The challenges of inadequate Housing Supply Marian Finnegan, Chief Economist 24 th May 2016
A FUNCTIONING HOUSING MARKET? People Economy Property Politics 2
ECONOMY AN OVERVIEW % Change 2011 2012 2013 2014 2015 2016f 2017f 2018f Real GNP -0.8% 1.6% 4.6% 6.9% 5.7% 3.9% 3.2% 2.7% Real GDP 2.6% 0.2% 1.4% 5.2% 7.8% 4.3% 3.5% 3.2% Exports 2.1% 2.1% 2.5% 12.1% 13.8% 6.9% 4.9% 4.7% Investment 3.2% 8.6% -6.6% 14.3% 28.2% 12.5% 8.9% 4.8% Consumption -0.7% -0.8% -0.3% 2.0% 3.5% 3.5% 2.0% 1.8% Unemployment Rate 14.7% 14.7% 13.1% 11.3% 9.5% 8.3% 7.7% 7.2% Consumer Prices 2.6% 1.7% 0.5% 0.2% -0.3% 1.2% 1.5% 1.7% Source: Department of Finance
FUTURE DEMANDS Demographic Projections Population estimates for 2015: 4.64 Million Year Population 2011 4.58 million 2016 4.69 million 2021 4.88 million 2026 5.04 million Source: CSO/Sherry FitzGerald Research 4 4
FUTURE DEMANDS DEMOGRAPHIC PROJECTIONS Year Housing Demand* Ireland Housing Demand Dublin 2012-16 22,500 6,300 2016-21 33,500 11,700 2021-26 34,500 10,100 Average PA 30,000 9,700 Source: Sherry FitzGerald Research 5 * Ireland data includes Dublin 5
CENTRAL BANK Loan to Value (LTV) for principal dwelling houses (PDH) PDH mortgages for non-first time buyers are subject to a limit of 80 per cent LTV. For first time buyers of properties valued up to 220,000, a maximum LTV of 90 per cent will apply. For first time buyers of properties over 220,000 a 90 per cent limit will apply on the first 220,000 value of a property and an 80 per cent limit will apply on any excess value over this amount. The cumulative monetary value of loans for principal dwelling purposes which breach either of these limits should not exceed 15 per cent of the euro value of all PDH loans on an annual basis. Loan to Value (LTV) for Buy to Let mortgages (BTLs) BTL mortgages are subject to a limit of 70 per cent LTV. This limit can only be exceeded by no more than 10 per cent of the euro value of all housing loans for non PDH purposes during an annual period. Loan to Income (LTI) for PDH mortgages PDH mortgage loans are subject to a limit of 3.5 times loan to gross income. This limit should not be exceeded by more than 20 per cent of the euro value of all housing loans for PDH purposes during an annual period. 6
RENT CERTAINTY Supply Side Reforms Increase rent reviews to once every two years; Increase notice of termination periods; Landlords must justify rent increases by reference to comparable market data; Increase powers of PRTB as market regulator; Increase Mortgage Interest Relief from 75% to 100% for landlords, who rent to tenants receiving housing benefit for a minimum of three years; and Increases in housing assistance payments of 50% over current rent supplement in Dublin Measures on supply New national apartment design standards enforceable by the Minister for Environment to eliminate inconsistencies across planning authorities. New apartment guidelines to be published in December Rebate on development levies charged by local authorities for developments over 50 units and priced at under 300,000 per unit in Dublin and 250,000 in Cork 7
Residential
MARKET ACTIVITY 44,700 Residential units transacted in 2015, excluding multi-family Source: PPR/Sherry FitzGerald Research 9 9
TRANSACTION ACTIVITY UK Sold vs. Private Stock UK England 2013 4.7% 4.8% 2014 5.3% 5.4% 2015 n/a 5.4% Source: GOV.UK 10
HOUSING COMPLETIONS 1973 to 2015* Completions up 15% in 2015 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 11 Source: DoECLG 11
COMPLETIONS IN EU COUNTRIES, 2014 Per 1,000 population Average 2.2 completions per 1,000 population * 6.0 5.0 4.0 3.0 Ireland 2.4 2.0 1.0 0.0 *For EU countries that data is available for Source: Eurostat, European Mortgage Federation 12
Leitrim Longford Cavan Carlow Kildare Wexford Waterford Mayo Wicklow Monaghan Donegal Roscommon Kerry Louth Clare Galway Cork Meath Offaly Sligo Limerick Westmeath Tipperary Dublin Laois Kilkenny COMPLETIONS IN IRELAND, 2015 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 - Dublin 2.3 Source:DoECLG, CSO 13
Leitrim Tipperary Cavan Longford Sligo Laois Roscommon Donegal Kerry Carlow Kildare Wexford Monaghan Galway Mayo Clare Meath Waterford Westmeath Louth Kilkenny Cork Dublin Limerick Wicklow Offaly COMPLETIONS IN IRELAND, 2006 COMPARISON Ireland average 21.9 completions per 1,000 population 60.0 50.0 40.0 30.0 20.0 Dublin 16.4 10.0 - Source:DoECLG, CSO 14
Supply-Side Obstacles
COUNTY BY COUNTY ANALYSIS SECOND HAND PRIVATE STOCK JANUARY 2016 Source: Sherry FitzGerald Research 16 16
MARKET CONCERNS; Working Capital Planning Process SUPPLY End User Demand Infrastructure 17 17
MARKET CONCERNS; Working Capital Planning Process SUPPLY End User Demand Infrastructure 18 18
MORTGAGE DRAWDOWNS 2006-2015 24,105 mortgages with a value of 4.9 billion drawn down in 2015. Cash buyers account for 46% of market Source: Banking Payments Federation Ireland 19 19
MORTGAGE DRAWDOWNS 2006-2015 24,105 mortgages with a value of 4.9 billion drawn down in 2015. Cash buyers account for 46% of market Market need for a 8-10 billion Market Source: Banking Payments Federation Ireland 20 20
PROFILE OF PURCHASERS Q1 2016 Ireland Dublin Owner Occupation 70% 76% Investment 19% 16% Additional Residence 9% 7% Development 1% 1% 19% of Purchasers were Investors in Ireland Source: Sherry FitzGerald Research 21
End-User Demand Availability of Mortgages First time buyers Investors Cost of holding Investment property Mortgage Interest Relief USC/PSRI CGT? Decision on wider implications of current policy Impact of Macro prudential policy on supply 22 22
Other Measures Planning process; Perception that there is a greater emphasis on obstacles Motivated to support viable development Emergency policy to fast-track viable developments 23 23
Thank you Any questions? Marian Finnegan Chief Economist, Sherry FitzGerald Group marian.finnegan@sherryfitz.ie Marian Finnegan 24 24
CAVEATS This report should not be relied upon as a basis for entering transactions without seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald / DTZ Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald/ DTZ Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Sherry FitzGerald/ DTZ Sherry FitzGerald. 25 25