Housing Stock Data Insight: 2019 – Are We Building Enough Homes?
One of the most common cited arguments for rising house prices in the UK is that we do not build enough homes. However, is the lack of supply of homes driving prices, or is it rising demand levels?
Very basic economics suggests it is clearly a combination of both. Put simply, when there are many home buyers and a lower supply of available homes, prices rise and vice versa. Consider the combination as either good weakness or bad weakness. Good weakness is when building new homes helps to improve affordability and bad weakness is a reflection of weaker demand.
There is a multitude of other complex factors that influence home prices including; prevailing interest rates, economic climate, demographics, consumer sentiment and availability of credit. There is also significantly higher demand for homes in some areas than there is in other areas, notably in Southern England where the lack of available homes is a growing concern. This has led to successive governments pledging to build more homes to tackle the housing shortage.
From a N.Ireland perspective, earlier this month the Northern Ireland Statistics and Research Agency (NISRA) released their annual publication of the housing stock across local council boundaries. This measures the total count of private homes which are valued for domestic or mixed purposes of ratings, and hence an estimate of the supply of homes. In total there are 799,000 homes in N.Ireland, an increase of over 8,600 homes compared to last year. Once you factor in the typical household occupancy size of approximately 2.5, you get close to accounting for the full population.
Belfast (expectedly) has the most homes, with 158,000, followed by Armagh, Banbridge & Craigavon with 86,000 homes. The lowest number of homes is in Fermanagh and Omagh with approximately 48,000 homes, more than 3x smaller than the capital.
Over the last 12 months there was considerable variation in the extent of the number of homes available across N.Ireland. The strongest uptick was recorded in Ards and North Down and Armagh, Banbridge and Craigavon adding over 1,100 homes each. At the reverse end, there was only 350 and 590 additional homes in Fermanagh & Omagh and Causeway Coast & the Glens respectively.
Figure 1: Net change in the number of homes by council and property type: 2018-2019
It is noteworthy that no individual council dominated across the board in adding the most homes by different property types. For example, Belfast has the highest population but added the lowest number of detached and semi-detached homes but the highest number of apartments. Clearly this is linked to the availability of land and reflects the effective demand for certain property types in more urban areas.
In contrast, the number of detached and semi-detached homes increased the most in Armagh, Banbridge and Craigavon where there is a higher availability of land to build larger homes.
To highlight the point of demand pressures for different types of homes you can remove the relative size by taking each home type as a proportion of all homes in that council area. To illustrate, take an example of two areas; Area A has 200 homes of which 50 are detached and Area B has 300 homes with 100 detached. Area A has a profile of 25% detached homes whilst Area B has 33% detached.
On this basis, across N.Ireland as a whole, approximately 36% of properties are detached, 25% semi-detached, 28% terrace and 11% apartments. At the council level the highest proportion of detached homes are in Fermanagh and Omagh (60%) and Mid Ulster (54%). Given the availability of land in more rural areas there is significantly lower demand for apartments with both areas comprised of only 5% of properties as apartments. In contrast, Belfast and Derry & Strabane have only 10% and 29% of their housing profile as detached properties and rather have a much higher proportion of apartments and terrace properties.
Understanding the relative demand patterns for certain property types in different areas is important from planning perspectives for both property developers and for current/future homeowners.
Figure 2: Proportion of housing stock by council area and property type
So, the key question remains, are we building enough homes?
To answer such a question, it is important to consider what has happened to the population. After all, how many people are living in an area will be critical in determining whether there are enough places to live.
Over the last decade, the number of homes in N.Ireland has grown by over 70,000, equivalent to almost 10% growth. Over the same period the population has grown by 110,000, equivalent to 6% growth and the number of people in employment has grown by 25,000, or 3%. Furthermore, in 2008 there were 409 homes for every 1,000 people, which has risen to 423 homes by 2019.
On this measurement alone it would suggest that the level of home building is sufficient, at least to match the growth in the population.
Figure 3: Housing, population and employment change over last decade, N.Ireland; (2008=100)
Encouragingly, recent growth in the number of private homes has been shared across the country with 10 out of 11 council areas experiencing faster levels of growth compared to their respective population.
Belfast has added 9,700 homes in the last decade, the highest of all council areas. This equates to growth of 7% which despite being the largest in volume terms, is the lowest in percentage terms. Nonetheless, the resident population has grown by only 3%.
The strongest growth in the number of homes has been in Newry, Mourne & Down and Lisburn & Castlereagh, growing by over 12% and 16% respectively. Mid Ulster is the only council area where population growth has narrowly outstripped the growth in the number of homes.
Figure 4: Net change in number of homes and population by council area
The home building journey has not been one of consistency in the last 10 years. In the ‘boom’ period prior to the Financial Crash in 2007/08, the economy was in a state of rapid overbuilding as property prices surged. This was followed by a sustained period of under-building as house prices more than halved and the construction industry underwent a sizeable contraction in both its workforce and economic output. In recent years the property market has been in recovery mode with prices growing at 6% per annum. This has been supported by a return to more sustainable levels of house building, adding approximately 7,500 homes per annum. For context, this is about half the levels in the late noughties when perceived housing demand vastly exceeded reality.
Figure 5: Heat-map of the net change in the number of homes by council area
Looking forward, the latest NISRA population projections show a projected rise in the population of almost 70,000 people over the next decade. Of those 70,000 people, over 45,000 are expected to be of pension age, 40,000 of working age and a reduction of 15,000 children.
This is important from a distributional perspective to ensure that developers and and policy makers are alert to changing demand and demographic patterns. Should house building be targeting, or at least considering, specific home types in areas for growing numbers of pensioners, perhaps to downsize? This is supported from a recent survey highlighting that 70% of pensioners feel there should be more focus on improving the provision of suitable housing options for older people. Many groups have called on housing policy to support down sizers through measures such as a one-off stamp duty exemption. This would also free up homes for those further down the housing ladder.
Furthermore, the Bank of Mum and Dad has been a significant lever in stimulating the mortgage market for many homeowners, locally and nationally. Approximately 59% of under 35’s needed financial assistance from family to buy a home, a clear sign of how linked intergenerational finances are. This is a trend expected to continue and perhaps could go one step further to see the bank of Grandad and Grandmother.
All things considered, recent growth in the number of homes is welcome and largely matching population growth. But there are many other factors that require consideration. Some homes have been left vacant and in need of significant structural improvements, if not in entirety. Furthermore, N.Ireland’s social housing waiting list continues to grow with a waiting list in excess of 35,000 and many in housing stress. The pace of development in the social housing sector has been remarkably consistent, albeit modest, building around 1,000 homes per year over the last decade, and significantly undershooting stated demand.
Analysis conducted by the Department of Communities in conjunction with local housing market experts in 2017 highlighted that the economy needs to build in the range of 6,500-8,500 homes per annum to match market demand. Whilst this is a very useful barometer, it is only the starting point.
Put simply, homes don’t move around, people do. If the demand for homes from the younger generation is in increasingly overcrowded urban areas, building more homes in rural areas isn’t the solution. Equally, research from the business group Saga, found a marked unpopularity in city living for the over 50’s. The most important factors were access to countryside, friendly neighbourhoods, good shops and low crime rates. Interestingly, access to social care wasn’t high in the priority list. Perhaps this reflects people’s optimism and a mindset of not having to deal with health issues until such point times as they are necessary.
For many people confined to office environments for the majority of their working lives, access to peace and quiet is a growing requirement for those thinking of moving home in later life. People are living longer, healthier lives. The big economic challenges in terms of supporting an ageing population is coming, notably how to fund social care and pensions from a smaller workforce. But for now, housing policy makers and home builders should be thinking about the changing demand patterns from different cohorts of the population.
This Autumn, PropertyPal will be releasing its first contribution in a new Residential Property Review series. PropertyPal’s Residential Review series will offer data driven economic analysis on the residential property market in N.Ireland. At PropertyPal we recognise that buying, selling, moving or renting a home is one of the biggest decisions of a lifetime.
We aim to provide informative insights on current market trends as well as providing forecasts and outlooks on the future performance of the N.Ireland economy and the residential property market. The report can help inform all stakeholders with an interest in the property market including; estate agents, developers, policy makers, the media and the general public.
At PropertyPal we aim to give our users the best experience and we hope this addition of market analysis will prove to be a useful gauge of developments in the property market. We look forward to sharing this research in the coming months.
Jordan Buchanan, Chief Economist