estimating ireland’s · use the scenario based on the total fertility rate decreasing from 1.8 to...

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Estimating Ireland’s long-run housing demand

April 2019

Long-run projections of Ireland’s housing demand

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Key findings

• CSO projections show the population reaching 6 million by 2051;

• New household formation averages nearly 32,000 per annum between 2019 and 2051. This

compares to previous estimates of 25,000 new households per annum;

• The number of households reaches close to 2.8m by 2051;

• More than half of these new households are headed by a person aged over 50 years old;

• Average household size declines to 2.12 persons per household by 2051;

• Pent-up demand between 2011 and 2018 amounts to nearly 65,000 units;

• Much of the growth in households will be in one or two-person households;


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Contents

Introduction .................................................................................................................................... 5

Population Projections ................................................................................................................... 6

By 2051 the number of households in Ireland is projected to reach close to 2.8 million .......... 8

Census trends and the Irish Housing Market ............................................................................. 12

Number of Persons per Household ............................................................................................. 12

Housing tenure............................................................................................................................ 15

House type .................................................................................................................................. 17

Testing the impact of Alternative Assumptions ......................................................................... 18

Appendix 1: CSO Population Projections Assumptions............................................................ 19

About Property Industry Ireland .................................................................................................. 20


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Introduction

Projections of future housing demand provide an important input to housing policy. We have seen the role that population projections and the associated housing demand has had in preparing the National Planning Framework. This paper takes a longer-term perspective, looking at housing demand based on demographic trends out to 2051. We also look at how the projected household demand might divide amongst the different types of housing tenure – owner-occupancy, private sector rental and social housing/renting. For Census purposes a private household comprises either one person living alone or a group of people (not necessarily related) living at the same address with common housekeeping arrangements - that is, sharing at least one meal a day or sharing a living room or sitting room. A permanent private household is a private household occupying a permanent dwelling such as a house, flat or bed-sit.

The projections contained in this paper are based on population trends and trends in household formation. They do not take account of changes to government policy or the impact of economic changes on household formation. However, projections of future household growth can play an important role in determining the future demand and need for housing and associated services.

The demand for housing is a result of a range of factors. Population growth, including migration flows, is a driver of demand. Other demographic and socio-economic change also influence the demand for housing such as rising life expectancy, or an increasing number of single-person households reflecting improved longevity as well as relationship breakdown. Affordability can influence both the decision to set up an independent household and the tenure choice. If housing is considered unaffordable then you can get young adults continuing to live with their parents, moving back into the family home or sharing households with others. A comparison of affordability between owning or renting, and the availability of mortgages can also influence tenure choice once the decision is made to set up an independent household. For example, if mortgage service costs or deposit requirements are high this can increase the demand for rental housing. The demand for housing is also influenced by factors including economic conditions, interest rates, income levels, and changes to income and personal taxation. The interaction between demand, affordability and the viability of supply is outside of this briefing note but is an important factor determining effective demand.

This analysis is based on the projection forward of trends observed between various Census. Changes in policies or the introduction of new polices, economic conditions etc will impact on household formation decisions and so change the future outcome.

The trend of fewer people per household has slowed in recent years. This, in part reflects affordability constraints. An ageing population is likely to contribute to smaller household size in the future. Our projections assume that the proportion of the population living in private dwellings remains at the average of recent years. However, population ageing is likely to contribute to an increase in the number of people living in communal (non-private) dwellings. We are likely to see a greater focus on living within the community with some independence rather than in nursing homes.

Ireland currently faces the challenge of needing to increase housing supply to meet demand. It is necessary to look at whether the dwellings are of the right type and in the right locations to meet forecast demand. The trend towards an increase in one and two-person households may also contribute to a demand for smaller units. The composition of the existing stock should be taken account of, in conjunction with population forecasts, when planning the type of housing units we deliver in the future.


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Population Projections

In this analysis of housing demand, we use the most recent CSO population projections (published July 2018) which project population by age group and gender to 2051. These projections are based on a range of assumptions regarding fertility, mortality and net migration (set out in Appendix 1). The range of these projections is shown in Figure 1. Depending on the assumptions, Ireland’s population could increase to between 5.6 and 6.7 million by 2051. For our housing projections we use the scenario based on the total fertility rate decreasing from 1.8 to 1.6 by 2031 and remaining constant thereafter to 2051 and an assumed net inflow into the country of +20,000 per annum to 2051 (M2F2). Based on these assumptions Ireland’s population is forecast to increase to 6 million by 2051. However, we recognise that the most recent Population and Migration Estimates (August 2018) suggest that the net inflow (immigration minus emigration) for the year to April 2018 amounted to +34,000. Therefore, as one of our alternative scenarios we look at the implications for housing demand if the net inflow is assumed to be +30,000 per annum to 2051.

Figure 1: Population Projections for Ireland, 2016-2051

Source: CSO, Population and Labour Force Projections

The population projections indicate a significant change in the structure of Ireland’s population. The number of people aged over 65 years will more than double by 2051. Close to a quarter of the population will be aged over 65 years by 2051, compared with just over 12% in 2016.


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Figure 2: Population structure compared, Ireland, 2016 and 2051

Source: CSO

The strength of the growth in Ireland’s population contrasts with the projections for many other EU

countries. Forecasts by Eurostat, see Table 2, show Eurostat population forecasts to 2050. Ireland’s

population growth is one of the strongest and contrasts with a number of other EU countries, where

projections suggest that population growth will be moderate or that the population could contract.


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Table 1: Population projections to 2050, 2015=100

2015 2020 2030 2040 2050

European Union 28 100 101 103 104 104

Belgium 100 103 109 115 118

Czechia 100 101 101 100 99

Denmark 100 104 111 116 118

Germany 100 103 104 104 102

Ireland (Eurostat) 100 105 111 117 123

Ireland (CS0) 100 105 117 129 140

Spain 100 100 101 104 106

France 100 102 106 110 112

Croatia 100 97 94 90 87

Italy 100 100 99 99 97

Netherlands 100 103 109 113 114

Austria 100 105 113 118 119

Poland 100 100 98 94 90

Portugal 100 98 95 92 88

Slovakia 100 101 101 99 97

Finland 100 102 104 105 104

Sweden 100 106 115 123 130

United Kingdom 100 104 110 116 120

Norway 100 105 114 121 127

Source: Eurostat Note: Difference between Eurostat and CSO population projections mainly reflects difference in migration assumptions.

By 2051 the number of households in Ireland is projected to reach close to 2.8 million

Converting population projections into estimates of housing demand requires us to have some

estimate of the propensity of people to form an independent household – household formation.

Using data from the various Census between 1996 and 2016 we calculate headship rates for each

age group and gender. Headship rates are the proportion of those within each age group who

identify themselves as head of an independent household.

Given all that has happened in Ireland’s housing market in recent years a key assumption is over

what period do we take the trend in headship. The change in headship between 2011 and 2016 has

most probably been influenced by the economic crash and the lack of available accommodation.

The period between 2006 and 2011 will have been impacted upon by the economic crash that

commenced in 2007, while the period 2002 to 2006 will have seen headship rates reflecting the

housing market boom. Thus, we use the change in headship between 1996 and 2002. Although the

housing market grew strongly over the period the general view is that much of the activity reflected

conditions at the time and an economy and housing market that was catching-up with its European

neighbours. To take account of the difference in headship between the late-1990s/early 2000s and

2016 we “unwind” the impact of the crash on headship rates over the period to 2025 by using a

weighted average of the change in headship rates 2011-2016 and 1996-2002, with the weight


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applied to the 1996-2002 period increasing over time. From 2025 on, the change in the headship

rate between 1996 and 2002 is applied1. The implied headship rates for 2051 are shown.

Table 2: Proportion who are heads of household, by age group 1996-2016

1996 2002 2006 2011 2016 2051

% within age cohort

All ages 31.0 32.9 34.7 36.2 35.9 46.6 Under 25 yrs 2.9 4.2 4.4 3.6 2.5

14.1

25 - 29 yrs 29.3 31.2 33.8 35.3 29.9 44.7

30 - 34 yrs 42.4 42.9 45.0 47.0 43.7 47.1

35 - 39 yrs 48.2 47.8 49.2 51.2 49.8 44.2

40 - 44 yrs 51.0 50.8 51.3 53.4 52.9 49.1

45 - 49 yrs 52.5 52.4 53.5 54.5 54.8 51.5

50 - 54 yrs 54.5 53.4 55.1 56.3 56.1 45.1

55 - 59 yrs 56.2 55.2 56.1 57.5 57.6 47.3

60 - 64 yrs 59.1 56.9 57.6 58.6 58.7 41.7

65 yrs + 62.6 61.9 62.6 63.5 62.9 56.9

Source: PII analysis based on Census data

We estimate that the number of households in Ireland in 2018 was just over 1.75 million. Combining

the assumptions outlined above with the population projections, we find the following:

• The number of households reaches close to 2.8m by 2051;

• New household formation averages nearly 32,000 per annum between 2019 and 2051;

• The majority of these new households are headed by a person aged over 50 years old.

1 We use the same approach as the UK Office for National Statistics, see “2016-based household projections for England: changes to methodology” June 2018.


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Figure 3: New household formation, annual average

Census 2016 shows that average household size stabilised in 2016, with the average number of

persons per household at 2.75, compared to 2.73 in 2011. This represents the first growth in

average household size since the foundation of the State. It likely represents, for the most part

changes imposed on individuals’ living arrangements due to the housing crisis rather than any

change in peoples’ preferences. Our projections suggest that the long-run decline in average

household size recommences. Average household size declines to 2.12 persons per household by

2051.

The number of households headed by someone aged 65 years and over are projected to increase

by 174% between 2018 and 2051. Households headed by those aged under 65 years will increase

by just over 23%, although much of this is driven by households headed by someone aged under 25

years, just 6% of households in 2051.


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Figure 4: Average household size

Close to 71% of the growth in households between 2018 and 2051 will be in households headed by

someone aged 65 years and over. This is in line with the projected ageing of the population. Ireland

is not unique in facing this situation. Projections by the UK Office for National Statistics show a

similar story for England2.

2 Office for National Statistics, (2018) Household projections in England: 2016 based, Statistical Bulletin


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Figure 4: Number of Households by age of household head. 2016 and 2051

Census trends and the Irish Housing Market

In the analysis above, we set out the growth in the number of households based on population projections and household formation trends. We now look at the implications for the housing market from census trends in housing tenure and household size. As with the analysis above these projections are trend based and do not take account of how changing policies or economic factors would impact. For example, rising unemployment could lower the demand for owner-occupation.

Number of Persons per Household

Firstly, we look at the number of persons per household. Census data show a decline in the proportion of households consisting of 4 or more persons. Since 2006 this has represented approximately 30% of households. In 1996, the proportion was close to 40%.

In contrast we can see that the proportion of households with 2 or less persons has risen. In 1996, this proportion was over 44% and by 2016 had risen to 52%.


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Figure 6: Number of persons per household, distribution

Looking at the proportion of households by number of persons also illustrates the extent of change

in Ireland. As is shown in Figure 7, the proportion of one-person households has risen to a higher

proportion than 3-person households. A further indication of the changes experienced is the decline

in 4+ person households as an overall proportion. Two-person household has risen to a proportion

similar to that of 4+ person households. It is evident from the graph that there has been some

flattening of the trend between Census 2011 and 2016. This is most probably due to the impact of

the economic crash on the housing market – lower housing supply, high unemployment, affordability

challenges and difficulties accessing mortgage credit.

0

20

40

60

80

100

1926 1936 1946 1961 1966 1979 1981 1986 1991 1996 2002 2006 2011 2016

%

1 person 2 person 3 person 4 person +


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Figure 7: Change in household types: Ireland, 1961-2016

We apply the average change in proportion between 1926 and 2016 to our projected number of households to 2051. Based on these trends we can expect to see that much of the growth in households will be in one or two-person households (Figure 8) and by 2027 the number of one-person households will be higher than households consisting of 4+ persons. These households would increase from 52% of households to just over 67% of households in 2051. In contrast, the number of households consisting of 4+ persons decline, to just 15% of households in 2051.

Figure 8: Households by number of persons


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Housing tenure

Census data show a decline in the proportion of households in owner-occupancy. Having been close to 80% of households in Census 2002 and 2006 it has now fallen to 67% in Census 2016. We have also seen an increase in the number of households renting. The rental sector now accounts for just over 28% of households. Just under 20% of households indicate that they are renting in the private rented sector and an additional 9.5% are renting in the non-market sector i.e. from a local authority or a voluntary association (see Table 3). What is striking is the lower level of homeownership in Census 2011 and 2016 when compared with Census 2002 and 2006.

Table 3: Household Tenure, 2002-2016

2002 2006 2011 2016

Owner occupied with loan or mortgage

529,557

593,513

583,148

535,675

Owner occupied without loan or mortgage

461,166

498,432

566,776

611,877

Rented from private landlord

141,459

145,317

305,377

309,728

Rented (LA/Voluntary Body)

88,206

155,989

143,975

159,943

Occupied free of rent

21,560

21,701

25,436

27,440

Not stated

37,669

47,344

24,696

53,002

Total Households

1,279,617

1,462,296

1,649,408

1,697,665

Projecting this forward (Table 4) suggests that by 2051 Ireland’s housing market would be very different to 2018, with over half of households in the rental sector, and just under 48% in owner-occupancy. However, the decline in the penetration of owner-occupiers with a mortgage and the increase in penetration of renters and unmortgaged owner-occupiers between 2011 and 2016 may well reflect the market conditions that prevailed at the time and so could be driven by the low level of transactional activity in the new and second-hand homes markets during this period. As a result, older people paid off mortgage debt and younger people had in many instances no real option but to rent. Thus, it is worth restating that these are projections based on trends and take no account of policy or behavioural changes that may occur. However, it does suggest that a continuation of current trends would see a dramatic transformation in housing tenure in Ireland.


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Table 4: Ireland’s projected tenure change in a European context

Owner, with

mortgage or loan

Owner, no mortgage/housing

loan

Tenant, rent at market

price

Tenant, rent at

reduced price or

free

%

EU 26.6 42.6 19.9 10.8

Belgium 41.1 30.2 20.0 8.7

Denmark 47.4 14.3 38.3 0.1

Germany 26.2 25.5 39.8 8.4

Ireland 32.9 36.8 13.2 17.1

Ireland 2051 16.2 31.4 35.7 16.7

Spain 30.9 46.9 13.8 8.4

France 31.0 33.8 19.2 16.0

Croatia 5.8 84.3 1.6 8.4

Italy 15.9 56.3 16.8 11.0

Netherlands 61.0 8.0 30.3 0.7

Austria 25.2 29.8 29.7 15.3

Poland 11.6 71.8 4.5 12.1

Portugal 36.7 38.5 12.9 11.8

Finland 42.0 29.5 13.0 15.4

Sweden 54.8 10.4 34.0 0.8

UK 35.5 27.9 18.0 18.6

Source: Own analysis and Eurostat data


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House type

Data from Census 2016 show that 12% of households in Ireland live in a flat or apartment. This compares to 8.6% of households in 2002. Eurostat data show the proportion of the population living in flats or apartments which indicates that this is much lower than many other European economies, (Figure 9). The National Planning Framework includes among it aims an emphasis on compact growth, renewing and developing existing settlements with a target of at least 40% of all new housing to be delivered within the existing built-up areas of cities, towns and villages on infill and/or brownfield sites.

As with our previous analysis we project the trend seen between the different Census forward to 2051. On this basis the proportion living in apartments would increase to close to 20% of households in 2051. The proportion living in houses would be 80% in 2051, based on current trends, compared with 86% in 2018.

Figure 9: Proportion of population living in Flats/Apartments, 2016

Source: Eurostat, Housing Statistics


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Testing the impact of Alternative Assumptions

The discussion above is based on the assumptions outlined. We test the sensitivity of the household projections to our assumptions by looking at the outcome using alternative headship rates as well as the population projections with the high and low migration assumptions. CSO data show that the net inflow in the year to April 2018 was 34,000, up from 19,800 in the previous year.

Figure 10 shows the range of outcomes. If migration were to be higher, with a net inflow of 30,000 per annum, the number of households would increase to 3 million by 2051, an increase of 35,000 per annum on average.

In contrast, if headship rates were to continue the trend seen between Census 2011 and 2016 the number of households would only increase to 2.3 million, an increase of 15,000 per annum on average.

Figure 10: Number of Households, Alternative Scenarios


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Appendix 1: CSO Population Projections Assumptions

The assumptions agreed by the Expert Group to project the population forward from 2017 - 2051

are summarised below.

Fertility Assumptions Agreed

F1: Total fertility rate to remain at the 2016 level of 1.8 for the lifetime of the projections

F2: Total fertility rate to decrease from 1.8 to 1.6 by 2031 and to remain constant thereafter

to 2051

Mortality Assumptions Agreed

Mortality rates for males and females are assumed to improve at 2.5% and 2.0% per annum

respectively in the short-term to 2040.

The long-term rate of improvement is assumed to be 1.5% per annum (unchanged since the

last report). The short-term rate declines linearly over a 25-year period to the long-term

rate.

These rates are assumed to apply to all ages up to age 90.

These assumptions will result in gains in life expectancy from:

- 79.3 years in 2015 to 85.6 years in 2051 for males

- 83.3 years in 2015 to 88.3 years in 2051 for females

Migration Assumptions Agreed

M1: Net migration +30,000 per annum to 2051




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About Property Industry Ireland

Our vision: A sustainable Irish Property Industry which is creative, responsive, competitive and well-integrated in meeting the socio-economic needs of all the stakeholders in the built environment Our mission: To be the trusted partner and provider of “evidence based” information, policies and strategies for the property industry at National level, to the Oireachtas, Government, Local Authorities and Agencies, and for the benefit of the people of Ireland. Our objectives are to: 1. Be the Leadership Forum in the Industry for the discussion on National Property Issues 2. Develop, propose and support a National Property Strategy, policies and solutions to issues for the benefit

of the nation as a whole 3. Be a research led organisation, which collates and commissions relevant and innovative research on

Ireland's construction sector in order to promote & sustain a competitive economy 4. Be the go-to organisation for Government and the Oireachtas on all aspects of property 5. Work with all stakeholders in the industry to restore it to a sustainable position in the economy 6. Increase membership through demonstrating the achievements and outcomes in relation to national

strategy and policy PII Council: Tom Phillips, Tom Phillips + Associates (Chairman) Aidan O’Hogan, Property Byte Ltd. Patricia O’Brien, BHK Solicitors Tony Reddy, Reddy Architecture + Urbanism Padraic Whelan, Deloitte Michael O’Flynn, O’Flynn Group Jim Gallagher, Lafferty Mark FitzGerald, Sherry FitzGerald Ivan Gaine, Sherry FitzGerald David O’Connor, David O’Connor Consulting David Clarke, Goodbody Stockbrokers Paddy McElligott, Activate Mark McGreevy, John Sisk and Son Policy Committee Chairs: Technical and Construction Issues – Jim Gallagher, Lafferty Planning and Development – John Spain, John Spain Associates Funding Initiatives – Paddy McElligott, Activate Market Supply and Demand – Ivan Gaine, Sherry FitzGerald Executive: David Duffy, Director David Howard, Policy Executive

Recent publications: • The Property Industry – Rebuilding Ireland’s

Economy (2011) • Development of infrastructure Bonds (2011) • Real Estate Investment Trusts for Ireland

(2012) • Putting the Residential Property Market on

a Sustainable Footing (2012) • Planning a better future: a report on reform

of the Irish Planning System (2012) • Towards a National Property Strategy

(2013) • Delivering Ireland’s Property Needs (2014) • A National Spatial and Development Plan

for Ireland (2014) • The Cost of Construction in Ireland: A

European comparison (2014) • Investing in Social Housing (2014) • Housing Manifesto (2015) • Policy Reform to Increase the Delivery of

New Housing (2016) • Delivering Rebuilding Ireland: PII Pre-

Budget 2017 Submission (2016) • Tax Treatment of Rental Income (2017) • Rental Strategy Response (2017) • Pre-Budget 2018 Submission (2017) • Submission to Rebuilding Ireland Review

(2017) • Property Industry Ireland (PII) response to

Draft Ireland 2040 – Our Plan National Planning Framework (2017)

• Brexit and Ireland’s Property Sector (2018) • BCAR – Recommendations for Reform

(2018) • Better housing: improving affordability and

supply (2018) • PII Submission on Land Development

Agency (2018)


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The majority of PII’s work, whether it is briefings on policy, discussions with experts or preparing of positions and deliverables happens through these four policy committees. Each Committee meets roughly every two months to discuss the main issues facing the industry.

The Market Supply and Demand Committee exists to review, monitor and advise PII Council and external stakeholders on market supply and demand and required public policy changes in relation to:

• Current and future supply of commercial and residential property

• Current and future demand for commercial and residential property

• Analysing data gaps and research requirements in relevant areas

• Measures to enhance market confidence and achieve a sustainable level of activity

The Planning and Development Committee exists to review, monitor and advise the PII Council and external stakeholders on the Irish planning and associated regulatory system and required public policy changes in relation to:

• Promoting a positive pro-active planning and associated regulatory system

• Driving necessary reform of the system

• Incorporating best international practice into Irish planning

• Ensuring the financial elements of planning are robust and appropriate

The Construction and Technical Committee exists to review, monitor and advise the PII Council and external stakeholders on technical and construction issues and required public policy changes in relation to:

• Promoting activity in the industry, notably in relation to the Government Jobs Action

Plan

• Exploiting sustainable growth opportunities in Ireland and overseas

• Improving the industry cost base and competitiveness

• Responding to specific industry issues as they arise

The Funding Initiatives Committee exists to review, monitor and advise the PII Council and external stakeholders on potential property funding initiatives and required public policy changes in relation to:

• Attracting international capital into Irish property

• Encouraging greater institutional investment in property

• Enhancing domestic bank lending & investment

Remember if you are unable to attend a committee meeting you are welcome to appoint an appropriate alternate.


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Notes


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Property Industry Ireland

84 - 86 Lower Baggot Street

Dublin 2 Ireland

[email protected]

01 605 1666

www.propertyindustry.ie

http://www.propertyindustry.ie/

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