration takes off (which there is no sign of) then prices will quickley settle again. Re MIJUs comment there was also oversupply in 2005 (80000 house completions) as well, but it came to a head in 2006

Care to give us a prediction for when you expect prices to settle?

gurramok

beeno67 wrote: »

People keep on saying emmigration is rising but no one can back it up with anything beyond personal opinion. I can see no evidence of this emigration. However lets assume 200,000 people emigrate from this country in next three years (as someone put foward yesterday). Given an average occupancy rate of 3 per household this would represent 65,000 households or so, either for sale or up for rent or 22,000 per year. When you consider that 88,000 new properties were completed in 2006 alone it is difficult to see this massive emigration having the dramatic effect on house prices that people predict.
Add to this the fact that there are about 600,000 people between the ages of 15 and 24 a large percentage of whom will enter the housing market in the next few years.
I should of course add to this that between 1981 and 1991 when we had massive emmigration from this country, when almost every family had some member leave the country, the population still rose by 100,000.

Birth rates plummeted between 1981(peak yr) and 1994(slump yr), from 74,000 to 48,000. (http://www.cso.ie/statistics/bthsdthsmarriages.htm)

That means there are maybe plenty of over 24yr olds up to maybe around early 30'ish (1983 i think was yr of dramatic fall in birth rate i think). Early 30'ish tallies with economic growth mid-90s onwards.

Now, all of the above means, there is a 20,000 shortage in native buyers for each year under 24. And we all well know that this demographic dont earn buckets until a few years later to afford that expensive house/apt.

The population rose by 82,000 between 1981 and 1991(http://www.cso.ie/statistics/Population1901-2006.htm), the reason was the birth rate, it was high then for a 'Catholic' country.

Now fast forward on, emigration was 42,000 last yr(see pic from cso database http://i181.photobucket.com/albums/x283/gurra2011/Misc/migration2007.jpg), there's your evidence

Note the inward migration which was a record. If this falls and the latest stats from PPS shows its has by 40% in Q1 '08 so far, there is an ever increasing reliance on increasing the population through natural ways as native emigration will eat into the numbers.

beeno67

gurramok wrote: »

Birth rates plummeted between 1981(peak yr) and 1994(slump yr), from 74,000 to 48,000. (http://www.cso.ie/statistics/bthsdthsmarriages.htm)

That means there are maybe plenty of over 24yr olds up to maybe around early 30'ish (1983 i think was yr of dramatic fall in birth rate i think). Early 30'ish tallies with economic growth mid-90s onwards.

Now, all of the above means, there is a 20,000 shortage in native buyers for each year under 24. And we all well know that this demographic dont earn buckets until a few years later to afford that expensive house/apt.

The population rose by 82,000 between 1981 and 1991(http://www.cso.ie/statistics/Population1901-2006.htm), the reason was the birth rate, it was high then for a 'Catholic' country.

Now fast forward on, emigration was 42,000 last yr(see pic from cso database http://i181.photobucket.com/albums/x283/gurra2011/Misc/migration2007.jpg), there's your evidence

Note the inward migration which was a record. If this falls and the latest stats from PPS shows its has by 40% in Q1 '08 so far, there is an ever increasing reliance on increasing the population through natural ways as native emigration will eat into the numbers.

Thanks for the figures. Obviously these back up my point. There was net migration into Ireland last year of 70,000, with immigration of over 110,000. (also the figures seem to exclude Eastern Europe, or am I reading them wrong) Add to that the approx 50,000 people every year who enter the property market (either buying or renting) and based on SimpleSam06 figures of 1.78 people per household that means 67,000 new homes needed last year + 7000 for derelicts and 15% for second homes you can see that some of the backlog in housing will already have been cleared up. Even if you accept that immigration will drop by 40% with only 40,000 new builds this year we should eat further into the backlog.

SimpleSam06

beeno67 wrote: »

Thanks for the figures. Obviously these back up my point. There was net migration into Ireland last year of 70,000, with immigration of over 110,000. (also the figures seem to exclude Eastern Europe, or am I reading them wrong) Add to that the approx 50,000 people every year who enter the property market (either buying or renting)

Eh, no. Very few of the economic migrants are going to be buying in Ireland. Where are you getting 50,000 people per year from? And renting doesn't equal 1.78 people per house, far from it. Its more like 3 to 4 people per house, so factoring this number into the potential buyers market is completely wrong.

You are making no sense at all here.

gurramok

Yeh, they include all immigrants so total increase in pop was 110.

So we rely on 50,000 a year new entrants who live 2 max to a house plus immigrants minus whoever leaves here and the big minus....the nearly 30,000 DEAD plus those carted off to nursing homes who most would be homeowners and free up houses for the market.:D

Care to expand on the 67,000 figure for new homes needed, can't see where you got it from?

If 67,000 is a real figure which i seriously doubt, they must be majorally single habitants.

And then again if its true, they need buyers who can afford them which is not happening now.

The_Conductor

beeno67 wrote: »

Thanks for the figures. Obviously these back up my point. There was net migration into Ireland last year of 70,000, with immigration of over 110,000. (also the figures seem to exclude Eastern Europe, or am I reading them wrong) Add to that the approx 50,000 people every year who enter the property market (either buying or renting) and based on SimpleSam06 figures of 1.78 people per household that means 67,000 new homes needed last year + 7000 for derelicts and 15% for second homes you can see that some of the backlog in housing will already have been cleared up. Even if you accept that immigration will drop by 40% with only 40,000 new builds this year we should eat further into the backlog.

Fewer than 1 in 8 inward migrants purchase Irish property in their first 6 years of residence in the country. On average those rental properties have 4.2 people living in them. This equates to an inherent increased need in housing of approximately 16,650 units from immigrants. The level of net inward migration fell 41% in Q1 2008 on Q1 2007 figures, and figures on outward migration have been declared as unreliable by the CSO. This equates to a net increase in your backlog, even at current depleted building levels.

beeno67

SimpleSam06 wrote: »

Eh, no. Very few of the economic migrants are going to be buying in Ireland. Where are you getting 50,000 people per year from? And renting doesn't equal 1.78 people per house, far from it. Its more like 3 to 4 people per house, so factoring this number into the potential buyers market is completely wrong.

You are making no sense at all here.

SimpleSam06 as I said the 1.78 is based on figures YOU gave for new households (you never said buying or renting). I have previously said I didn't believe these figures.
As I have said before there are 600,000 people aged 15-24years. Over the next 10 years if you assume 80% of these either rent or buy (a conservative estimate I think you will agree) that makes 50,000 per year entering the housing market in some form. Add to this the 70,000 net imigrants last year that makes 120,000 people needing accomodation. It doesn't matter if they rent or buy. They still need accopmodation. At the national average of 2.81 people per household that makes a need for 43,000 new houses. Add to that YOUR figure of 7,000 for derelicts that makes 50,000. Add to that YOUR figure of 15% for second/holiday homes that makes 57,000. Still enough to eat into backlog.

SkepticOne

Here's my working of the figures:

CSO

2002: Households: 1,287,958 (cso)
2006: Households: 1,469,521 (cso)

Net increase in households = 181,563
Therefore net rate of household formation = 45,391 pa

Add in 15% second homes = 52,199 (SimpleSam06)
Add in 7000 derelicts = around 59,000 (SimpleSam06)

Building requirement for 59,000 per year based on 2002 - 2006 census results plus estimates.

I would expect the figure to be much reduced in non-boom years. In particular the second home requirement. Immigration will also be reduced.

beeno67

SkepticOne wrote: »

Here's my working of the figures:

CSO

2002: Households: 1,287,958 (cso)
2006: Households: 1,469,521 (cso)

Net increase in households = 181,563
Therefore net rate of household formation = 45,391 pa

Add in 15% second homes = 52,199 (beeno67)
Add in 7000 derelicts = around 59,000 (SimpleSam06)

Building requirement for 59,000 per year based on 2002 - 2006 census results plus estimates.

I would expect the figure to be much reduced in non-boom years. In particular the second home requirement. Immigration will also be reduced.

Thank you. Very clearly put

SimpleSam06

beeno67 wrote: »

SimpleSam06 as I said the 1.78 is based on figures YOU gave for new households (you never said buying or renting). I have previously said I didn't believe these figures.

That is an estimation for new households, and a generous one at that. I don't really care if you believe it or not.

beeno67 wrote: »

As I have said before there are 600,000 people aged 15-24years.

First off, back that figure up with a link. Secondly, how many of these are economic migrants? Half? They won't be buying any houses.

What you're getting at here was the housing boom was caused purely by supply and demand, and when demand turned less than supply, prices started to drop. So if demand exceeds supply in a couple of years, we'll all be back in the property boom again?

Of course it was the exact same story in other countries which had a simultaneous property boom, no doubt, such as the US and the UK. And we all know Australia is chronically short of living space.

Nah, their booms happening at the same time as ours is just coincidence. Right? So we all better start filling our piggy banks for the next round of 15% annual price rises... Oh thats right, we won't need to, since the banks will be giving us all 110% mortgages.

SkepticOne wrote: »

2002: Households: 1,287,958 (cso)
2006: Households: 1,469,521 (cso)

Net increase in households = 181,563

The CSO gives the following numbers for property completion in that period (keep in mind this is new dwellings completed, and excludes older and second hand homes):
2002 57,695
2003 68,819
2004 76,954
2005 80,957
2006 93,419

Total: 377,844

Supply exceeded demand from the start of the bubble. if 181,563 households (whatever the CSO defines that as) were formed in that period, that still leaves 196,281 of an overhang of new dwellings from that period alone, plus the annual completions ongoing, which means the overhang wouldn't be cleared for some 10-15 years, even at the breakneck pace of household formation seen in the last five years.

Supply and demand never played anything but a minor part in the insane rise in prices during the bubble.