irish housing market
TRANSCRIPT
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Irish Housing Market From the ground up
February 2015
Irish housing recovery is broadening
Supply shortages growing in Greater Dublin Area in particular
Central bank mortgage rules will be key to a stable market
EconomistsDermot O’Leary T +353 1 641 9167 E [email protected] Tennent T +353 1 641 9469 E [email protected]
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Irish Housing Market A detailed analysis
Irish Housing – From the ground up
Economic Research 06 Feb 2015
Moving to a better quality housing recovery
The Irish housing market is two years into what we believe is a sustainable
recovery. Led by Dublin, the first stage of this recovery has been in prices. A
normalisation of transactions, mortgage credit and supply over the coming years
will improve the quality of this recovery. Strong, albeit moderating, house price
growth, though, will continue to be a feature.
Ireland’s unique demographics continue to support housing demand
Housing demand has remained strong in Ireland even through the recent deep
recession, due to the country’s young and growing population. This helped mop up
the supply excesses of the boom years in urban areas. Demand has risen further
as labour market conditions, confidence and the banking system have recovered in
the context of the fastest-growing economy in the euro area.
Supply growing, but not keeping up with demand
Housing completions grew for the first time in eight years in 2014. However, at
11,000 units, supply remains 88% below peak levels and, more importantly, is
well below our c.30,000 medium-term demand forecast. It may take until the end
of the decade for supply to match expected household demand, given development
and planning lags, construction sector capacity constraints and limited financing.
The supply shortages are most acute in the Greater Dublin Area.
CB rules: short-term slowdown, medium-term stability
New Central Bank mortgage restrictions will cause a moderation in new mortgage
lending, but this will not occur until the second half of 2015. We now expect gross
lending growth of 29% in 2015, followed by 11% in 2016. The measures are
aimed at preventing a repeat of the credit-fuelled housing bubble of the 2000s,
and are something that we welcome. The tighter lending standards must be set
against growing demand and low interest rates. Annual gross lending of €8bn is a
reasonable target for a "normal" level of lending (c.€4bn currently), but this will
not be achieved until later in the decade.
The price is right
Prices should reflect underlying fundamentals but sometimes become detached
due to expectations, both on the upside and the downside. Ireland has
experienced both in the past decade. We believe that prices right now are close to
fair-value, and will see strong, albeit moderating growth over the next two years
(7% in 2015, 5% in 2016). Price/income ratios and affordability metrics are close
to historical averages, but will deteriorate over the coming years. From an
investment perspective, residential yields offer a significant pick-up over
government bonds, and strong growth will see rents (9% in 2015, 8% in 2016)
surpass the previous peak by the end of this year.
0
50
100
150
200
250
300
350
400
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015f
Index (
1995=
100)
Real prices House completions
5 phases in the Irish housing market
Source: CSO, ptsb, DoELG
Phase 1 -Convergence & the Celtic Tiger
Phase 2 - Wrong policies
Phase 3 -Detached from reality
Phase 4 - Bust Phase 4 -Recovery
-4%
-2%
0%
2%
4%
6%
8%
10%
Under/
over
supply
Under/over supply* by region
Source: CSO, Goodbody *Difference between vacancy rate and assumed 7% "normal" rate
10%
15%
20%
25%
30%
35%
1993Q1 1996Q4 2000Q3 2004Q2 2008Q1 2011Q4 2015Q3fMort
gage %
dis
posable
incom
e
Affordability close to long-term average
Source: CSO, Central Bank, Dept of Finance, Goodbody estimates
Forecast
Long-term average
Economists
Dermot O'Leary
+353-1-641-9167
Juliet Tennent
+353-1-641-9469
Goodbody
Page 2 06 Feb. 2015
The Irish housing market – Key Themes
From boom to bust to recovery
For the past twenty years, Ireland’s housing market has rarely been in equilibrium. In the
1990s and early 2000s demand was fuelled by record economic growth, rapid household
formation, inappropriately low interest rates and supportive government policy. Supply was
unable to keep up, thus prices grew expeditiously. Credit growth and expectations then
played a big role in further strong price growth from 2003-2007. Then the bust came, which
was exacerbated by an international credit crunch and the collapse of the banking system.
Following a halving of house prices and a 90% decline in new supply, the Irish housing
recovery first began in Dublin in the middle of 2012, with prices up almost 50% since that
trough. Prices troughed somewhat later outside of the capital and have risen by 14% since
then. An increase in prices, while helpful in some respects (for banks and homeowners for
instance), does not represent a quality recovery.
For a quality recovery to take place, it needs to be accompanied by a normalisation of
supply, transactions and mortgage lending. These should all be a feature over the coming
years, but supply growth will be insufficient to keep up with demand in our view, leading to
further growth in prices and rents. This growth will reflect supply/demand imbalances,
particularly in the Greater Dublin Area, rather than being fuelled by expectations of capital
appreciation. New Central Bank macro prudential rules should ensure that there is no repeat
of the mid-2000s situation.
A unique demographic structure supports solid housing demand
Ireland has a number of demographic features that make it rather unique in a European
context. These include: (i) the youngest population, as measured by the median age; (ii) the
highest birth rate; (iii) the lowest death rate; (iv) large migration flows relative to the total
population, and; (v) an expectation of continued population growth over the coming two
decades. These will continue to be supportive to housing demand over the medium-term.
While there has been significant migration outflows over recent years, Ireland’s population
did not fall and the number of households has continued to increase. Our estimates suggest
that household formation will continue to grow over the next decade. Under a low migration
scenario, household formation is expected to grow to 21,000 per annum over the 2016-2021
period, while under a high migration scenario, household formation will be 26,000 per
annum. This is up significantly on growth of recent years (c.13,000). Beyond 2016 and
allowing for replacement stock, we believe that annual housing demand will grow to between
27,000 and 36,000 units per annum.
There are important regional differences that one must be aware of when assessing the
prospects for the Irish housing market. On the demand side, the share of the total
population in the Greater Dublin Area will continue to increase, reflecting the lure of
employment in the city, both from internal and external migration and the higher starting
base.
Supply shortages to increase in the short-term
Overbuilding in the boom years of the 2000s caused an oversupply in the Irish housing
market, reflected by the fact that 11.5% of the housing stock was vacant in 2011. Within
this, there were important differences between locations and types of properties. For
instance, 25% of apartments were vacant but 10% of houses were. Regionally, the vacancy
rate ranged from 5% in South Dublin to 23% in Leitrim. The lowest vacancy rates were all in
the Greater Dublin Area, and were below "normal" even in 2011.
Goodbody
06 Feb. 2015 Page 3
We believe that the supply shortages in the Greater Dublin Area (GDA) have grown in the
period since 2011, particularly for houses. This has pushed prices and rents up rapidly. A
natural response, therefore is an increase in supply. This started in 2014, with housing
completions almost doubling to 4,427. This increase accounted for the bulk of growth in
housing supply nationally last year (11,016 in total). We expect further growth to 15,000 in
2015 and to 18,000 in 2016, but it may take until the end of the decade to catch up with
demand.
The slow supply response can be attributed to a number of factors, including: (i)
construction sector capacity; (ii) the scale of price declines; (iii) funding; (iv) planning, and;
(v) building regulations. The Construction 2020 government strategy aims to correct some of
these issues, and is to be welcomed, but the changes are already overdue and will not be
solved in the short-term.
Important cohort of renters but owner-occupation is expected to pick-up
The most recent Census revealed that there was a sizeable drop in the number of owner-
occupiers and a significant increase in renters in Ireland in the 2006-2011 period. This has
raised questions as to whether a cultural shift is occurring in the way in which Irish people
view housing ownership. While we believe that there is a growing cohort of renters,
particularly in urban locations, tight credit conditions, poor employment prospects and low
confidence would have also played a role in the large jump in renters over recent years.
Still well below a "normal" level of mortgage lending
Mortgage lending grew strongly in 2014 (+55%) and is expected to grow impressively in
2015. Growth is expected to slow significantly in 2016 due to the imposition of the new
mortgage lending caps by the Central Bank. Compared with the UK, mortgage lending and
turnover remain disappointingly low.
Given that Irish households are among the most indebted in the developed world (as
measured by aggregate debt to disposable income), it is often commented that demand for
mortgages will remain low in the medium-term. Aggregate statistics, however, do not take
account of important distributional differences. Debt is very much concentrated in the 35-54
age cohort, while only 27% of adult households have a mortgage at all.
Social housing demand adding to pressures in the rental market
Demand for social housing has been rising in recent years. At the same time, new supply has
effectively ceased due to the government’s fiscal constraints. As a result, the government
has increasingly resorted to the private rental sector for housing, with 40% of the private
rental sector in receipt of some form of government support. With 100,000 on the social
housing waiting list, the Government has committed to providing new social housing units,
but will also rely on the private sector for rental properties, thus putting further upward
pressure on rents.
Price inflation to moderate due to Central Bank mortgage caps and increased stock for sale
Irish house prices grew by 16% yoy in 2015, with prices inside and outside the capital rising
strongly. While we expect strong growth to continue in H1, a moderation is anticipated in the
second half and into 2016, as the new Central Bank mortgage lending rules kick in and the
stock for sale increases on the back of repossessions and a fall in the number in negative
equity. This moderation in price inflation will be particularly felt in Dublin, given that a bigger
proportion of potential homebuyers will be impacted. Despite this, we still expect house price
inflation of 7% and 5% in 2015 and 2016, respectively, with further growth expected beyond
2016.
Goodbody
Page 4 06 Feb. 2015
Affordability metrics show prices close to fair value
While house prices have performed better than expected they are coming from very low
levels and remain 38% below the peak. We have analysed house price recoveries from rapid
falls. This shows that the Irish recovery has been only modestly quicker than the average of
past international recoveries to date and the easing of house price growth over the next two
years will see the Irish recovery start to lag.
Our analysis also shows that despite the rapid recovery, house prices are currently close to
fair value and remain affordable in an historical context. Price to income ratios using
disposable income (3.5x) and disposable income per capita (10x) are both close to long term
averages. Our affordability model shows that average mortgage payments (average house
price, average income) equate to 21% of joint disposable income. This in in line with the
long term average of 22% and below the 30% on which the Central Bank based its macro
prudential rules.
Renting remains more expensive than buying at the current time. However, on our current
forecasts all metrics will move above their long term averages by the end of our 2 year
horizon. In addition, quicker house price growth than our forecasts that is not offset by
better wage growth will see affordability deteriorate faster. An earlier, faster trajectory for
base rates could also impact affordability although there is also further room for Irish banks
to reduce their spreads, as has been the case recently. On the opposite extreme,
affordability would improve if earnings growth exceeds our modest assumption of 2% per
annum.
As the increase in house prices has been accompanied by rising rents, rental yields have
remained stable, finishing 2014 at c.5.3%. We expect rents to continue to be supported by
both the supply/demand dynamics and the new LTV limits and to average 5.4% over the
coming two years. This compares very favourably with government bond yields which have
been falling steadily with the current rental yield c.4% higher than the Irish 10 year.
Moreover, strong rental growth will continue to be a feature over the coming years,
averaging 9% per annum.
Key housing metrics
2012 2013 2014f 2015f 2016f
House completions 8,488 8,301 11,016 15,276 17,943
Av. house price (€, end-year) 167,860 178,575 207,657 221,595 232,840
Price inflation (% YoY, end-year) -4.5% 6.4% 16.3% 6.7% 5.1%
- Dublin (% YoY, end-year) -2% 16% 22% 7% 4%
- Non-Dublin (% YoY, end-year) -6% 0% 10% 7% 6%
Gross mortgage lending (€m) 2,636 2,495 3,869 4,981 5,551
Growth in gross lending 7% -5% 55% 29% 11%
Net mortgage lending growth
(end -year) -2.9% -3.3% -1.9% -0.9% -0.4%
Rental growth 3.5% 8.5% 8.0% 9.0% 8.0%
Gross rental yield (end-year) 5.5% 5.6% 5.3% 5.4% 5.5%
Source: CSO, DoELG, BPFI, Goodbody
Goodbody
06 Feb. 2015 Page 5
CONTENTS
Executive Summary .................................................................................................................. 1
The Irish housing market – Key Themes .................................................................................. 2
Introduction ............................................................................................................................. 6
Economic context – Domestic recovery strengthening ............................................................. 7
Demand .................................................................................................................................... 8
Population dynamics & forecasts ................................................................................................ 8
Regional change & the urbanisation of Ireland ........................................................................... 10
Migration flows – vitally important in an Irish context ................................................................. 11
Population forecasts – favours family accommodation in Greater Dublin ........................................ 13
Household formation forecasts ................................................................................................. 14
Renting versus buying – Is Ireland now a country of renters? ...................................................... 15
Social housing problems growing ............................................................................................. 16
Household debt & the mortgage market .................................................................................... 16
Mortgage lending – Understanding flows versus stocks ............................................................... 17
Central Bank caps - short-term negative, but will lead to a more stable market in the medium-term 19
What is a normal housing market? A UK comparison ................................................................... 21
Supply analysis ...................................................................................................................... 23
Characteristics of the Irish housing stock .................................................................................. 23
Vacant stock – a vitally important issue .................................................................................... 24
Stock on the market falling to lowest levels since the boom ......................................................... 26
New supply now growing from low levels ................................................................................... 27
Residential Prices ................................................................................................................... 29
Recovery has further to go ...................................................................................................... 29
Residential property remains affordable .................................................................................... 30
Rents have also bounced sharply in recent years ........................................................................ 31
Rent versus buy question ........................................................................................................ 32
Rental yield stability attractive when compared to government bonds ........................................... 32
Conclusion ............................................................................................................................. 34
Appendix ............................................................................................................................... 35
Goodbody
Page 6 06 Feb. 2015
Introduction
There are few, if any, housing markets that can match Ireland for drama over the course of the past two
decades. Over this time period, Irish house prices almost doubled in real terms, relative to a European
and OECD average of just a 25% increase. Importantly though, this comparison hides some important
stages of both spectacular boom and painful bust.
In the chart below, we divide the past twenty years into four distinct periods. The first period runs from
1995-1999 and thus coincides with Ireland’s Celtic Tiger period and the immediate lead-up to the
common currency in the euro area. At a time of strong employment and earnings growth, demand was
stoked further by the convergence of interest rates with the rest of the euro area. Although supply did
expand (housing completions grew from 27,000 to 42,000), this was insufficient to keep up with the
growth in household formation. It is, therefore, little surprise that Ireland saw the most rapid growth in
house prices in the OECD over this time period.
Inappropriate monetary policy played a major role in the next period. Over the 1999-2002 period, the
Irish economy grew at an average annual growth rate of 14% in nominal terms, yet base interest rates
averaged less than 5%. With a failure by the Central Bank to initiate a macro prudential strategy and
with fiscal policy supporting the boom, Ireland once again saw one of the fastest rates of price growth.
The next period – 2003-2007 – is where the housing market detached from fundamental drivers, with
loose credit standards and expectations of capital gains taking over as the key drivers. It is interesting
that this period did not see the most rapid growth in house prices, but it was most important in sowing
the seeds that eventually led to a record crash in the period from 2007-2012.
Following on from our detailed reports on the wider property market over recent years, our aim in this
report is to drill into more detail about what has been a fascinating market for a considerable period of
time. With the market now clearly moved beyond the crash phase and is well into recovery, our aim to
assess the situation from the most fundamental economic standpoint – that of supply and demand.
5 phases of the Irish housing market cycle since 1995
Source: CSO, ptsb, DoELG
0
50
100
150
200
250
300
350
400
1995 1998 2001 2004 2007 2010 2013 2016f
Index (
1995=
100)
Real prices House completions
Phase 1 -
Convergence &
the Celtic Tiger
Phase 2
- Wrong
policies
Phase 3 -
Detached
from reality
Phase 4 - Bust Phase 4 -
Recovery
Goodbody
06 Feb. 2015 Page 7
Economic context – Domestic recovery strengthening
The economic cycle and the property cycle are rarely mutually exclusive. This has been clearly illustrated
in recent years and will continue to be the case. Following a painful contraction, the fiscal and banking
crises and an international rescue programme, the Irish economy’s fortunes have improved dramatically
over recent years. In 2014 Irish GDP grew by 5% in 2014, significantly ahead of the average for the
euro area of less than 1%, and we expect the Irish economy to continue to be the growth beacon of the
region growing by c.4% in 2015 and 2016.
The most appropriate gauge of domestic momentum is domestic demand. This collapsed by 20% in the
recession, but experienced its first year of growth in seven in 2014 (3.1%). This, in turn, was driven by
investment which grew by 12%, led by strong growth in business investment and construction. We
expect this to continue and we are forecasting investment to grow by 14% in 2015 and 2016. While
growth in business investment is expected to moderate, this will be replaced by a more vigorous
recovery in construction spending, which we expect to grow by 14% in 2015 and 2016. This will drive
domestic demand growth of 4.3% and 4.9% in 2015 and 2016.
Domestic demand has resumed growth
Source: CSO, Goodbody
Investment is booming
Source: CSO, Goodbody
Irish consumer spending was disappointingly flat in Q3 2014 (latest data) and grew by only 0.7% for the
full year. However, the underlying drivers are pointing to an improvement and we are cautiously
optimistic on the outlook for 2015 and 2016, with growth of 1.7% and 2.2% forecast, respectively. The
Irish consumer is benefitting from an improving labour market which saw the recovery in employment
strengthen and broaden in 2014 and unemployment fall to 10.5% from a high of 15% in Q1 2012.
Sectors seeing employment growth
Source: CSO, Goodbody
Unemployment rate continuing to fall
Source: CSO, Goodbody
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f
% Y
oY
GDP Domestic demand
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
YoY (
4-q
uart
er
tota
ls)
Core business investment Construction investment Total investment
0
2
4
6
8
10
12
14
Q3
2007
Q1
2008
Q3
2008
Q1
2009
Q3
2009
Q1
2010
Q3
2010
Q1
2011
Q3
2011
Q1
2012
Q3
2012
Q1
2013
Q3
2013
Q1
2014
Q3
2014
No o
f secto
rs
0
2
4
6
8
10
12
14
16
Q3
2007
Q2
2008
Q1
2009
Q4
2009
Q3
2010
Q2
2011
Q1
2012
Q4
2012
Q3
2013
Q2
2014
Q1
2015
Q4
2015
Q3
2016
%
Forecast
Irish growth forecasts
2012 2013 2014f 2015f 2016f
Consumption -1.2% -0.8% 0.7% 1.7% 2.2%
Government -2.1% 1.4% 1.9% 2.0% 2.0%
Investment 5.0% -2.4% 11.7% 13.8% 14.2%
Dom Demand -0.2% -0.7% 3.1% 4.3% 4.9%
Exports 4.7% 1.1% 11.7% 4.8% 4.1%
Imports 6.9% 0.6% 11.6% 4.7% 4.9%
GDP -0.3% 0.2% 5.0% 4.2% 3.8%
GNP 1.9% 3.2% 4.9% 4.4% 4.0%
Source: CSO, Goodbody
Goodbody
Page 8 06 Feb. 2015
Demand
Unlike in the commercial property market, housing demand should not be subject to the volatility caused
by the business cycle. However, the volatility of migration flows in Ireland questions this assertion
somewhat, adding some degree of uncertainty to the medium-term estimates.
Population dynamics & forecasts
From a demographic perspective, Ireland has a number of unique features that make it an interesting
case in a European context. For example, it has:
The highest birth rate in the EU (fertility rate of 2.01 relative to EU average of 1.60).
The lowest death rate in the EU.
The youngest population in the EU, as measured by the median age.
Migration flows are among the largest as a proportion of the size of the population
Most importantly from a housing market perspective, Ireland is expected to experience
continuous population growth over the coming decades, whereas the population of the EU as
a whole is expected to fall by the middle of the next decade.
Birth rates expected to remain high
Source: UN
Death rate lowest in the EU
Source: Goodbody
Emigration (% of pop.) 2010-2012
Source: Eurostat
Immigration (% of pop.) 2010-2012
Source: Eurostat
Median age - 2015
Source: UN
Long-term population growth projections
Source: World Bank
0
2
4
6
8
10
12
14
16
18
20
22
24
1960 1970 1980 1990 2000 2010 2020 2030
Per
1,0
00 p
eople
European Union Ireland
5
6
7
8
9
10
11
12
GE GR PT IT EU UK SP NE IRE
Death
rate
(per
1000)
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
%
33
34
35
36
37
38
39
40
41
42
43
Ireland US Europe UK
Media
n A
ge
0
1
2
3
4
5
6
7
8
490
495
500
505
510
515
520
2006 2011 2016 2021 2026 2031 2036 2041 2046
m p
ers
ons
m p
ers
ons
Europe (LHS) Ireland (RHS)
Goodbody
06 Feb. 2015 Page 9
Ireland’s population has grown strongly over recent decades
Following the stagnation caused by mass emigration in the 1980s, Ireland’s population grew by a third
over the period from 1991-2011, an exceptional rate in a European context (+5.7% in the EU). Over
recent years, despite a substantial increase in emigration, the population has continued to grow due to
very strong birth rates. According to the CSO, the population of Ireland currently stands at 4.6m
persons.
Fast population growth has triggered a rapid increase in the number of households in the State. The
most recent estimate (2011) shows that there were 1.65m households in the State, an increase of
630,000 (62%) relative to 1991 and up 187,000 (13%) relative to 2006. This latter comparison is
important as it indicates that household growth continued in spite of the recession and thus contributed
to a significant reduction in the oversupply of housing that became apparent in the building boom period
(something we will deal with later in the report).
Ireland’s population – a long-term perspective
Source: CSO
Annual household growth by census period
Source: CSO
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
1851 1871 1891 1911 1936 1951 1961 1971 1981 1991 2002 2011
'000 p
ers
ons
Continuous population
growth for the past 25 years
0
5
10
15
20
25
30
35
40
45
50
81-86 86-91 91-96 96-02 02-06 06-11
H/h
old
gro
wth
per
annum
(000s)
Goodbody
Page 10 06 Feb. 2015
Alongside population growth, the average size of the household is the other important variable for the
calculation of housing demand. In this regard, Ireland has seen a continuous fall in the average
household size and that is expected to continue over the coming years. According to the 2011 Census,
the average household size in Ireland stood at 2.7, but this was still well ahead of the European and UK
average of 2.3. Moving down to this average would lead to demand for 300,000 units alone.
Ireland’s household size declining steadily
Source: CSO
Average household size
Source: CSO, Eurostat
Population structure
Although Ireland’s population is aging, a much higher proportion remains in the younger age cohorts.
Census 2011 reveals that 28% of the population was under the age of 20, compared to an EU average of
21%. In 1991, this stood at 36%, and explains some of the rapid growth in both the labour force and
housing demand over that time period.
Population structure - 1991
Source: CSO, World Bank
Population structure - 2011
Source: CSO, World Bank
Regional change & the urbanisation of Ireland
Regional differences are vital in understanding the dynamics of the Irish housing market. Dublin, with
1.3m people, is by far the biggest population centre. However, this share has actually fallen over the last
20 years. Dublin has seen population growth, but was exceeded by other areas of the country. The share
in the Greater Dublin Area (including the commuter counties of Wicklow, Kildare and Meath) has
increased, and represents 39.3% of the total population of Ireland, up from 38.3% in 1991. Within this,
Dublin’s share has fallen from 29.1% to 27.8%, but the commuting counties share has risen from 9.2%
to 11.6%. Essentially, there has been a sprawl of the urban areas, and this is expected to continue.
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
1981 1986 1991 1996 2002 2006 2011
Pers
ons p
er
hhold
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Ireland UK EUAvg h
ousehold
siz
e
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+
% o
f Tota
l
1991 Ireland 1991 EU
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+
% o
f Tota
l
2011 Ireland 2011 EU
Goodbody
06 Feb. 2015 Page 11
Dublin’s employment share currently stands at 30%, but the importance is much greater due to the fact
that the data is reported on a residence basis. Additional granular data obtained from the CSO suggests
that “Dublin” jobs are much higher due to the large number of workers living in the surrounding
counties. For example, 41% of those living in the Mid-East do not work in this region, while 21% of
those living in the Midlands work elsewhere.
Employment share by region
Source: CSO
Percentage working outside stated region
Source: CSO, Goodbody
Going further, data from the UN shows that the Irish urban population grew by 52% between 1990 and
2011, relative to 37% growth in the country as a whole. In the EU, the corresponding growth rates were
13% and 7%, respectively.
Migration flows – vitally important in an Irish context
Ireland has a long history of significant migration, both inward and outward. These flows are very
sensitive to the economic climate, thus when unemployment increases, emigration soon follows. In
recent years, Ireland has seen the largest net emigration flows since the late 1990s. Given this volatility,
population growth forecasts for Ireland are highly sensitive to the assumptions on migration. However, it
is our belief that as the economy continues to improve and the unemployment rate continues to fall, we
will see a return to inward migration over the coming years.
0%
5%
10%
15%
20%
25%
30%
35%
% o
f Tota
l
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
% o
f Tota
l em
plo
ym
ent
in r
egio
n
Population growth by Census period – the capital sprawl
Source: CSO
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
91-96 96-02 02-06 06-11
% c
hange
State GDA Dublin GDA ex Dublin
Goodbody
Page 12 06 Feb. 2015
In our view, this will come from two sources:
1. Continued flow of skilled migrants: Along with the UK, Ireland was the biggest recipient of
migrants following the accession of the ten new EU member states in 2004. At the time, many
of these migrants came to work in the booming construction sector and in the services trade.
More recently, there has been a high level of very well educated migrants filling jobs areas such
as IT and healthcare. While there is a correctly-held belief of a “brain-drain” from Ireland, the
education level of immigrants is, in fact, higher than that of emigrants and substantially higher
than the level for the population as a whole.
2. A return of the diaspora: Judging by the experience of the 1990s/2000s, improved
employment prospects should bring about a return of a certain proportion of Irish national
migrants. Over the five years to April 2014, 209,000 Irish people moved abroad. While there
will always be a certain level of migration (even in 2006 it was 15,000), this is clearly
somewhat related to the lack of employment opportunities over recent years. While some have
Migration very sensitive to the economic environment in Ireland
Source: CSO, Goodbody
Immigrants are significantly more skilled than the general population
Source: CSO *refers to 2006 & 2011 Census, 3rd level qualification or above as a % of total population over 15
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
-60
-40
-20
0
20
40
60
80
100
120
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
'000
Net Migration GDP Growth Ireland
0%
10%
20%
30%
40%
50%
60%
70%
2009 2014% o
f Tota
l w
ith 3
rd level qualifications
Immigrants Emigrants Ireland Total*
Goodbody
06 Feb. 2015 Page 13
already returned, we believe that there is over 100,000 Irish emigrants that were triggered by
the economic crash. The question is, will they return? A lot will depend on whether economic
conditions continue to improve, but there have been interesting responses to surveys on this
issue as part of work carried out by UCC’s Émigré project. Of those that were surveyed, 82%
stated that improvements in the economy would improve their chances of returning to Ireland.
This is despite half (51%) of the respondents stating that they were not likely at all (28%) or
unlikely to return in the next three years (the survey was carried out in 2013)
Would improvements in the Irish economy increase your chance of returning?
Source: UCC
How likely is it that you will return to Ireland in the next three years?
Source: UCC
Population forecasts – favours family accommodation in Greater Dublin
The most detailed set of population forecasts to for Ireland were published by the CSO in April 2013.
These use the Census 2011 data as a starting point and forecast the population on the basis of a number
of different assumptions regarding fertility and migration (see Appendix for details).
On the assumption that the fertility rate remains stable and migration remains low, the population is
assumed to grow from 4.6m to 5.1m by 2026 (+12%). Under a more optimistic migration assumption,
and one which we believe is more realistic, the population is anticipated to increase by 16% to 5.3m.
As the following chart shows, this will see both a significant increase in the older generations and a
smaller increase in the youngest part of the population. The 25-44 age cohort is expected to fall over
this time period, before beginning to rise once again.
Dublin and the surrounding counties will dominate the growth over the coming decade, due to both
internal flows, external flows and a higher starting base.
Population growth forecasts
Source: CSO
Population forecasts* by age cohort
Source: CSO *High Migration (CSO M1F1) assumptions
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Not at all Not that mich Quite a lot A great deal Undecided
% o
f Tota
l
0%
5%
10%
15%
20%
25%
30%
Not likely at
all
Unlikely Likely Very Likely Not sure
Axis
Title
4.2
4.4
4.6
4.8
5.0
5.2
5.4
2011 2016 2021 2026
million p
ers
ons
High Migration Low Migration
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
0-24 25-44 45-64 65+
m p
ers
ons
2011 2016 2021 2026
Goodbody
Page 14 06 Feb. 2015
Household formation forecasts
From these estimates, we can forecast household demand by region. These are shown in the table below
on the basis of a high migration and low migration scenario.
Following a period of relatively weak household formation in 2011-2016 period due to significant net
migration, we expect household formation to increase in the 2016-2026 period. We estimate that
household formation will grow by between 21,000-26,000 in 2016-2021 and by between 21,000-30,000
in the 2021-2026 period. In line with the population forecasts, the Greater Dublin area (Dublin & Mid-
East) will account for a significant proportion of the growth in the number of households over the coming
years.
Our annual forecast does not take account of the starting position in terms of the housing stock. We
know that there was significant overbuild during the 2000s, so this must be taken into account. We deal
with this issue in the Supply section of the report, but we present our estimates of the current level
oversupply in the following table by region. We also include an estimate for replacement housing
demand, which we assume at a very conservative 0.3% of the housing stock per annum (6,000 units per
annum nationally).
The calculation of the vacant stock is vital when considering the regional housing picture in Ireland. The
bottom line is that for the country as a whole, there is an oversupply of housing, but this is only the case
in some parts of the country. Specifically, the largest oversupply exists in the West and in the Border
counties.
Household projections to 2026 (‘000)
000s Border Dublin Mid-East Midlands Mid-
West
South-
East
South-
West West State
Low migration scenario
2011 186 467 181 100 138 181 241 160 1,654
2016 190 483 193 106 141 190 252 164 1,718
2021 200 517 210 114 146 200 266 171 1,822
2026 209 548 229 123 151 210 281 177 1,926
Annual change in households
2011-2016 1 3 3 1 1 2 2 1 13
2016-2021 2 7 3 2 1 2 3 1 21
2021-2026 2 6 4 2 1 2 3 1 21
High Migration scenario
2011 186 467 181 100 138 181 241 160 1,654
2016 191 485 194 106 142 190 253 164 1,723
2021 202 528 215 116 147 204 270 173 1,854
2026 214 576 241 130 153 218 292 180 2,003
Annual change in households
2011-2016 1 4 3 1 1 2 2 1 14
2016-2021 2 9 4 2 1 3 4 2 26
2021-2026 2 10 5 3 1 3 4 1 30
Source: CSO, Goodbody
Goodbody
06 Feb. 2015 Page 15
Renting versus buying – Is Ireland now a country of renters?
Ireland has been traditionally seen as a nation of home owners, as evidenced by a consistently high
home ownership rate relative to the rest of Europe. This has been due to combination of cultural issues,
tax policies favouring buying over renting and a lack of strong regulation in the rental sector. Recent
moves have put somewhat of a question mark around this long-held assertion. The table below shows
that the number of renters increased considerably over the most recent census period. In 2011, 29% of
households rent, with 18.5% of those in the private sector.
There are studies (Dublin Institute of Technology) that suggest that there is a growing market for rental
in Ireland. While this will include some traditional renters, the DIT research also identifies other potential
growth:
Don’t Own Or Drive (DOODs): A cohort that has a preference for close proximity to work and
services. These would mainly be urban dwellers.
Empty nesters: The aging generation who would like to tap into the equity in their homes for a
comfortable retirement.
Never againers: Scarred by the recent housing market crash, there may be some who will
prefer not to take on the debt associated with house purchase and decide to rent.
While we believe there is a strong case to be made for a core group of renters in the Irish market, we
are not convinced that the change over the 2006-2011 period is the beginning of a trend. The significant
tightening of credit standards in the Irish banking system, the sharp rise in unemployment and the
collapse in consumer confidence would have all played a very important role in this development.
Housing demand to 2026 (incl. vacant stock & replacement demand)
Border Dublin Mid-East Midlands Mid-West South-
East
South-
West West State
Total Stock 250 535 207 121 171 225 308 213 2,030
Vacancy Rate 2014 15.6% 6.6% 4.6% 10.8% 11.9% 9.8% 11.1% 16.0% 10.3%
"Excess" vacancy
rate* 8.6% -0.4% -2.4% 3.8% 4.9% 2.8% 4.1% 9.0% 3.3%
Obsolete units (0.3%
of stock per annum) 1 2 1 0 1 1 1 1 6
Housing needs: Low Migration 2011-2016 - 5 3 - - - - - 8
2016-2021 - 8 4 2 1 3 4 0 22
2021-2026 2 8 4 2 1 3 4 2 27
High Migration 2011-2016 - 5 3 - - - - - 8
2016-2021 - 10 5 2 1 3 4 0 27
2021-2026 3 11 6 3 2 4 5 2 36
Source: CSO, Goodbody *Vacancy rate above the European average
Characteristics of tenure among Irish households
State 2002 2006 2011
Owner Occupied 945,940 1,068,398 1,149,924
Proportion Owner Occupied % 73.92% 73.06% 69.72%
Rented 251,225 323,007 474,788
Proportion Rented % 19.63% 22.09% 28.79%
Privately rented 141,459 145,317 305,377
All Types of Housing 1,279,617 1,462,296 1,649,408
Source: CSO
Goodbody
Page 16 06 Feb. 2015
Social housing problems growing
Like all developed countries, there is a cohort of the population that are unable to either buy their own
property or rent in the private sector. This cohort depends on public subsidies and supports. Since the
crisis, this cohort has risen substantially, while the government, due to fiscal constraints in particular,
have effectively cut off new supply. As a result, there are now 100,000 on the social housing waiting list.
To assist these people, the Government has increasingly resorted to rental support in the private rental
market. It is estimated that c.40% of households in the private rental sector are in receipt of some form
of government support. In the context of dwindling supply, this has pushed rents up further, and in
some cases, has priced social housing tenants out of the market.
The Government recognises that the social housing issues are part of a wider supply problem, but is
obviously a major political issue. To this end, the Government, as part of its Social Housing Strategy,
announced recently that it will supply 35,000 additional housing units over the next six years. It also
intends to support 75,000 households “through an enhanced private rental sector”. This will put further
pressure on the private rental housing stock.
Household debt & the mortgage market
Ireland remains one of the most highly indebted countries in the euro area, with a household debt level
equivalent to 190% of disposable income. The vast majority of this debt is mortgages. This is often used
as a reason for why the demand for credit is likely is likely to remain low in Ireland in the medium-term.
However, this does not take account of the distribution of this debt. Thanks to new data just published
by the CSO for the first time (Household Finance and Consumption Survey), we are able to analyse this
distribution. Different definitions of income (gross income is used rather than disposable income), is the
main reason for the difference in the two data sets (100% versus 190% of disposable income).
We show some of the important data below, with the key conclusions being:
The median household debt level is substantially below the mean, reflecting the presence of
a smaller number of very indebted households.
Nationally, the survey suggests that only 34% of households have a mortgage on their main
residence. Given that 71% of households own their main residence, this implies that only
half of owner-occupiers have a mortgage.
Debt/disposable income ratio compared
Source: ECB & OECD
0%
50%
100%
150%
200%
250%
2013Q42011Q42009Q42007Q42005Q42003Q42001Q4
% o
f dis
p.
incom
e
Germany Spain Ireland Italy Portugal UK
Goodbody
06 Feb. 2015 Page 17
The region with the biggest proportion of households in mortgage debt on their main
residence is the Mid-East (48%), while the West (27%) is lowest.
There is significant variance in the proportion of households with mortgage debt by age
cohort. As one would expect, a very small number (3%) of older households (65+) have
mortgage debt despite the vast majority (91%) owning a home. In the 35-44 age cohort,
57% of households have mortgage debt (or 88% of owner-occupied households). However,
only 27% of households under 35 years have mortgage debt at all.
Pent-up demand
We believe this under-35 year cohort represents a significant pent-up demand for home ownership in
Ireland. While the home-ownership rate may be structurally lower than prior to the crisis, we do not
believe it is as low as the 30% implied by the survey data. We calculate that a move to the national
average home ownership rate of 70% would imply pent-up demand for housing ownership of 146,000
households.
Mortgage lending – Understanding flows versus stocks
Having peaked at €149bn, the Irish mortgage stock is now estimated at €117bn (Q3 2014), a fall of
22% (c.€9bn of this is due to one particular financial institution exiting the market). 78% of this
mortgage stock is owner-occupier mortgages, with 21% Buy-to-Let. Tracker mortgages represent 53%
of this stock, an important factor in the consideration of liquidity in the Irish housing market.
Irish household debt – distribution statistics
% with a mortgage Debt to Income LTV ratio Debt to Assets
By age cohort:
Under 35 27.3% 72.1% 116.8% 76.0%
35-44 57.1% 203.7% 88.9% 64.1%
45-54 50.2% 104.1% 48.1% 28.7%
55-64 26.7% 44.7% 24.8% 10.0%
65+ 3.6% 14.3% 16.1% 2.3%
By region:
Border 39.7% 163.3% 81.7% 42.2%
Midlands 34.8% 124.5% 68.0% 36.9%
West 27.3% 82.8% 70.0% 27.1%
Dublin 34.0% 75.5% 69.6% 39.7%
Mid-East 48.1% 170.8% 90.7% 55.0%
Mid-West 33.1% 84.4% 72.0% 30.0%
South-East 27.9% 78.1% 66.7% 34.7%
South-West 27.9% 65.0% 56.7% 28.0%
State 33.9% 100.4% 72.7% 37.3%
Source: CSO
Characteristics of Irish mortgage stock
€m Fixed Tracker Standard
variable Total
Total 6,469 61,489 48,978 116,936
% 6% 53% 42% 100%
Principal Dwellings 5,749 44,651 40,633 91,033
% 6% 49% 45% 100%
Buy-to-let 673 16,237 7,933 24,843
% 3% 65% 32% 100%
Holiday homes/second homes 47 601 412 1,060
% 4% 57% 39% 100%
Source: Central Bank
Goodbody
Page 18 06 Feb. 2015
The stock of mortgage credit has been falling in Ireland for six years, and we expect this to continue
over the forecast horizon. However, this is a function of the boom in lending in the 2000s. We calculate
that annual redemptions amount to c.€8bn per annum, equivalent to a repayment rate of 6.3%
(implying an average mortgage life of 16 years). This means that annual gross lending needs to grow to
this level for the mortgage stock to remain stagnant. The repayment rate has remained relatively stable
over recent years, despite suggestions that households were paying down debt at a faster pace. In fact,
the reason for this is that new lending remains low in an historical context. Last year, our estimates
suggest that gross lending amounted to €3.9bn, but this was up 55% on an annual basis.
Recent data suggests that after a collapse during the banking crisis, new lending is now growing
strongly. Latest gross mortgage lending data for Q3 2014 shows growth of 56% yoy, while we are
estimating a similar outturn for the full-year. As a forward indicator of future drawdowns, mortgage
approvals have remained strong over recent months, and were up 61% yoy in the three months to
December. There appears to have been a notable increase in mortgage approvals following the
announcement that mortgage lending caps would be introduced by the Central Bank. We believe that
this was also the case in January, thus growth in mortgage lending drawdowns should remain strong for
the first half of 2015, before slowing in the second half of the year. These are reflected in our mortgage
lending forecasts.
Mortgage lending is falling due to low level of new loans rather than increase in repayments
Source: Central Bank, Goodbody
-15
-10
-5
0
5
10
15
20
25
30
35
40
Q1 2006Q4 2006Q3 2007Q2 2008Q1 2009Q4 2009Q3 2010Q2 2011Q1 2012Q4 2012Q3 2013Q2 2014
€bn
Net Change Gross lending Repayments
Goodbody
06 Feb. 2015 Page 19
Central Bank caps - short-term negative, but will lead to a more stable market in the
medium-term
The Irish Central Bank has recently confirmed that it will be imposing certain mortgage lending
restrictions in relation to both loan-to-income and loan-to-value. Macro-prudential policies have been
used increasingly internationally to reduce the chances of a destabilising boom and should help to
support a more stable banking and housing market over the medium-term.
The specific rules soon to be introduced:
Loan-to-Income: Only 20% of mortgages will be allowed to be above a loan-to-income cap
of 3.5 times for both first-time buyers and mover purchasers.
Loan-to-Value: First-time buyers will be limited to a 90% LTV cap up to €220,000, with an
80% cap for an excess above this level. Mover purchasers will be subject to an 80% LTV
cap. In both cases, no more than 15% of mortgages by value should exceed the caps. For
Investors, a 70% LTV cap has been imposed, with no more than 10% to be above this level.
Irish mortgage market forecasts
2010 2011 2012 2013 2014f 2015f 2016f
FTB Volume 10,619 6,381 8,648 7,535 11,364 14,109 16,014
Growth -16.3% -39.9% 35.5% -12.9% 50.8% 24.2% 13.5%
FTB Loan (€) 191,826 172,387 156,221 153,152 166,209 178,562 177,604
Growth -8.9% -10.1% -9.4% -2.0% 8.5% 7.4% -0.5%
FTB Value (€m) 2,037 1,100 1,351 1,154 1,889 2,519 2,844
Growth -23.7% -46.0% 22.8% -14.6% 63.7% 33.4% 12.9%
Mover Volume 6,533 4,241 4,921 5,340 7,668 9,353 10,400
Growth -30.5% -35.1% 16.0% 8.5% 43.6% 22.0% 11.2%
Mover Loan (€) 235,573 215,987 209,713 212,172 221,857 229,398 225,332
Growth -6.0% -8.3% -2.9% 1.2% 4.6% 3.4% -1.8%
Mover Value (€m) 1,539 916 1,032 1,133 1,701 2,146 2,343
Growth -34.6% -40.5% 12.7% 9.8% 50.1% 26.1% 9.2%
RIPS Volume 1,161 509 591 597 912 1,057 1,216
Growth -61.5% -56.2% 16.1% 1.0% 52.8% 16.0% 15.0%
RIPS Loan (€) 186,047 153,242 142,132 117,253 116,369 116,720 115,055
Growth -29.6% -17.6% -7.2% -17.5% -0.8% 0.3% -1.4%
RIPS Value (€m) 216 78 84 70 106 123 140
Growth -72.9% -63.9% 7.7% -16.7% 51.6% 16.3% 13.4%
Re-mortgage Volume 2,722 1,137 455 292 435 562 674
Growth -52.9% -58.2% -60.0% -35.8% 49.1% 29.1% 20.0%
Re-mortgage Loan (€) 169,361 153,034 140,659 174,658 175,929 170,165 172,747
Growth -13.4% -9.6% -8.1% 24.2% 0.7% -3.3% 1.5%
Re-mortgage Value (€m) 461 174 64 51 77 96 116
Growth -59.2% -62.3% -63.2% -20.3% 50.2% 24.8% 21.8%
Top-up Volume 6,631 2,005 1,266 1,221 1,421 1,563 1,719
Growth -55.6% -69.8% -36.9% -3.6% 16.4% 10.0% 10.0%
Top-up Loan (€) 74,348 97,257 82,938 71,253 68,000 62,053 62,053
Growth -1.0% 30.8% -14.7% -14.1% -4.6% -8.7% 0.0%
Top-up Value (€m) 493 195 105 87 97 97 107
Growth -56.1% -60.4% -46.2% -17.1% 11.1% 0.4% 10.0%
Total Volume 27,666 14,273 15,881 14,985 21,799 26,645 30,024
Growth -39.6% -48.4% 11.3% -5.6% 45.5% 22.2% 12.7%
Average Loan size (€) 171,546 172,564 165,985 166,500 177,491 186,942 184,877
Growth -2.7% 0.6% -3.8% 0.3% 6.6% 5.3% -1.1%
Total Gross lending (€m)
4,746 2,463 2,636 2,495 3,869 4,981 5,551
Growth -41.2% -48.1% 7.0% -5.3% 55.1% 28.7% 11.4%
Source: IBPF, Goodbody
Goodbody
Page 20 06 Feb. 2015
The following charts show the trends in both LTV and LTI over recent years. Despite a tightening since
the financial crisis, the new rules represent a further tightening from current levels, especially in relation
to the LTV caps. In 2013, 23% of new loans were at over 3.5 times income. In 2013 and 2014 (H1),
44% of lending was done with an LTV greater than 80%.
New lending by LTI – primary dwelling
Source: Central Bank
New lending by LTV – primary dwelling
Source: Central Bank
The Central Bank has estimated the potential impact of the new measures. Using a sample of new loans
issued in 2013 and 2014, it estimates suggest that:
New lending values would have been 9% below the actual outcome
New lending volumes would have been 5% below the actual outcome
House prices are 0.8% lower after twelve months relative to a no policy change scenario
New housing supply falls modestly relative to a no policy change scenario
One must also take account of the fact that the loan restrictions are coming in at a time when loan
demand is rising, credit standards are easing and the labour market continues to improve. Therefore, we
expect a slowdown in both mortgage lending growth and house price inflation, but this will prove to be a
temporary phenomenon, with growth picking up again after 2016 on the back of the demand dynamics
discussed here.
Mortgage credit demand & credit standards
Source: Central Bank
Unemployment continuing to fall
Source: CSO, Goodbody
In an historical context, the level of mortgage lending remains low, as can be seen in the following chart.
Our estimates suggest that the total mortgages drawn down for house purchases in 2014 was c.20,000.
This was up 50% on the 2013 level, but the level of mortgage transactions in 2014 is at levels that were
achieved in 1975, despite the population being 50% higher over this forty year time period. Some of this
can be explained by the fact that c.50% of housing transactions in 2014 were by way of cash. Following
the end of Capital Gains Tax (CGT) on the purchase of property at the end of December 2014, we
believe that the proportion of cash transactions will fall to more normal levels.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
f new
lendin
g
0-3.5 3.5-4.5 4.5+
0%
10%
20%
30%
40%
50%
60%
70%
80%
% o
f new
lendin
g
0-80 80-90 90-100
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Demand Credit Standards No change
Higher demand, looser credit
Lower demand, tighter credit
0
2
4
6
8
10
12
14
16
Q3
2007
Q2
2008
Q1
2009
Q4
2009
Q3
2010
Q2
2011
Q1
2012
Q4
2012
Q3
2013
Q2
2014
Q1
2015
Q4
2015
Q3
2016
%
Forecast
Goodbody
06 Feb. 2015 Page 21
What is a normal housing market? A UK comparison
Comparisons with boom level transactions are not helpful, but one can look at comparisons of mortgage
lending in the UK to gauge the possible appropriate level of mortgage transactions in Ireland. This is
shown in the chart below. Mortgage approvals amounted to 26,000 in Ireland in 2014, representing
1.3% of the housing stock. In 2014, UK mortgage approvals amounted to 2.6% of the housing stock.
Therefore, mortgage approvals are running at about half of current UK levels and close to one third of
the UK long-term average. Transferring these proportions to drawdowns, we calculate that annual gross
lending of €8bn could be considered “normal” in an Irish sense.
Activity has been picking up but the transaction ratio remains half that of the UK
The recovery in transaction volumes accelerated towards the end of the year but remains below par
when compared with the size of the market.
Since January the growth in property transactions has been steadily increasing with the run rate
accelerating to 38% yoy in December, from +25% yoy in H1, on a 12 month average basis. Dublin
continues to dominate activity accounting for almost a third of all transactions although Munster has also
Mortgage lending volumes bouncing from historical lows
Source: DoELG, BPFI, Goodbody Note: Excludes top-up mortgages and remortgaging
Mortgage lending remains well below equivalent UK levels – Mortgages as a % of stock
Source: BPFI, Bank of England, Goodbody *refers to drawdowns from 2005-2011 and approvals from 2011-2014
0
20
40
60
80
100
120
'000
BPFI data DoELG data
1.3%
2.6%
3.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% o
f housin
g s
tock
Ireland* UK UK LT Average
Goodbody
Page 22 06 Feb. 2015
seen activity pick up slightly, accounting for 26% of activity in December from 24% in January. With
transaction data only going back to 2010 historical comparison is limited. However, since its initiation
the amount of transactions has been steadily rising. In 2014, monthly transactions averaged c.3,400
versus the 1,700 seen in 2010. In fact, as a whole, transactions doubled between 2010 (20,900) and
2014 (41,200). That has seen transactions as a proportion of the housing stock increase from 1% in
2010 to 2% now (Dublin 2.6%). However, this remains low in comparison to the UK, where transactions
are also considered low, but where the rate is 4.4%. For an equivalent ratio, Ireland would need to see
transaction levels double again to c.87,000 per annum.
Transactions have doubled since 2010…
Source: NPPR
…but remain subdued
Source: NPPR, CSO, HMR&C, DCLG
0
4
8
12
16
20
24
28
32
36
40
Dec
10
Apr
11
Aug
11
Dec
11
Apr
12
Aug
12
Dec
12
Apr
13
Aug
13
Dec
13
Apr
14
Aug
14
Dec
14
000s T
ransactions (
rollin
g 1
2M
)
+38% YoY in December
0%
1%
2%
3%
4%
5%
Dec10
Mar11
Jun11
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
Dec13
Mar14
Jun14
Sep14
Dec14
Tra
nsa
ctio
ns a
s %
hou
sin
g s
tock
Dublin Total UK
Goodbody
06 Feb. 2015 Page 23
Supply analysis
Irish housing completions grew by 33% to 11,000 units in 2014, the first year of growth since 2006.
This followed a period in which completions fell by 91% from their peak in 2006. As the chart shows, the
level of house completions in the 2000s was unprecedented and contributed to an increase in the vacant
housing stock in the country.
The rate of housebuilding at the peak in Ireland was also unprecedented in an international perspective.
Ireland was producing houses at a rate of 21 units per thousand of the population in 2006, when the
European average was 6 per thousand. In 2014, Irish house completions stood at 1.6 per thousand of
the population, while the European average was 2.8. Based on our 2016 forecast of 16,000 units,
completions will be in line with the EU average, despite the substantially faster household formation
growth in Ireland.
House completions compared - 2006
Source: Euroconstruct
Completions compared to EU average
Source: Euroconstruct
Characteristics of the Irish housing stock
As a result of the 2000’s boom Ireland has a very young housing stock, with 26% of occupied dwellings
built after 2001 according to the 2011 Census. Houses dominate, with apartments representing only 9%
of the housing stock. Detached housing represents the biggest proportion of the stock at 41%, reflecting
the predominance of one-off housing in rural areas in particular. Despite a rapid increase in apartments
in the boom years, there is a preference within the Irish population for houses over apartments.
0
5
10
15
20
25
GE SK CZ PL UK HU SW NE IT DN BG AU SZ EU NO PO FI FR SP IRE
Com
ple
tions (
per
1000 p
op)
0
5
10
15
20
25
2001 2006 2011 2016
Com
ple
tions (
per
1000 p
op.)
Ireland Europe
House completions
Source: DoELG, Goodbody
0
10
20
30
40
50
60
70
80
90
100
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016f
'000
Goodbody
Page 24 06 Feb. 2015
Occupied housing stock by year built
Source: CSO
Occupied housing stock by type
Source: CSO
Vacant stock – a vitally important issue
Housing completions outpaced housing formation during the 2002-2006 period, leading to a sharp
increase in vacant stock. Census data reveals that the vacant stock (excluding temporarily vacant and
holiday homes) rose from 103,963 in 2002 to 216,533 in 2006. The vacant stock rose further in the
2006-2011 period to 230,056, although fell as a percentage of the housing stock to 11.5%. By
estimating household formation over the period since the Census and taking account of house
completions over the period, we calculate that the current vacancy rate is 10.3%. While this may appear
high, it must be noted that the average vacancy rate in Europe is 7%.
Not necessarily the right type or in the right places
Drilling down deeper into the vacancy data shows that the situation is far from uniform by region or by
type of property. Firstly, vacancy rates in the Greater Dublin area were significantly lower than the
national average. The vacancy rate was 8% in Dublin, Wicklow and Kildare in 2011, while in Meath it
stood at 9%. At the other end of the spectrum, vacancy rates in Leitrim, Longford, Roscommon and
Cavan were all significantly ahead of the national average. It is no surprise that these counties also saw
the highest level of house completions per capita in the boom.
Before 1919
9%1919 to 1945
7%
1946 to 1960
8%
1961 to 1970
7%
1971 to 1980
13%
1981 to 1990
10%
1991 to 2000
14%
2001 to 2011
27%
Not stated
5%
Detached
42%
Semi-detached
28%
Terrace
17%
Apartment
11%
Other/not stated
2%
Vacant housing (excl. temporary & holiday homes)
Source: CSO
104
217
230
209
8.1%
12.2%
11.5%
10.3%
0%
2%
4%
6%
8%
10%
12%
14%
0
50
100
150
200
250
2002 2006 2011 2014e
% o
f housin
g s
tock
'000
Goodbody
06 Feb. 2015 Page 25
Vacancy rates were also substantially higher for apartments (25%) than for houses (10%). In terms of
houses, there was already significant supply shortages in Dublin in 2011, with the vacancy rate in South
Dublin, for example, standing at 3% on Census night. For Dublin overall, only 5% of houses were vacant
on Census night, compared to 19% vacancy for apartments in the capital. Kildare, Wicklow and Meath all
had vacancy rates of 7% for houses, and substantially higher for apartments. In the oversupplied
counties, vacancy rates were in excess of 20% for houses and in excess of 50% for apartments in 2011.
The 2011 Census is the latest detailed information on the issue of vacant stock. Therefore, we do not
know how the vacancy rate has changed by type since that time. However, we can estimate the change
in the stock by region using the household formation forecasts detailed earlier. Assuming a “normal”
vacancy rate of 7% (the European average), the following chart shows the excess/shortage of housing
by region. Once again, the Greater Dublin area is already undersupplied, with this undersupply set to
grow further over the coming years.
Vacancy rates significantly lower in the Greater Dublin area – 2011 Census
Source: CSO
Vacancy rate by type and region (2011)
Houses Apartments Total
Leinster 7% 21% 9%
Dublin 5% 19% 8%
South Dublin (lowest) 3% 18% 5%
Munster 12% 32% 13%
Connacht 17% 36% 17%
Leitrim (highest) 23% 57% 23%
Ulster (part of) 16% 50% 16%
National 10% 25% 12%
European average* 7%
Source: CSO
0%
5%
10%
15%
20%
25%
Vacancy
Greater Dublin Area
Goodbody
Page 26 06 Feb. 2015
Stock on the market falling to lowest levels since the boom
The stock of properties for sale or for rent on the market has fallen substantially over recent years.
According to Daft.ie (property website), there were 30,000 properties for sale at the end of 2015, down
from the peak of 63,000. Highlighting the tight supply conditions in the capital, despite Dublin
representing 26% of the housing stock, it represents just over 10% of the stock for sale. There has,
however, been an increase in stock for sale in Dublin over recent months, partly explaining the
slowdown in price inflation in the second half of the year.
As the chart shows, all regions have seen a substantial reduction in the stock for sale. The Leinster
region (excluding Dublin) has seen the largest decline, falling by 60% over the past four years, with the
stock levels now being lower than Dublin, in absolute terms and as a percentage of the housing stock in
the region.
Forbearance by the Irish banks has contributed to the low level of new supply for sale. This is reflected
in the fact that only 2,027 properties were in the bank’s possession at the end of Q3 2014, despite
102,000 mortgages being in arrears of over 180 days, with half of these in arrears for more than two
years (see Appendix). We would expect that increased repossessions of Buy-to-Let properties will add to
the stock for sale over the coming quarters. These are largely occupied so will not add to the vacant
stock, but is likely to lead to reduction in the rental stock.
Housing stock for sale
Source: Daft.ie
Change in stock for sale – Dec.10 - Dec.14
Source: Daft.ie
0
50
100
150
200
250
300
350
400
Jan
07
Jul
07
Jan
08
Jul
08
Jan
09
Jul
09
Jan
10
Jul
10
Jan
11
Jul
11
Jan
12
Jul
12
Jan
13
Jul
13
Jan
14
Jul
14Index (
Jan 2
007 =
100)
National Dublin Munster Conn-Ulst Leinster
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Leinster Other cities Conn-Ulst National Munster Dublin% c
hange 2
010-2
014
Under/over supply relative to “normal” rate* of vacant stock
Source: CSO, Goodbody *Difference between vacancy rate and assumed 7% “normal” rate
-4%
-2%
0%
2%
4%
6%
8%
10%
Under/
over
supply
Goodbody
06 Feb. 2015 Page 27
The housing stock for rent has fallen at an even faster pace over recent years, and is also back to levels
last seen in 2007 across the country. Since December 2010, the rental stock has fallen by 72%
nationally.
Stock for rent
Source: Daft.ie
Change in stock for rent – Dec.10 – Dec.14
Source: Daft.ie
New supply now growing from low levels
The growth in supply in 2014 was led by Dublin, where the number of completions more than doubled to
3,259 units. In the Greater Dublin area overall, 4,427 units were completed, less than half the required
medium-term demand. House completions statistics are calculated on the basis of connections to the
electricity grid, so it is likely that a proportion of the units completed in 2014 represented unfinished
estates from the boom years.
Commencement notices give the most up to date picture on housing supply. Unfortunately, these data
from the Department of the Environment and Local Government (DoELG) were discontinued from
February 2014. However, using separate data (CIS), we know that there was a substantial increase in
commencements of scheme houses and apartments in 2014, once again led by Dublin.
Supply now growing from low levels
Source: CSO, DoELG
Surge in commencements in 2014
Source: DoELG, CIS
0
100
200
300
400
500
600
700
800
900
Index (
Jan 2
007=
100)
National Dublin Munster Connacht-Ulster Leinster
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Munster Leinster R-of-C Conn-Ulst TOTAL Other cities Dublin
% c
hange 2
010-2
014
0
5
10
15
20
25
30
35
Q12010 Q42010 Q32011 Q22012 Q12013 Q42013 Q32014
'000
Home Registrations Completions Planning Permissions
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014
'000
Dublin Non-Dublin
House completions by region
2007 2008 2009 2010 2011 2012 2013 2014
Dublin 17,725 11,342 5,288 2,240 1,571 1,266 1,360 3,259
Mid-East 7,249 4,976 2,768 1,628 1,060 942 990 1,168
GDA 24,974 16,318 8,056 3,868 2,631 2,208 2,350 4,427
Border 11,212 7,296 4,217 2,098 1,652 1,472 1,284 1,348
Midlands 6,681 3,743 1,858 974 693 669 553 662
Mid-West 6,103 4,308 2,169 1,373 897 736 688 608
South-East 8,846 5,912 2,978 1,965 1,387 908 999 1,276
South West 11,364 8,053 4,173 2,486 1,846 1,561 1,432 1,532
West 8,447 5,694 2,969 1,838 1,374 934 995 1,163
State 77,627 51,324 26,420 14,602 10,480 8,488 8,301 11,016
Source: DoELG
Goodbody
Page 28 06 Feb. 2015
We believe that housing construction will grow strongly over the forecast horizon. However, this growth
is coming from exceptionally low levels and by the end of our forecast period, we do not believe that
housing supply will be sufficient to keep up with demand. We believe that it may take until the end of
the decade before supply and demand are in balance.
Why, given the growth in prices and the positive demand outlook, is the supply response insufficient. We
suggest six reasons:
Construction sector capacity: The vast majority of large construction companies in the boom
years collapsed in the bust. In addition, many of the labour resources have decided to move
abroad in recent years due to the lack of opportunities in the sector, or have been reskilling
for other professions.
Scale of price decline/sticky costs: The rapid price decline led to a situation in which the cost
of building exceeded the selling price. This remains the case in some parts of the country,
but we have seen some supply response in areas with the largest degree of price inflation in
recent years. The Society of Chartered Surveyors (SCS) estimates that construction tender
prices are 26% below peak levels, but have already increased by 10% since the trough
despite the recovery only being in the very early stages.
Building regulations: Ireland has one of the highest standards for building regulations in the
developed world. While this clearly improves the quality of the housing stock, it increases its
cost, thus constraining supply. The latest regulations, introduced in 2014, further added to
the cost of building residential units
Planning permissions: There has been a significant fall in planning permissions over recent
years. In the context of Dublin, a recent SCS report indicated that the current stock of
planning permissions in Dublin equates to 27,000, but demand is estimated at 35,000 units
over the 2014-2018 period. This indicates that even if the construction sector can respond,
the number of planning permissions is insufficient to meet demand.
Planning guidelines: Planning regulations are quite stringent in Ireland and contribute to
delays in delivery. See Appendix for details.
Density: A relatively low appetite for high-density accommodation and its high cost
contributes to the delay in the completion of a large amount of residential units.
Planning permissions
Source: CSO
Construction tender prices
Source: SCS
0
20
40
60
80
100
120
'000 (
rollin
g 1
2-m
onth
)
90
100
110
120
130
140
150
160
Index (
H1 1
998=
100)
Goodbody
06 Feb. 2015 Page 29
Residential Prices
Following a peak to trough fall in house prices of 51%, Irish residential property prices stabilised in Q3
2012 and started to increase again on an annual basis in mid-2013. Since the trough in March 2013,
house price growth has have outpaced expectations and by the end of 2014 had risen by 27%. Initially
the improvement was driven by Dublin where prices started to recover in September 2012 and are now
46% above trough levels. However, prices outside Dublin have been rising since the start of 2014 and
are now 14% above their trough levels by the end of 2014 were rising at an annual rate of 10%, the
fastest pace since mid-2007. The faster than expected pace of recovery has raised fears about another
bubble and affordability. We look at both and find that fears of a bubble are premature and that on a
national average basis house prices remain affordable.
House prices recovery spreads outside Dublin
Source: CSO
House prices remain 38% below peak
Source: CSO
Recovery has further to go
While prices have been recovering strongly, they are coming from very low levels and remain 38%
below peak. In real terms, house prices have recovered 24% of their peak to trough loss. This pace
(1.2% per month, 1.1% per month in Dublin) is modestly quicker than the average 1% per month
recovery seen across 10 international property crashes we previously looked at. This means that the
24% of peak to trough losses recovered after two years in Ireland is ahead of the 18% average seen
internationally at the same stage of the recovery. The price recovery in Dublin is also slightly ahead of
the international average with 32% of the price fall recovered after 28 months. This was only achieved
after 3 years in our international sample. However, our forecasts have house price growth slowing in
2015 and 2016, which will see the recovery in house prices start to lag the average, and by the end of
2016, four years after the trough, 35% of the peak to trough losses will be recouped nationally (40% for
Dublin).
Price recovery starting to lag average
Source: CSO, BIS, Goodbody
Price recovery has further to go
Source: CSO, Goodbody
-30%
-20%
-10%
0%
10%
20%
30%
% Y
oY
Nat. excl. Dublin - all Dublin - all
-51%
-57%
-38% -38%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
National Dublin - all
%
Peak to trough Peak to current
40
50
60
70
80
90
100
110
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Average Property Cycles for UK, Netherlands, Switzerland, Belgium,
Finland, Sweden, Denmark, Norway, New Zealand, SpainIreland's Current Cycle
Forecasts for Irelandto 2016 in red
0%
10%
20%
30%
40%
50%
60%
70%
National Dublin "International
recoveries"* - 5 years
after trough
% o
f price d
rop r
ecovere
d
Current
End-2016 (4 years after trough)
Goodbody
Page 30 06 Feb. 2015
Residential property remains affordable
We looked at affordability since the early 1990s and found that servicing a mortgage based on current
conditions remains affordable when compared to the long term average. On a national basis, the current
cost of servicing a 25 year mortgage at an 85% LTV based on two average incomes amounts to 21% of
disposable income.
While this has deteriorated since troughing at 16% in 2012 it remains below the long term average of
22%. Significantly, it is below the 30% on which the Central Bank based its recently introduced macro
prudential rules and the 2006 to 2008 period when house prices were at their peak. That said, continued
deterioration in the price to income ratio will see affordability suffer and upward shocks to interest rates
would have a negative impact on affordability.
It is also worth noting that until Q4 2007 the interest rate we use to calculate the long term average is
based on the Central Bank’s statistics. Since then we use the advertised Irish Mortgage Interest Rate
(also provided by the Central Bank) which is higher, so the long term average is likely skewed down.
Under our base case we assume house prices grow c.6% pa until 2020 and that average salaries grow at
c.2% pa. We also assume that base rates remain on hold until the end of 2017 before rising gradually to
reach 2.5% by the end of 2020. This sees the affordability ratio breach its long term average of 22% in
Q1 2017 and rise to 30% by the end of 2019. If house prices were to rise by 8% pa, our high prices
scenario, the ratio would breach its long term average in Q3 2016 and reach 38% by the end of 2020.
In our third scenario, based on high prices and high wages, salaries rise at 3.5% pa, instead of the 2%
included in our base case, offsetting some of the faster growth in house prices. This would see the long-
term average being breached in Q4 2016 and the ratio reach 36% by the end of the period. Salaries
would need to rise at 5% pa to fully offset the impact of faster (8% pa) house price increases and match
our base case trajectory.
Affordability metrics are currently positive
Source: CSO, Central Bank, Dept. of Finance, Goodbody estimates
0%
5%
10%
15%
20%
25%
30%
35%
1993Q1 1996Q4 2000Q3 2004Q2 2008Q1 2011Q4 2015Q3f
Mort
gage %
dis
posable
incom
e Forecast
Long-term average
Goodbody
06 Feb. 2015 Page 31
Faster house price growth is negative for affordability
Source: CSO, Central Bank, Dept. of Finance, Goodbody
Interest rate increases also have a negative impact
Source: CSO, Central Bank, Dept. of Finance, Goodbody
An earlier, faster trajectory for base rate increases would also see affordability deteriorate. We examine
the outcome if interest rates were to start to rise at the start of 2017, a year earlier than our base case,
and reach 3.5% by the end of 2020, a percentage point higher than our base. This would still see the
affordability ratio breach the long term average in Q1 2017 but it would reach 37% by the end of 2020
versus 34% in our base case. In current conditions the percentage of disposable income required to
service the average mortgage increases by 1 percentage point for every 0.5% increase in interest rates.
The second measure of affordability that we look at is the historical average price to disposable income
ratio. On both the series we track current prices are also just on the right side of affordable. Using our
affordability model prices are running at 3.5 times the average disposable income based on two
incomes. This is in line with the long term average of 3.5. However, on our forecasts this will rise above
the average in 2015 and reach 4 times in 2016. On our second measure of price to income we look at
the ratio of average disposable income per capita. At 10 this remains below the long term of 10.5.
However, based on our current projections this will reach 10.8 in 2016. In neither metric do the ratios
deteriorate to the levels seen in the 2006-2008 house price boom period.
House prices to disposable income…
Source: CSO, Dept. of Finance, Goodbody
…& to average disposable income per capita
Source: CSO, Goodbody estimates
Rents have also bounced sharply in recent years
With dwindling supply also being an issue in the rental sector, rents have bounced significantly over
recent years. CSO data indicate that private rents have risen by 25% since the trough by the end of
2014, and are now just 7% below previous peak levels. Our forecasts suggest that this previous peak
will be surpassed by the end of 2015. The CSO do not provide a regional breakdown on rents, but
separate data from Daft.ie shows that rental growth has been strongest in Dublin.
0%
5%
10%
15%
20%
25%
30%
35%
40%
2001Q1 2003Q3 2006Q1 2008Q3 2011Q1 2013Q3 2016Q1f2018Q3f
Mort
gage %
dis
posable
incom
e
Baseline
High prices
High prices &income
Long-term average
0%
5%
10%
15%
20%
25%
30%
35%
40%
2001Q1 2003Q3 2006Q1 2008Q3 2011Q1 2013Q3 2016Q1f2018Q3f
Mort
gage %
dis
posable
incom
e
Baseline
Faster interest rateincreases
Long-term average
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1987 1991 1995 1999 2003 2007 2011 2015f
Two income Long term average
7
8
9
10
11
12
13
14
15
16
Price/d
isposalb
e incom
e p
er
capita
Average (1970-2014)
Goodbody
Page 32 06 Feb. 2015
Private residential rents
Source: CSO
Rental growth – 2010 -2014
Source: Daft.ie
Rent versus buy question
The final aspect we consider is the rent or buy question. Using price and rent data from daft.ie, we
estimate the amount required to rent as compared to servicing a mortgage for a 3 bed property across a
number of regions at the end of 2014. We based our mortgage calculations on an 85% LTV, 25 year
mortgage and the most recent Advertised Irish Mortgage Interest Rate published by the Central Bank of
4.51%. On this basis, it is currently cheaper to buy in all the regions we looked at, with the notable
exception of South Dublin County where renting is less expensive.
Rental yield stability attractive when compared to government bonds
Due to the tight supply conditions outlined above both house prices and residential property prices rose
in 2014. While house price growth (16% yoy) has outpaced rental growth (8% yoy) during the year the
yield has remained largely stable falling only modestly to 5.3% at the end of the year, from 5.6% in Q4
2013. This is above its average since the start of the euro of 4.4% and considerably better than the
c.3% yields seen in the boom 2006-2008 years.
60
70
80
90
100
110
120
130
Index
Forecast
0%
5%
10%
15%
20%
25%
30%
35%
National Dublin Other cities R-of-C
% c
hange (
2010-2
014)
Renting remains more expensive than buying* in most regions
€ House price Rent Mortgage
payments Difference % Difference
South Dublin County 349,358 1,543 1,652 (109) 7%
North Dublin City 270,621 1,308 1,280 28 -2%
Dublin Commuter Counties 167,793 811 794 17 -2%
South Dublin City 308,339 1,516 1,458 58 -4%
South-East Leinster 118,400 592 560 32 -5%
North Dublin County 221,311 1,125 1,047 78 -7%
Munster 112,258 580 531 49 -8%
Galway City 156,571 822 740 82 -10%
Cork City 161,723 876 765 111 -13%
West Dublin County 206,909 1,138 979 159 -14%
West Leinster 91,029 531 431 100 -19%
Dublin City Centre 273,086 1,593 1,292 301 -19%
Connaught/Ulster 90,411 550 428 122 -22%
Limerick City 102,154 664 483 181 -27%
Waterford City 82,744 593 391 202 -34%
Average 195,000 933 922 11 -1%
Source: Daft.ie, Goodbody *85% LTV, 4.51% interest rate, 25 year mortgage, all based on a three-bedroom house
Goodbody
06 Feb. 2015 Page 33
The newly introduced macro prudential rules will shift pressure from the purchaser market to the rental
market, particularly in Dublin, and we expect rental growth of 9% and 8% over 2015 and 2016
respectively, exceeding our house price growth assumptions of 6.7% and 5.1% over the same two
years. This will see rents return to their pre-crises levels by the end of 2015. Under these conditions
residential yields will remain stable in 2015 and 2016, averaging c.5.4%. This compares very favourably
with government yields which have been falling steadily since 2011. Rental yields averaged 3% higher
than the Irish government 10 year in 2014 and the continued fall in government yields means that the
positive carry is currently 4%.
Underlying the average statistics there is considerable divergence in yields in terms of both location and
property type and the speed that yields are returning to their 2007 level. According to the most recent
data from daft.ie (Q3 2014), rental yields range between 8.9% for a 2-bed in Limerick City to 3.7% for a
5-bed in Munster or South Dublin County. Due to the faster house price growth in Dublin, yields are
converging towards their 2007 levels faster in the capital, particularly the South City and County.
However, they are still on average 75% higher across the capital than they were in 2007.
Residential yield since 1980
Source: CSO, DoELG, ptsb, Goodbody
Residential yields attractive relative to government bond yields
Source: CSO
0
2
4
6
8
10
12
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016f
Renta
l yie
ld (
%)
Long-term average
Average since start of euro
-6
-1
4
9
14
1985 1990 1995 2000 2005 2010 2015 (current)
Residential yield Irish 10-year yield Residential yield over 10-year yield Average
Goodbody
Page 34 06 Feb. 2015
Conclusion
The fortunes of the Irish economy and its housing market have been closely intertwined over recent
years. After a record fall, Irish house prices are now rising at the fastest pace in the euro area. Unlike
the 2000s though, supply shortages are the key driver of this growth rather than excess credit or
investor demand due to the expectation of capital gains.
Rising prices have benefited homeowners and banks and also increased the incentive to build. This is
exactly how the market should work, but the supply response has been too slow due to capacity
constraints in the construction sector, financing issues and planning delays, among others. We expect
significant growth in supply over the coming years, but not at a pace sufficient to keep up with demand.
This will lead to further growth in prices and rents in our view. Accompanied by an increase in turnover,
mortgage credit and fall in negative equity, a move to match supply and demand over the coming years
will improve the quality of Ireland’s housing recovery.
Snapshot of rental yields
2-bed 5-bed Average
2007 Q3 2014 2007 Q3 2014 2007 Q3 2014
Dublin City Centre 4.1 7.1 * * 3.5 7.3
North Dublin City 3.6 6.9 1.9 4.6 3.3 6.2
South Dublin City 3.8 6.4 4.2 7.1 3.9 6.1
North Dublin County 4.0 7.1 2.1 5.2 3.7 6.1
South Dublin County 3.4 5.8 4.9 3.7 3.3 5.2
West Dublin County 4.2 7.9 2.8 4.1 3.9 6.7
Dublin Commuter Counties 3.6 7.3 2.9 4.4 3.2 5.6
West Leinster 3.3 7.6 2.5 4.2 2.9 5.9
South East Leinster 3.5 7.6 2.9 4.9 3.0 5.6
Munster 3.8 7.0 2.8 3.7 3.1 5.4
Cork City 3.6 8.0 2.7 4.2 3.5 6.2
Limerick City 3.9 8.9 3.1 6.1 3.7 7.3
Waterford City 3.7 8.4 3.3 6.6 3.4 7.4
Connacht/Ulster 3.4 7.3 2.5 4.0 2.9 5.8
Galway City 3.1 6.9 2.4 5.0 3.1 6.1
National 3.6 7.1 2.6 4.2 3.1 5.7
Source: Daft.ie
Goodbody
06 Feb. 2015 Page 35
Appendix
A CSO definitions underlying population forecasts
B Main building controls regulation 2014
General
1) Submit commencement notice & fee between 14 & 28 days prior to start of construction
2) Submit individual Certificates of Compliance from design professionals, certifiers and builders,
confirming that they have been commissioned and are competent to carry out building works
3) A Certificate of Compliance on Completion is required from the builder and certifier is required
before building can be used.
CSO assumptions Goodbody forecasts based upon
2011/2016 2016/2021 2021/2026
F1 Total Fertility Rate (TFR) 2.1 2.1 2.1
Migration
M1 annual average per annum -19,100 18,200 30,000
M2 annual average per annum -21600 4,700 10,000
Source: CSO
Regional definitions
Border. Midland and Western Region Southern and Eastern Region
Border Cavan Dublin Dublin City
Donegal Dún Laoighre-Rathdown
Leitrim Fingal
Louth South Dublin
Monaghan
Sligo Mid-East Kildare
Meath
Midland Laois Wicklow
Longford
Offaly Mid-West Clare
Westmeath Limerick City
Limerick County
West Galway City North Tipperary
Galway County
Mayo South-East Carlow
Roscommon Kilkenny
South Tipperary
Waterford City
Waterford County
Wexford
South-West Cork City
Cork County
Kerry
Source: CSO
Goodbody
Page 36 06 Feb. 2015
Specific requirements of local councils
1) Majority of apartments must be dual aspect & avoid an exclusively northern orientation
2) Must be one lift and stairwell for every two units
3) Every unit must have its own car park space and 4% must be for disabled parking
4) Ground floor apartments onto city streets are not permitted
5) Density restrictions require dwellings to be 1.5 metres apart and prohibit back-to-back
dwellings
6) Appropriate mix of unit types and sizes depending on the size of the whole development
7) Apartments have specified minimum floor area, minimum room area and minimum space
required storage facilities
C Mortgage Arrears Data
Mortgage arrears & restructures
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
Total mortgages 928.5k 923.5k 919.1k 915.7k 910.1k 907.1k 906.8k 903.6k
Arrears up to 90 days 56.2k 56.6k 54.6k 51.5k 48.6k 47.4k 43.6k 39.8k
% 6.1% 6.1% 5.9% 5.6% 5.3% 5.2% 4.8% 4.4%
Arrears 91-180 days 23.3k 22.8k 22.4k 21.2k 19.6k 17.5k 16.1k 14.1k
% 2.5% 2.5% 2.4% 2.3% 2.2% 1.9% 1.8% 1.6%
Arrears over 180 days 97.5k 102.1k 105.8k 108.7k 107.5k 106.7k 106.0k 102.5k
% 10.5% 11.1% 11.5% 11.9% 11.8% 11.8% 11.7% 11.3%
Total in arrears 177.0k 181.5k 182.8k 181.5k 175.8k 171.6k 165.7k 156.4k
% 19.1% 19.7% 19.9% 19.8% 19.3% 18.9% 18.3% 17.3%
Total over 91 days 120.8k 124.9k 128.2k 130.0k 127.2k 124.2k 122.1k 116.6k
% 13.0% 13.5% 13.9% 14.2% 14.0% 13.7% 13.5% 12.9%
Restructured (not in
arrears) 54.9k 55.4k 55.5k 56.3k 58.7k 67.5k 76.9k 86.4k
Restructured (not in
arrears) % 5.9% 6.0% 6.0% 6.1% 6.5% 7.4% 8.5% 9.6%
In arrears (90 days) or
restructured (%) 18.9% 19.5% 20.0% 20.3% 20.4% 21.1% 21.9% 22.5%
In arrears or
restructured 25.0% 25.6% 25.9% 26.0% 25.8% 26.4% 26.8% 26.9%
Source: Central Bank
Goodbody
06 Feb. 2015 Page 37
Analyst Certification
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