The housing supply crisis in Ireland: dynamics and main contributors

August 28, 2023

This is the first of a series of articles that ChangeStorm NP will publish with the aim of bringing awareness to the Irish community about the housing crisis happening in the country, as well as highlighting one by one the main areas of research that are our focus.

The very first topic ChangeStorm NP will discuss is the Housing Supply Dynamics in Ireland. The objective is to understand the current housing supply landscape in Ireland. ChangeStorm NP wants to provide a deeper understanding of the housing supply in the country, pinpointing the contributing factors to supply shortages, including the factors affecting supply shortages, regional variations, and trends over time. Lastly, we want to instigate the Irish community to participate in the challenge of identifying potential strategies to address the housing crisis effectively.

What is a Housing Supply Crisis?

A housing supply crisis happens when there is a significant imbalance between the demand and availability of housing units. In such a crisis, there are not enough housing options (such as rental properties or homes for sale) to accommodate the growing population's needs. This can lead to a range of problems and challenges for individuals, communities, and the economy as a whole. Some key characteristics of a housing supply crisis include:

Rising Prices and Affordability Woes: Skyrocketing housing prices put owning a home out of reach for many. Families grapple with allocating a significant chunk of their income to housing costs, while others face overcrowding or even homelessness.
Rental Shortages and Urbanisation Challenges: Scarcity of rental properties exacerbates affordability challenges, particularly for low-income individuals. As people search for housing, they're pushed to the outskirts of cities, causing traffic congestion and straining infrastructure.
Economic Impact and Social Disparities: The crisis hampers economic growth by deterring businesses from investing in high-cost housing areas. Vulnerable communities face the brunt of the crisis, intensifying existing social inequalities.
Policy Dilemmas and Planning Hurdles: Regulatory roadblocks and community opposition hinder housing development. Complex planning processes delay projects and further tighten the housing supply.

Currently, in Ireland, the stock of housing is insufficient and inadequate to meet demand.

The housing supply crisis in Ireland is indeed leading to rising prices, affordability problems, rental shortages, and challenges for communities and the economy, as detailed below. In Ireland, this crisis has developed over time, with factors like economic changes, population growth, and historical patterns playing a role. Addressing the crisis requires cooperation between different groups and innovative solutions to ensure everyone has access to suitable and affordable housing.

Which are the main contributors for the Housing Supply Crisis in Ireland?

Land Availability and Zoning Regulations: Limited land for development, combined with complex zoning regulations, difficult the construction of new housing units, particularly in high-demand urban areas. Market reports (SCSI, 2016-2019) suggest a significant growth in residential land values since 2015, particularly in Dublin, also pointing to insufficient land supply.
Planning Permission Processes: Lengthy and bureaucratic planning permission processes delay housing projects, leading to fewer completed units.
Construction Industry Challenges: shortages of skilled labor, rising construction costs, and difficulties in securing building materials slow down the pace of housing development. The construction industry has reported skill shortages across most construction trades and professions (DHLPG, 2018; DIT, 2018; DKM, 2017 and SCSI/PWC, 2019). Job vacancy rates in the construction and real estate sectors have increased since 2016. (https://economy-finance.ec.europa.eu/system/files/2020-12/eb061_en.pdf)

Rising costs will hit housing supply next year, according to a new report from lobby group the Construction Industry Federation (CIF). It comes as 96% of construction companies report a rise in the cost of building materials over the summer, with 85% expecting further cost increases this year. (The Irish Times, Oct 2022)

Infrastructure and Utilities: Insufficient or inadequate transportation networks and utilities, can put off developers from pursuing housing projects in certain areas of Ireland.
Financial Barriers: Limited financing options for developers and potential homeowners hinder the construction of new housing and reduce affordability.
Regulatory Hurdles: When regulations change frequently or lack clarity developers are discouraged from investing in housing projects.
Lack of Funding: There is a limited public and private investment in housing development that constrain construction. Government Policies and Initiatives have been introduced to address housing supply differences and affordability challenges. These include efforts to encourage more housing construction, promote sustainable urban development, and provide support for first-time buyers.

Launched in 2021, Project Tosaigh's aim is for 5,000 cost rental or affordable homes by 2026, targeting private-sector projects where an estimated 70,000 homes are permitted but development has stalled. Cost rental will be administered through the Land Development Agency (LDA). However, agreements for forward funding – staged milestones through the construction period – require a separate process that will only commence this month (Jun 2023). (The Irish Times - Jun 2023).

The age at which a person buys its first home is on the rise. While the age that marked the changeover between renting and home ownership was broadly stable between 1991 and 2006 (27 years on average), it increased from 28 years in 2006 to 35 years in 2016. (in https://economy-finance.ec.europa.eu/system/files/2020-12/eb061_en.pdf).

Urban Sprawl Concerns: Resistance to urban sprawl and a preference for protecting green spaces can restrict opportunities for development within city boundaries.
Rising Demand: Increasing population, demographic changes, and urbanisation are main contributors and add pressure on the existing supply. Population growth accelerated on the back of a strong labour market. The average annual population growth reached 1.2% in 2016-2018, compared with 0.6% in 2009-2015. Mostly, this growth has concentrated in urban areas where the housing crisis is more prominent.
Rental Market Constraints: The dominance of the rental market, along with rent control regulations, can influence property owners' decisions about whether to sell or rent out their properties.
Economic Factors: The underinvestment since the property crash in 2008 led to a reduction of the housing stock per capita in Ireland. Economic indicators such as income levels, employment rates, and interest rates can impact housing affordability and the ability of potential homebuyers to enter the market. Economic simulations indicate that tightening of the loan-to-value (LTV) ratio on mortgages granted to credit-constrained households could help curb land and house price inflation and improve affordability for home buyers. On the other hand, stricter LTV could also reduce aggregate housing investment and the housing stock, which may in turn reduce affordability in the rental sector.
Supply Chain Disruptions: The COVID-19 pandemic greatly affected the availability and cost of construction materials in Ireland negatively impacting the Housing crisis. The evolution of house prices after the COVID-19 pandemic will depend on the speed of the economic recovery. Lower house prices and uncertainty may reduce housing construction and worsen affordability.
Lack of Affordable Housing: This shortage is leading to increased demand for housing across all price ranges, putting additional strain in the supply. In 2016, housing costs exceeded one-third of income for more than 75% of the households in the bottom income quartile. Monthly mortgage instalments and rental payments represented, respectively, 55% and 40% of the net income of these households. In contrast, households in the bottom income quartile are affected by a severe increase of the loan-to-income ratio between the onset of the financial crisis in 2008 and 2016.
Local Opposition: Community opposition to new housing developments, especially larger ones, can lead to delays and challenges in securing necessary approvals.
Historical Factors: Historical patterns of housing development and land use can contribute to the current supply and demand imbalances.

The housing supply crisis in Ireland is a multifaceted and interconnected problem. Therefore, addressing this problem will require a comprehensive approach involving policy changes, collaboration among stakeholders, and innovative solutions that consider both short-term and long-term perspectives.

The Housing Supply differs amongst the regions of Ireland

According to GeoDirectory data, in the second quarter of 2019, the average vacancy rate in Ireland was relatively low, at 4.8%, with rates ranging from 1.2% in Dublin to 15.2% in Leitrim. The vacancy rate was low where demand for housing was most acute, such as in the greater Dublin area, while high vacancy rates were registered in rural counties with low housing demand. The reutilisation of long-term vacant properties in counties such as Cork or Galway (with vacancy rates of respectively 4.1% and 6.6%), where housing demand is increasing, may mitigate the supply shortage. However, it is unlikely to alleviate the supply shortage in the greater Dublin area. (in https://economy-finance.ec.europa.eu/system/files/2020-12/eb061_en.pdf)

Regional Disparities in housing supply and demand exist, with Dublin and its surrounding counties often having higher housing demand than other regions. This has contributed to urban sprawl, as people seek more affordable housing options outside major cities. In contrast, some more remote rural areas may struggle with population decline and lack of economic opportunities, impacting housing demand.

Affordability constraints are more pronounced in Dublin and surrounding commuting regions. Affordability is also a problem in Counties Meath, Kildare and Wicklow. In these Mid-East counties 23% of households spent more than 30% of their net disposable income on housing over 2013-2016. Dublin follows closely, with housing costs exceeding one-third of income for 19% of households. Regarding the private rental sector, affordability constraints are higher in urban regions. Among them, Dublin and the Mid-East regions have the highest share of households (respectively 39% and 37%) facing housing cost-to-income levels above 30% (Corrigan et al., 2018; in https://economy-finance.ec.europa.eu/system/files/2020-12/eb061_en.pdf).

A part of Dublin, other major urban areas in Ireland, such as Cork and Galway, have experienced higher housing demand due to economic growth, employment opportunities, and amenities. These regions have often seen higher rates of housing construction and development compared to rural areas, but supply struggles to keep up with demand, leading to affordability challenges. Limited available land and high construction costs have contributed to supply constraints, resulting in higher property prices and rental costs.

Rural and Periphery Areas of Ireland have faced different challenges. While there might be available land for housing development, demand is generally lower compared to urban centres, such regions can face different affordability challenges linked to income levels and economic opportunities. This can lead to lower housing construction rates and potential oversupply in some cases. Moreover, some rural areas might experience housing shortages due to outward migration and population decline.

You can learn more about this topic in:

Central Statistics Office (CSO): The CSO provides comprehensive data on various aspects of Irish society, including housing. Their reports often include regional breakdowns of housing supply data, such as housing completions, planning permissions, and vacancy rates.
Department of Housing, Local Government and Heritage (Ireland): The official government department responsible for housing often publishes data on housing supply, and these reports may include insights into regional variations.
Irish Planning Institute (IPI): The IPI might provide insights into regional planning policies and their impact on housing supply variations across different parts of Ireland.
Economic and Social Research Institute (ESRI): The ESRI conducts research on various societal issues, including housing. Their studies might delve into regional housing trends and supply differences.
The Irish Times - Property Section: News articles and analyses on housing often highlight regional variations in housing supply, particularly in relation to property prices and market trends.
RTE News - Housing Section: As the national broadcaster, RTE News often covers regional housing issues, including supply differences.
Property Industry Ireland (PII) and Construction Industry Federation (CIF): Both organisations might provide industry perspectives on regional housing supply challenges and differences.
Local Government Websites: Individual county and city councils often publish housing-related data and reports, which can include information about housing supply variations within their jurisdictions.

The trends of Housing Supply Crisis in Ireland overtime

The housing stock per capita has decreased after a decade of under-investment following the housing bust.

The housing supply crisis in Ireland has been a complex issue that has evolved over time. While the exact year of its initial identification may vary based on different perspectives, the problem began to gain significant attention and recognition in the years following the global financial crisis of 2008. The economic downturn and subsequent recovery highlighted issues within the housing market, including insufficient housing supply, rising demand, and affordability challenges.

During the late 2000s and early 2010s, as the Irish economy started to recover and urban centres experienced population growth, concerns about housing shortages, especially in Dublin, became more prominent. By around 2015, it was widely acknowledged that the country was facing a significant housing supply crisis, with reports of increasing homelessness, skyrocketing rents, and limited availability of affordable homes. An important factor to consider is that the economic recovery saw a pick-up in wages, as well as significant inflows of workers into urban areas around the country, many of which are likely renters due to their young age (McCann, 2016). However, the housing stock is mostly made up of detached houses (42%), whereas apartments accounted for only 12% of the total stock in 2016. (in https://economy-finance.ec.europa.eu/system/files/2020-12/eb061_en.pdf).

Housing Stock (i.e., the total number of permanent residential dwellings available for occupancy at the time of census enumeration, including holiday homes, vacant houses or apartments along with dwellings where all the occupants were temporarily absent on Census Night).

According to the Central Statistics Office (CSO) data, between the first quarter of 2011 and the same period in 2019, the housing stock per capita decreased by 4% - The drop in the housing stock per capita was most acute in the Dublin and Mid-East regions (around -5%). (https://www.cso.ie/en/releasesandpublications/ep/p-cp1hii/cp1hii/bgn/)

Between 2011 and 2016, the vacant housing stock (including holiday homes) fell by 43,991 dwellings in 2016, a decrease of 15.2%. Figure 1 shows the change in housing stock and population in Ireland over the years up to 2016. (https://www.cso.ie/en/releasesandpublications/ep/p-cp1hii/cp1hii/hs/).

Change in population and housing stock

Figure 1 (Obtained from: https://www.cso.ie/en/releasesandpublications/ep/p-cp1hii/cp1hii/hs/).

According to Daft, a property search website, the stock of second-hand properties available for sale remains well below the peak-levels observed in 2009-2011 (Figure 2), although it has increased somewhat since its 2017 low. Similarly, the stock of properties available for rent has decreased sharply in most areas since 2009, especially in Dublin, and remains relatively close to the levels recorded in 2007.

Stock of properties available nationwide

Figure 2 (Obtained from: https://economy-finance.ec.europa.eu/system/files/2020-12/eb061_en.pdf).

According to the Central Statistics Office there was an increase of 6% in housing stock between 2016 and 2022 (an increase of over 120,000 units). The reported increases in the housing stock occurred in all counties, with the largest increases concentrated in the east (Counties Meath and Kildare). In Kildare and Meath the stock went up by 12%. In Wicklow the increase was 9% and in Louth and Dublin the housing stock rose by 7%. There were more modest increases of 3% in the housing stock in counties Tipperary, Leitrim, Roscommon, Cavan and Donegal. (https://www.cso.ie/en/releasesandpublications/ep/p-cpr/censusofpopulation2022-preliminaryresults/housing/#:~:text=A%20total%20of%202%2C124%2C590%20permanent,(%2D9%25)%20to%20166%2C752). Figure 3 presents the change in housing stock and population in Ireland between the years 2016 and 2022 by counties, stressing how some regions might compensate for the overall housing stock in the country. Clearly, Longford’s stocking housing is not accompanying the population raise. (https://www.cso.ie/en/releasesandpublications/ep/p-cpr/censusofpopulation2022-preliminaryresults/housing/#:~:text=A%20total%20of%202%2C124%2C590%20permanent,(%2D9%25)%20to%20166%2C752)

Percentage change in population and housing stock by country

Figure 3. (obtained from CSO Website)

Final remarks

As Ireland grapples with its housing supply crisis, it's clear that a multi-faceted approach is essential. Through collaboration among policymakers, the construction industry, and communities, we can pave the way for a more balanced and affordable housing market. By addressing these challenges head-on and implementing thoughtful strategies, we can hope for a future where housing is accessible, communities thrive, and the Irish spirit remains unshaken.

ChangeStorm NP wants to know what the Irish community think with the Survey Link below

Click here: Survey about the main contributors for the housing supply crisis in Ireland

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