The stark challenges facing housing as populations rise

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13th Jun 2023

It’s been confirmed that the population of this island has passed the seven million mark for the first time in 171 years.

It’s almost hard to believe that the legacy of the Famine would have stretched this far and that we would only now be getting to population levels similar to before 1845. The statistics came from the Irish census and the population growth south of the border has been crazy.

In the six years from the previous census in 2016, the population has grown by over 350,000 people, that’s the population of Belfast and a growth of just under 8 per cent. The Northern Ireland census runs every decade, our last one being in 2021 when it showed just over 5 per cent growth, a rise of nearly 100,000 people.

One of the stark challenges down south is housing all those people and the impact that is having on the market. Up here, the picture is not dissimilar, though that isn’t always as apparent as it might be, if some of the housing surveys are not examined properly.

Surveys are on my mind because I’ve been thinking of writing a piece on the housing market ever since the calamity of Liz Truss and her ill-fated Chancellor’s fiscal statement last autumn. That sent the money markets scurrying for cover. It was a particularly painful episode for those in the housing market who were most exposed to the jump in interest rates. I know about it all too well, the sale of my own house fell through, twice.

Maybe interest rates were always going to rise due to the war in Ukraine, the energy shock, pent up demand post-Covid and all that quantitative easing. Expected rises in interest rates due to well flagged macro-economic issues are one thing but throw in a government that lost the confidence of the markets through its arrogance, well, that’s a different matter. That’s the sort of combination which spooks consumers and sparks hyper vigilance when it comes to major purchases. Thus, house buyers took fright and market activity began to freeze as winter set in.

If there is one sector of the economy which doesn’t lack for surveys, it’s the housing market. From HMRC to NISRA, to lenders, academia, agents and surveyors, it appears that everyone has something to say about the housing market. Indeed, we are so spoilt for choice it can be difficult to wade through all the divergent commentary and get a sense of where the market is heading.

Part of the problem is that some of the headlines which consumers are digesting are for UK-wide surveys, not data specific to here. What is happening in GB may not be happening here and the latest regional Rics survey is a case in point. For the first time in over six months, local surveyors are expecting prices to go up in the next quarter, but across the water their peers are expecting prices to fall. The view, and evidence, on the ground locally is that sales activity will also increase.

Another problem with housing surveys is that they are often based on quarterly rather monthly statistics. Speaking to some estate agents in Belfast I know that the ‘Truss effect’ and ensuing headlines made sure that trade for the next few months was unseasonably challenging. So, house completions were badly down in January and February, due to the scares created by Truss and ‘Chaos’ Kwarteng in October, November and December last year. So, skewed by those two months, figures for the first quarter looked bad, whereas by March the markets had calmed down and the number of viewings and interest in house sales was well up.

Most quarterly surveys, however, don’t have that granular level of monthly data. One which did, from PropertyPal, led by, in my view, the foremost economist in all things housing, Jordan Buchanan, found that “economic stabilisation and an improved outlook has led to a significant increase in home sales in March, surpassing pre-Covid-19 averages by 4 per cent and resulting in properties transacting one week faster than usual”.

While this region is not Dublin, where rents, prices and availability are all major challenges, we have issues also. Dublin is very expensive because demand is outstripping supply, but we have growing problems too, as evidenced by soaring rental prices here. The bottom line is we just aren’t building enough houses, north or south.

The latest NI figures suggest that starts on new build residential units haven’t been this low since 2014 and that in a year the number has plummeted by almost 30 per cent. With prices for new builds still going up and a growing population this is a problem of supply rather than demand. And it’s certainly not the fault of the house-builders, who are chomping at the bit to get more houses built.

A major part of the problem is that government is making it too difficult for house builders, primarily through a zoning and planning system which seems impervious to root and branch reform, despite its well reported failings over many years. We’re also failing, despite warning after warning, to invest in wastewater infrastructure which is a prerequisite for any house building.

NI Water has said 25 out of 27 economic hub towns in the north are facing development restrictions because of capacity problems, and therefore consultation responses from NI Water often cause major issues in the housing system. Things are improving and the house-builders and NI Water are working hard to find ways forward, but the investment from government is required and it needs the freedom to mutualise and raise its own money. The water infrastructure issue has been well known for years, so the Executive, on its restoration, needs to act.

It may be that if the economy continues to tick along, inflation comes under control and interest rates plateau and fall that this will be a good year for home-owners and home-buyers. If it turns out though that we’ve made it impossible for the next generation to access affordable housing, Dublin’s housing crisis may be an unwelcome portent of our future.

With rising populations in both jurisdictions, housing, of all tenure types (social, affordable, rented and private for sale), needs to be a priority in Leinster House and Stormont. And if you’re holding off from buying because you think prices will fall, the evidence from the surveys (and the census) would suggest that isn’t going to happen here.

By Paul McErlean, Managing Director, MCE – paul@mcecomms.com