Growing Great Teams in Ireland: The Role of the Residential Rental Sector
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Growing Great Teams in Ireland: The Role of the Residential Rental Sector An American Chamber of Commerce Ireland Report with Ronan Lyons, Trinity College Dublin @americanchamber
3
Contents
About the American Chamber .................................................................................................................................. 3
About the American Chamber
Context .......................................................................................................................................................................................................... 3
The American Chamber of Commerce Ireland is the leadership voice of US business in Ireland. The mission of the
Acknowledgement ..................................................................................................................................................................... 3 American Chamber is to keep Ireland the global location of choice for US companies. American Chamber membership
includes US companies operating from Ireland, their strategic partners, and organisations with strong bilateral trade links
between Ireland and the United States.
Executive Summary .................................................................................................................................................................. 4
Context
1. Housing & Competitiveness ................................................................................................................................ 6
This report explores the link between housing and international competitiveness in the Irish economy with a specific
focus on the provision of urban rental accommodation in Dublin. The responsiveness of housing supply to new demand
2. Ireland’s Housing Challenge, 2017-2022 ....................................................................................... 7 is perhaps the single most important measure of the extent to which the housing system is functioning. The aim of this
report is to convey the views of American Chamber member companies on the challenges facing the rental market and to
2.1 Housing Demand ......................................................................................................................................................... 7 formulate recommendations and a constructive approach to addressing some of the pressure points.
2.2 Housing Supply .............................................................................................................................................................. 9 The American Chamber is strongly of the view that to attract US companies to
Ireland and the talent that they require, Ireland must maintain its position as a highly Ireland has to be recognised
competitive location for inward investment. Current global developments which impact within the world’s top decile
3. Research Findings ............................................................................................................................................................. 13
the Irish economy, such as the UK’s intention to withdraw from the European Union,
as a place to work and live
puts greater emphasis on Irish competitiveness to retain and grow employment. The
4. Analysis .............................................................................................................................................................................................. 15 American Chamber welcomed the launch of the Government’s strategy ‘Rebuilding
Ireland’ in 2016 and its commitment to deliver a rental sector-specific strategy. In its submission to the National Planning
5. Policy Recommendations ..................................................................................................................................... 18 Framework, the American Chamber stressed its aim to have Ireland recognised within the world’s top decile as a place to
work and live. The submission highlighted that investment in housing is a crucial factor in achieving this aim.
The American Chamber looks forward to engaging with policy stakeholders on this report’s recommendations.
Acknowledgement
The American Chamber was delighted to have the research leadership, expert knowledge and facilitation support of Ronan
Lyons on this project. Ronan Lyons is an Assistant Professor of Economics at Trinity College Dublin, where his research
focuses on housing markets. He is a frequent contributor to national and international media on matters pertaining to the
Irish housing market and the broader economy.
4 Growing Great Teams in Ireland:
The Role of the Residential Rental Sector
Average income
Executive Summary
Obsolescence of older properties
Controlling costs, clarifying the role of regulation, and managing the existing stock of land and dwellings will be key
to ensuring that accommodation availability contributes positively to employment growth and Ireland’s emergence as
a global hub for business activity. Given the role of housing in competitiveness, and the related need for substantially
Average houshold size
higher levels of availability in the private rented sector, a change in focus is needed.
Natural increase in the population Drivers of Housing
In an era where much of Ireland’s Foreign Direct Investment (FDI) is based on access to skilled labour, there are two clear
Demand
implications for housing. Firstly, companies locate where skilled labour wants to locate and skilled labour seeks locations
that offer a greater variety of amenities, i.e. larger cities. Secondly, wages make up three quarters of the cost base of the Net migration
typical FDI service-based operation currently and, with housing comprising one third of the typical household’s disposable
income, this means that housing is roughly one quarter of Ireland’s competitiveness. Further, this paper estimates that in
the Greater Dublin Area alone, taking into account the various sources of demand during the period 2017-2022, as well as
trends in tenure, over 30,000 new rental dwellings for one- and two-person households will be needed in the city by 2022, RESEARCH FINDINGS
largely in or close to central urban locations
The availability of quality and affordable
Due to the significant role housing plays in the costs faced by employers and their employees, rising costs and limited
accommodation has a direct impact on the hiring
availability of suitable accommodation pose a challenge for policymakers. This report outlines four potential Government
of talent
policy actions to address this challenge. These include:
•
•
Controlling the Cost Base: Commission and publish an independent audit of construction costs against international
peer locations, to provide an agreed evidence base to establish targeted actions to reduce the cost of construction.
Understanding the Regulatory Impact: Conduct and publish a regulatory impact report to consider the increased
+30.000
New rental dwellings
Talent increasingly seeks accommodation that has
excellent access to public services and facilities
Employers are deploying a wide range of novel
costs associated with regulations, the benefits derived from these regulations and their impact on the viability of
(1-2 bedroom) needed by 2022 measures to manage accommodation challenges
development projects.
The provision of short-term accommodation
• Managing Existing Stock: Establish a comprehensive database of ownership and residency, with the objective of is impacting the responsiveness of business
targeted promotion leading to greater take-up of existing supply side taxation and incentives.
operations
• Increasing Land Use for Development: To act as a catalyst to boosting supply, an appropriate land value tax on all
commercial and publicly owned land should be considered to increase the supply and lower the cost of development
land. In addition, reform of height restrictions in urban centres should improve housing provision and availability/
density in areas with good physical and digital connectivity, schools and amenities.
Current trends of sharply rising sale and rental prices for Irish housing are, therefore, very concerning for policymakers.
These prices reflect strong demand but very weak supply. Ultimately, the responsiveness of supply to new demand is the
single most important measure of the health of a housing system.
Member companies of the American Chamber of Commerce Ireland, interviewed as part of this
report’s research, confirmed that housing is one of the most critical pressure points when looking
Ultimately, the
at recruitment for expansion. They also emphasised that the situation in Ireland requires more
responsiveness attention than in many other comparator locations.
of supply to new
demand is the single This report is structured as follows: Section 1 outlines the relationship between housing and
most important competitiveness, while Section 2 describes the housing challenge that Ireland faces over the
coming five years. Section 3 presents the findings of a series of in-depth interviews with member
measure of the health
of a housing system.
companies of the American Chamber on the impact of housing on their ability to attract and retain RECOMMENDATIONS
talent. Section 4 analyses these findings, while the final section outlines some key high-level policy
recommendations, based on research findings.
Controlling Regulatory Managing Improve
Costs Impact Stock Land Use
Benchmark Report on the Cost Establish Database Increase Densification
Construction and Benefits of of Ownership and and Appropriate Land
Costs against Peer Regulations on Residency to Support Value Taxation to
International Locations Construction Viability Targeting of Policy Boost Supply
Measures
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6 Growing Great Teams in Ireland: 7
The Role of the Residential Rental Sector
1. Housing & Competitiveness 2. Ireland’s Housing Challenge, 2017-2022
Job creation means
Housing is a key ingredient of competitiveness. Analysis by the economist Ronan Lyons suggests that housing is a critical Both sale and rental prices for Irish housing have risen sharply in recent years. This is
greater demand for
component of Ireland’s ability to retain and attract investment.1 Regular reports by Ireland’s National Competitiveness particularly acute in Dublin, where sale prices have increased by 55% and rental prices by
Council on the cost of doing business indicate that labour costs comprise roughly three quarters of the typical FDI service- 65% in the last five years. This reflects strong demand but very weak supply. In relation to
accommodation by
based operation currently in Ireland.2 For workers, housing is the single most important item of expenditure, with a widely demand, as outlined below, the country requires at least 40,000 new homes each year, to boosting household
accepted rule of thumb that one third of disposable income is the largest sustainable fraction that a household should accommodate obsolescence, falling household size, a natural increase in the population incomes, as well as
spend on accommodation. Combining those two ratios – three quarters and one third – this analysis implies that housing and likely migration pressures. The bulk of these new homes will be in urban areas and are by attracting new
alone constitutes roughly one quarter of the international competitiveness of Ireland’s cities. 3 needed for one- and two-person households. households to the
area where new jobs
The National Competitiveness Council have repeatedly highlighted the current challenges in this area for Irish locations. At the same time, supply is extraordinarily weak, as Section 2.2 discusses. Focusing on the
Their bulletin on The Impact of House Price & Rent Affordability on Competitiveness summarises the relationship between Greater Dublin Area (GDA), roughly 1,200 new homes are needed each month – but the
are created.
accommodation costs (both sale and rental) and competitiveness.4 This analysis shows the challenges facing Dublin when average number of new homes started each month during 2011-2016 was just one quarter
it comes to its housing sector: of 12 international cities analysed in their study, Dublin ranked the third least affordable for of that. The picture is similar, if less acute, across the country as a whole. Ultimately, the
mortgages and the fourth least affordable for rents. responsiveness of supply to new demand is the single most important measure of the health of a housing system.
These findings reflect the increase in sale prices for housing in Ireland’s cities since 2012 as the economy expanded, while While there are a variety of factors that affect housing market outcomes, they can ultimately be viewed as factors affecting
rental prices have risen by an even greater fraction. Increases by urban market are shown in Figure 1, which compares either demand or supply. This section reviews the outlook for both demand and supply of accommodation in Ireland’s cities
average sale and rental prices in early 2017 with the lowest point since 2007 (typically 2011 for rents and 2012 for prices). over the period 2017-2022. Particular attention is paid to Dublin; both as Ireland’s capital city and as the location where the
The increases reflect imbalances in the supply of and demand for residential housing, particularly in Dublin, where monthly supply-demand imbalance has been most acute in recent years.
rents have risen by 65% in just over five years.5 Such imbalances could have a significant effect on the competitiveness of
Ireland’s cities as economic regions competing in a global economy.
2.1 Housing Demand
There are five key drivers of housing demand in Ireland’s cities over the coming years:
Figure 1 • Average incomes • Natural increase in the population
Percentage increase in • Obsolescence of older properties • Net migration
housing costs, Q1 2017 • Average household size
compared to lowest
point since 2007, by Average incomes
segment and market
The first factor mentioned is household income, which in turn reflects the broader economy and labour market conditions.
Ireland has been the European Union’s fastest growing economy each year since 2014. Unemployment in Ireland has
fallen rapidly from over 15% in early 2012 to just 6.3% by June 2017, well below the Euro area average of 9.3%. In Dublin, the
unemployment rate is slightly lower again, at just 6% by late 2016, according to the CSO’s Quarterly National Household
Survey.6 Falling unemployment reflects job creation, with total employment in Dublin rising by 17% between 2012 and 2016,
from 540,000 in employment to 630,000. This is in line with longer-term evidence, as Ireland has one of the EU’s fastest
Source: Analysis of Daft.ie
Reports
growing labour markets: more jobs were created (in percentage terms) in Ireland over the period 2000-2015 than any other
European economy apart from Austria.7
Job creation means greater demand for accommodation by boosting household incomes, as well as by attracting new
households to the area where new jobs are created. Trends from the period 1980-2012 indicate that, once credit and
housing supply are controlled, an extra 10% in real incomes translates into an 8% increase in housing prices. Research on
1 Lyons, R. 2017. ‘Housing and Ireland’s competitiveness jigsaw’. RonanLyons.com; available on: www.ronanlyons.com/2017/03/06/housing- the period 2007-2013 that exploits rich data on the location of employment in foreign-owned IDA-supported companies
and-irelands-competitiveness-jigsaw/ in Ireland finds that 1-2 years after 1,000 extra jobs have been created, monthly rents in nearby properties will be between
2 National Competitiveness Council, ‘Costs of Doing Business in Ireland 2017’; available on: www.competitiveness.ie/Publications/2017/NCC-
Costs-of-Doing-Business-2017-Report.pdf
3 The costs faced by business are gross, including all taxes and social insurance contributions, and the income received by households is net
of such taxes, the link between the two remains.
4 National Competitiveness Council, ‘Impact of House Price & Rent Affordability on Competitiveness, Competitiveness Bulletin 16-6’; available
on: www.competitiveness.ie/Bulletins/Housing-affordability-bulletin.pdf 6 Central Statistics Office, ‘Quarterly National Household Survey Quarter 4 2016’; available at: http://www.cso.ie/en/qnhs/
5 Daft.ie, ‘The Daft.ie Rental Price Report: 2017 Q1’; available on: https://www.daft.ie/report/ronan-lyons-2017q1-rental 7 Eurostat, ‘EU Labour Force Survey 2016’; available at: http://ec.europa.eu/eurostat/web/main/home
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8 Growing Great Teams in Ireland: 9
The Role of the Residential Rental Sector
Net migration
0.5% and 1% higher, with an even larger effect on sale prices.8
Lastly, there is net migration. Following a number of years of net emigration after the Financial Crisis, net migration turned
Ireland has enjoyed extraordinary success in attracting FDI over the last three decades. It consistently ranks in the top
positive in 2016 as the economy expanded. This reflects a steady fall in emigrants since 2012 and a steady rise in immigrants,
five economies globally for FDI jobs created per million inhabitants in the annual IBM Global Location Trends report.9 This
including returnees to Ireland as opportunities to work at home become increasingly available. Every additional 10,000
points to a sustained competitive advantage, reflecting internal strengths and access to EU markets, which is likely to
migrants and returnees require 4,000 new dwellings, principally in the cities.15 In total, adding up the different sources
persist in the coming years. Clearly, headwinds are possible: the full impact of the UK’s intended departure from the EU
of demand, the underlying demand for new dwellings nationwide is likely to be at least 40,000 and closer to 50,000
remains unpredictable, while the appetite for further trade liberalisation globally may have diminished, at least in the OECD.
per year.
Nonetheless, it would be imprudent for policymakers to assume that these factors will sufficiently hamper Ireland’s cities’
ability to create new jobs over the period 2017-2022.
2.2 Housing Supply
In addition, four further factors affect the total number of new homes needed each year in Ireland:
Census figures indicate that the Greater Dublin Area (GDA) added over 100,000 people between 2011 and 2016, or roughly
Obsolescence of older properties 650 new households per month.16 However, between Census 2011 and Census 2016, there was no month where 650 or
more new homes were completed in the GDA. In total, over that five-year period, fewer than 20,000 homes were completed
Ireland’s stock of dwellings is disproportionately older and rural. Each year, as in all countries, real estate depreciates,
in the GDA, less than half of new household formations. It is likely that these figures overstate supply, as completions
with a small fraction becoming obsolete. A rate of depreciation of 0.5% per year implies 10,000 units are needed each
are measured by connections to the electricity grid and a substantial number of “completions” reflected dwellings built
year nationally (2,500 in Dublin) just to keep the housing stock constant. A higher rate of 0.8% per year (as assumed by the
during the Celtic Tiger i.e. from the mid-1990s to the mid-2000s, but only connected to the grid in the 2011-2016 period.
CSO in the National Accounts) implies 16,000 units nationally – and 4,000 in Dublin.10 This means that, in order to offset
Commencements offer a truer picture of construction activity: just 15,300 new homes were started in the GDA between
obsolescence, the country needs at least 10,000 new homes built each year to keep the housing stock constant. Some
2011 and 2016.
of this will stem from urbanisation, as Irish households move into cities, similar to their European peers in previous decades.
Taking into account the various other sources of demand outlined in Section 2.1, it is estimated that the true monthly
Average household size demand for housing in the GDA is closer to 1,200. Figure 2 outlines the volume of building activity by local authority in the
GDA, relative to this level of demand. While it shows some improvement in 2015 and 2016 compared to earlier in the period,
Ireland has Western Europe’s largest average household size (2.7) – but it has been declining steadily since the 1960s.11 just 15,000 new homes were started, about one fifth the level of real demand.
As it converges to the European average (2.3),12 this will create significant amounts of new housing demand. Even with a
fixed population, a rise in the fraction of 1-2 person households creates demand for a significant number of new dwellings.
Relative to a 2.7 average household size, a population of 4.8m with an average household size of 2.5 requires 142,000 extra
dwellings, the equivalent of 10 years of construction output at 2016 rates. Convergence to European average of 2.3 would
Figure 2
require an additional 300,000 dwellings over the current stock of dwellings.
New homes started
Natural increase in the population in the Greater Dublin
Area, by local authority
Underlying positive demographics also point to significant demand for housing. Ireland’s rate of natural population growth and month, relative to
is by far the fastest in Europe. Demographics mean that the size of the family-forming age cohort will fall in the period to estimated demand
2025 – before rising significantly until 2040: there are roughly 60,000 Irish-born turning 30 this year and excluding any net
migration, this will fall to 50,000 in 2026 before rising to 75,000 by roughly 2040.13 Dublin’s population is weighted more
towards renting cohorts (25-39 year-olds compared to 40-54 year-olds) than most European cities. By 2031, the underlying
natural increase, coupled with likely migration pressures, will increase the population of the Greater Dublin Area (GDA)
from 1.8 million to about 2.1 million.14 Source: Analysis by Ronan
Lyons (including of CSO and
Dept of Housing reports)
8 Agnew, K. & Lyons, R. Trinity Economic Papers #tep0417 ‘The Impact of Employment on Housing Prices: Detailed Evidence from FDI in
Ireland’; available at: https://www.tcd.ie/Economics/research/papers/. This study covers a period of inelastic supply: in a healthier housing
system, the effect would be a combination of prices and quantities, i.e. some of the higher sale or rental price would be offset by additional
new homes built in response to the new jobs.
9 IBM Plant Location International, ‘IBM Global Location Trends 2016: 2016 Annual Report’; available at: https://www.ibm.com/services/us/
gbs/thoughtleadership/gltr2016/
10 Central Statistics Office, ‘National Accounts: Annual’; available at: http://www.cso.ie/en/statistics/nationalaccounts/
11 Source: various issues of the Census of Population of Ireland, Central Statistics Office.
12 Eurostat, ‘Average household size - EU-SILC survey’; available at: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_
lvph01&lang=en
13 Source: Central Statistics Office, Vital Statistics.
14 Central Statistics Office, ‘Population and Labour Force Projections 2011 – 2041’; available at: http://www.cso.ie/en/statistics/population/ 15 This is based on the average size of non-Irish born households in the 2011 Census.
populationandlabourforceprojections2011-2041/ 16 Source: analysis of 2011 and 2016 Censuses of Population of Ireland, Central Statistics Office.
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10 Growing Great Teams in Ireland: 11
The Role of the Residential Rental Sector
14% of households in the Given the obvious need for a greater stock of multifamily units (apartment buildings), and other forms of housing, the
region that includes Dublin lack of construction of such homes is a particular challenge for Ireland’s cities. The rental sector has professionalised
considerably in recent years, with the rise of institutional landlords and the first signs of a build-to-rent sector. Nonetheless,
and Cork live in apartments.
those involved in construction highlight the very high “hard costs” of construction (i.e. costs associated with the physical
This is very low compared to
construction, such as materials and labour) both including or excluding government taxes such as VAT.20 For example,
other European city-regions it is estimated that it is roughly 50% more expensive to build one square metre of an apartment block in Dublin than in
that are equivalent in terms Amsterdam.21 Member companies of the American Chamber, that are involved in the property market, have also made
of population: almost half reference to total development costs in Dublin versus comparator UK cities such as Manchester and Belfast and noted that
of Liverpool’s housing stock rented residential construction in the UK incurs no VAT.
is apartments, two-thirds in
The up-front minimum cost of €325,000 for a two-bedroom apartment in Ireland translates into a monthly rent of at least
Copenhagen and over three- €1,600. Market rents for such properties in early 2017 were well below this in large parts of the country. The average
quarters in Lisbon. two-bedroom apartment had a monthly rent of €950 in Cork City, €825 in Galway and €725 in Limerick. Only in the
most expensive markets of Dublin were average rents for two-bedroom apartments above €1,600. Without detailed and
transparent audits of construction costs in Ireland’s cities, compared to their peers, it will not be possible to identify
the correct policy solutions needed to lower costs, improve viability and increase supply.
Online listings confirm the supply pressures outlined above. There were just 1,500 homes available to rent in Dublin on 1st
January 2017, compared to an average of almost 3,500 on the same date for the previous ten-year period 2007-2016.22 A
Census figures also indicate relatively high vacancy rates for residential property in Ireland, compared to other OECD similar pattern emerges for the sale segment, with just 2,800 homes for sale in the capital at the turn of the year, a little
countries. In the area covered by Dublin City Council, for example, the vacancy rate in the 2016 Census was 9% – similar more than half the ten-year average. The shortage of property actively on the market converts directly into greater
to the rate in Cork City and roughly twice the rate of vacancy in healthy housing systems. The determinants of vacancy in pressure on sale and rental prices. As shown in Figure 3 below, the Dublin rental market requires roughly 13,500 listings
Ireland remain poorly understood, in part due to the lack of registers of title/ownership and of occupancy.17 The compilation per quarter – less than this (as has been the case consistently since 2012) means rents increase.
of such registers would enable local authorities to understand the reasons for vacancy, which could include inefficient
probate and conveyancing systems and the effective incentive to leave property vacant provided by the Fair Deal nursing
home scheme, which taxes rental income at a rate of 80%.18 By understanding the relative importance of these and other
factors, it would be possible for local authorities, particularly in urban areas, to target a halving of vacancy, in order to bring Figure 3
vacancy rates closer to those observed in other cities in the OECD. Such a reduction in vacancy would be the equivalent of
100,000 new dwellings (or seven years supply, at 2016 rates). Further gains could be made with ‘over the shop’ conversions. Number of homes listed
for rent in Dublin and
In addition to a small available housing stock, there is also a clear imbalance in the stock that does exist. Remaining subsequent change in
with Dublin, in the 2011 Census, the city was home to 467,000 households, of which more than half (256,000) comprised rents, by quarter (2006-
just one or two persons. However, only 170,000 dwellings in Dublin contain four or fewer principal rooms. Early reports 2016)
from the 2016 Census point to the pressure in the housing market. After decades of falling household size, it rose slightly
between 2011 and 2016. This increase does not reflect a baby boom or even a growth in couples without children. Four
broad categories of household exist: families with children; families without children (including people living on their own);
family households that include unrelated persons; and “non-family” households. Over 40% of Ireland’s population growth
between 2011 and 2016 came from two traditionally small sources: families who have non-family members living with
them, and non-family households.
Source: Analysis of Daft.ie
The lack of apartments has meant that households are forced to rearrange to fit the existing housing stock, comprising Reports
typically of three- and four- bedroom houses, despite the preference of some for apartment living. This imbalance is
noticeable in an international comparison. According to the Eurostat Housing Census, roughly 12% of households in Ireland
live in apartments.19 This is very low compared to almost all other European regions. Eurostat also highlighted that just 14%
of households in the region that includes Dublin and Cork live in apartments. This is very low compared to other European
city-regions that are equivalent in terms of population: almost half of Liverpool’s housing stock is apartments, two-thirds in
Copenhagen and over three-quarters in Lisbon.
17 Minister Eoghan Murphy’s announcement of key actions underway on vacant homes is welcome in this regard: http://rebuildingireland.ie/
news/minister-murphy-announces-actions-underway-on-vacant-homes/ 20 Member companies of the American Chamber, that are involved in the property market, made reference to total development costs in
18 Citizens Information, ‘Nursing Homes Support Scheme’; available at: http://www.citizensinformation.ie/en/health/health_services/health_ Dublin versus comparator UK cities such as Manchester and Belfast and noted that rented residential construction in the UK incurs no VAT.
services_for_older_people/nursing_homes_support_scheme_1.html 21 Source: Hines presentation, Dublin Economic Workshop Annual Conference, September 2016.
19 Eurostat, ‘2011 Census Hub’; available at: http://ec.europa.eu/eurostat/web/population-and-housing-census/census-data/2011-census 22 The source for statistics in this paragraph and in Figure 3 is the property listings website, daft.ie.
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12 Growing Great Teams in Ireland: 13
The Role of the Residential Rental Sector
A similar pattern of strong demand and very inadequate new supply exists in Ireland’s other major cities, albeit less extreme.
In Cork, average monthly rents have risen by 53% from their lowest point, while in Galway, they have risen by 48%. In
both cities, rents have risen in all except two of the last twenty quarters.23
A summary of the required pipeline of new supply is given in the table below. This includes the four main sources of
demand: obsolescence, demographics (changing household size), a natural increase in the population and an allowance
for net migration. In particular, it assumes 0.5% obsolescence annually, a fall in household size to 2.5 by 2030, an average
natural increase of 40,000 per year and net migration averaging 20,000 per year (with both the natural increase and net
migration in 2.5-person households on average). The proportion of new homes in the rental sector is determined by using
the fraction of which was rental among newly formed households over the last ten years, while Dublin’s requirement
is calculated on the basis of its share in population and economic activity. The construction of new homes has been
consistently less than 15,000 since 2010 and, once allowances are made for connections to the electricity grid which are
not related to the construction of new homes it is likely that fewer than 5,000 new homes have been built annually over
the last decade.
Table 1. Rounded estimates of total new units required, in Ireland and Greater Dublin Area, 2017-2022.
Source National Greater Dublin Area
Obsolescence 50,000 17,500
3. Research Findings
Demographics 62,500 22,000
As research for this report, member companies of the American Chamber were interviewed, in both one-to-one-interviews
Natural Increase 80,000 28,000 and a group roundtables.
The companies which were interviewed represented a range of sectors: financial services, medical devices, pharmaceutical,
Net Migration 40,000 14,000 ICT and other sectors. The research encompassed Dublin, Cork, Galway and Limerick based companies and ranged from
high growth companies to those that are steady in size.
Total 232,500 81,500 Research evidence highlights that housing is one of the most critical challenges facing member companies of the
American Chamber. Recent performance of IDA clients suggests that new investments to Ireland in International Services,
of which Rental 82,500 32,500 Technology and Financial Services have all shown significant employment increases in the past five years.24 Internationally,
such firms tend to cluster in city-regions in search of their talent pool – a similar practice has also been adopted for their
operations in Ireland. Residential planning and development needs to match this pattern of industrial investment- such as
housing, schools, transport and utilities.
Hiring New Recruits
Within the FDI base, the pressures in the accommodation sector are most acutely evident within high growth sectors as
companies are rapidly scaling-up new operations in urban locations around the country. There is clear evidence from the
research process that both expanding and newly arrived companies find it particularly difficult to house their employees
– including those based in Ireland and those arriving from overseas.
23 Daft.ie, ‘The Daft.ie Rental Price Report: 2017 Q1’; available on: https://www.daft.ie/report/ronan-lyons-2017q1-rental. 24 IDA, ‘2016 Performance Statement’; available at: http://www.idaireland.com/newsroom/fdi-employment-hits-new-l/
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14 Growing Great Teams in Ireland: 15
The Role of the Residential Rental Sector
Particular challenges arise where there are specific skills gaps in Ireland or particular language capabilities are required by Short-term accommodation
a company. New recruits therefore move to Ireland’s city centres from overseas. The majority of these employees desire to
locate themselves close to workplaces – avoiding long commutes in unfamiliar surroundings. The experience of recruiters Consultation with member companies highlighted that there is a clear gap in the provision of short-term and entry-level
within the FDI sector suggest that demand exists for accommodation which is suitable for such employees who are often rental accommodation, in addition to rental accommodation for senior leadership and mid-career talent, as mentioned
young and single. In many cases they have expectations of living in a centrally based studio apartment, and are thus previously. During the research process, it was noted that the availability of housing for specialised and leadership talent is
surprised when they arrive in a situation where they are sharing a suburban semi-detached house. The often-poor very much a pinch point: it is not just a matter of cost, but also of sheer availability. Evidence shows that companies are now
standard of rental properties is also a surprise for new recruits. renting short-term accommodation before employees have been hired. Companies have adopted this hedging strategy
to ensure they can support enterprise growth and business continuity.
For new-hires moving to or arriving back to Ireland other problems arise when they are unable to find accommodation.
Without a fixed address, there are difficulties in opening a bank account – thus receiving wages – and in setting up utilities. It is evident that a lack of short-term accommodation has an impact on a company’s ability to secure accommodation
Employers work with new-hires through these ‘orientation’ hurdles but clearly a reduction in the period of time it takes to for internship programme participants during summer months. This is due to the influx of tourists who also rent short-
find accommodation would have a positive knock-on impact to attract and retain talent. It would result in less stress during term accommodation. Evidence from member companies highlighted that the construction of purpose-built student
the crucial settling-in period and would foster a more pleasant experience, for the new recruit and accompanying family accommodation would help alleviate this problem – as would the construction of apart-hotels and general hotel space.
members.
Ireland shares aspects of these challenges, such as the demand for accommodation, with many of its competitor locations
globally. However, when asked to compare London and Dublin, member companies responded that while cost was an
issue in London, availability was not. It is clear that addressing these pressures in the housing sector will boost Ireland’s
competitiveness to retain and attract investment and jobs.
Ancillary facilities
Ancillary facilities – such as access
Research evidence clearly indicates that ancillary facilities – such as to schools, childcare, roads and car
schools, childcare, roads and car parking – are viewed as key enablers
parking – are also viewed as key
of employment growth, in addition to challenges relating directly
enablers of employment growth.
to accommodation provision. For some companies, it is possible to
establish operations in satellite locations with higher accommodation
availability. Interviews with member companies which have operations in towns in the South-West, showcased how they
had relieved pressure on operations in Cork city using such a model. Good broadband access is often a key prerequisite
for such a proposition. However, it must be noted that for many companies, this will not be an option, as they must locate
where skilled labour is willing to live – and the trend globally is for skilled labour to value amenities offered by larger cities.25
Managing the Challenge
Evidence from the research process confirms that a collective effort has been made by companies to ensure Ireland’s 4. Analysis
attractiveness is not impeded by challenges in the housing market. Measures taken by companies include: reviews of
global relocation packages; advanced property viewings conducted by HR teams and allowing greater leeway for new The responsiveness of housing supply to new demand is perhaps the single most important measure of the extent to
starters leaving their place of work to view potential homes. This discretionary effort can only be sustained for so long, as which a city’s housing system is functioning. Academic research on housing has found that the average price of housing,
supply hopefully responds to demand and new policy changes stimulate provision of supply. even in the largest cities, need not be higher than the cost of a new build, provided geographic and policy barriers do not
exist.26 The cost of housing in Ireland’s cities – particularly in Dublin – has risen steadily since the 1980’s, reflecting an
There are opportunity costs to perceived limits in the availability of accommodation – mainly risks that investment projects inability of supply to keep up with new demand. As in other countries, land use restrictions are responsible for much of
may not flow as easily to the Irish operations if there is a possibility that the onboarding process could be constrained by the increase in housing costs in urban areas.
accommodation challenges. This research suggests that companies are currently managing the challenge, but they are
reaching a tipping point. Nonetheless, the inability of supply to meet demand has been particularly acute since the end of the recession in 2011.
However, property industry figures point to a significant bounce back in the construction of new office space, hotels and
purpose-built student accommodation since 2015. In the office space segment, roughly 250,000m2 of new office space is
currently being built in Dublin in 2017, with similar amounts of new capacity scheduled to be added in 2018 and 2019.27 This
is roughly two thirds higher than the level of development during the period 2006-2010 and directly follows a period from
25 On the relationship between skill, wages and city size, see for example Costa, D.L. and Kahn, M.E., ‘Power couples: changes in the locational 26 Saiz, A. (2010). The geographic determinants of housing supply. The Quarterly Journal of Economics, 125(3), 1253-1296.
choice of the college educated, 1940–1990’ (The Quarterly Journal of Economics 2000) and De la Roca, J. and Puga, D. »Learning by working 27 The figures in this paragraph are taken from CBRE’s analysis of the Dublin office segment: CBRE, ‘Dublin Office MarketView Q2 2017’;
in big cities” (The Review of Economic Studies 2017). available at: http://www.cbre.ie/ie_en/research
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16 Growing Great Teams in Ireland: 16 17
The Role of the Residential Rental Sector
2011 to 2015 where zero new stock was built. This shows supply of office space responding to trends in rents, which fell from Compared to peer regions, Ireland has an extremely low fraction of its housing in apartments. The weak level of new
€675 per square metre in 2007 to just €300 in 2012 and subsequently rose back to 2007 levels. It also shows that access supply in recent years, given very strong demand, reflects poor cost competitiveness, particularly for the construction of
to finance and overall capacity of the sector are second-order issues, after supply, demand and viability. Similar trends apartments. As mentioned in Section 2.2, it is estimated that per-square-metre construction costs for apartments in Dublin
have recently emerged in the hotel sector and in purpose-built student accommodation. are close to €2,000, excluding VAT. This is roughly 50% higher than costs for similar projects in the Netherlands and Canada.
Member companies of the American Chamber believe that there is an opportunity to “join the dots” in policymaking: According to figures provided by Hines at the Dublin Economics Workshop Annual Conference in 2016, costs in Dublin
the lack of apartments in central locations has meant far greater pressure in the three- and four-bedroom family home are considered high across all standard headings of construction used by professionals (e.g. structures, façades, fit-out,
segment. A number of professionals sharing a dwelling means that this home is not available for families. As outlined services, site works and preliminaries).31 Related to this is a much higher level of regulation pertaining to apartments
above, a significant volume of purpose-built student accommodation is required in all Ireland’s cities in the coming years. compared to houses, as explained in Section 4. As a result, viability for apartments is reached only in the highest-income
This will not only help free up family housing but it will also enable companies to avail of this accommodation for short-stay areas of Dublin, e.g. the Docklands or Dublin 2/4 postal districts.
programmes, such as internships, during non-term times.
To address the high cost of construction in Ireland, of all accommodation types, there must be an
With Dublin requiring approximately 35,000 student units in the period 2017-2022, proposals for student accommodation agreed evidence base, at least among those involved in shaping and deciding policy. To identify
should be looked on favourably.28 This is true because they help house students but also because they help competitiveness the steps needed, a transparent and independent audit of the individual elements adding to
directly, by providing accommodation for interns. This is even more important given that the existing shortage means that break-even costs of delivery is required, one that compares Dublin and other cities in Ireland
students currently live predominantly in family homes, which has a wide knock-on effect. The provision of specific targets with international peer locations. Previous assessments take the per-square-metre costs of
at local authority level could assist in meeting the demand for student accommodation. constructions as given, but as this is where the bulk of the cost differential appears to be, a detailed
examination of the components of this cost by policymakers is required. This will identify not only the
Part of the challenge relates to regulatory specifications. These include extent to which costs are in line, if this is indeed the case, but also the specific areas that contribute
Requirements for requirements for underground car-parking and lifts per floor. Such specifications, most to cost differentials. An obvious template for such an exercise is the World Bank Doing
underground car-parking in addition to size and orientation restrictions, are out of line with other comparator Business report, where the various stages of running a business are broken down and the costs (in
and lifts per floor, size and cities, such as London and Amsterdam. Both lifts and basement car parking spaces money, time and procedures) are fully visible – and can be updated if incorrect by readers. 32
orientation restrictions, incur significant costs and the latter also effectively limits heights. This, and limits on
are out of line with other heights, also increase the per-unit cost of lifts.29 Whereas many European locations The outlook over the short, medium and longer-term horizons is that there will continue to be strong
provide accommodation for single workers, including studio apartments, this is demand for housing in Ireland’s largest cities. In the Greater Dublin Area (GDA) alone, taking into account the various
comparator cities.
largely proscribed by Irish minimum standards. sources of demand during the period 2017-2022, as well as trends in tenure, over 30,000 new rental dwellings for one- and
two-person households will be needed in the city, largely in or close to central urban locations.33
In general, Ireland’s urban centres lack the density of many of its comparator city-locations in the OECD for inward investment.
Planning restrictions on height (even in special development zones) have a significant impact on both the viability of multi
residential developments and the capacity of urban neighbourhoods to absorb demand for accommodation. There
has been a broad coalition of social and economic stakeholders in favour of reform of building heights and density
restrictions in Dublin. New thinking is required to position Ireland’s urban centres for enterprise growth and new waves of
+30.000
inward investment which will drive the demand for greater accommodation.
If local authorities had annual quantitative targets relating to specific housing segments, the planning risks outlined above
may be minimised. This suggests the establishment of categories of principal dwelling types at national level, together with
the estimation of likely annual demand for each type at local authority level.30 Inclusion of these annual requirements,
DWELLINGS
by type, in local authority plans, and a requirement to refer to these requirements when making planning decisions
on substantial applications, for example of more than 100 units, would connect individual decisions made by local Over 30,000 new rental
authorities to the high-level need. dwellings for one- and
two-person households
will be needed in the
city, largely in or close to
central urban locations.
28 This number is based on an analysis of trends in student numbers, including demographics, enrolment and international students, and
allowing for 35% of students living at home with their parents, with half of the remainder living in purpose-built student accommodation and
the other half living in the wider rental sector. 31 Source: Hines presentation, Dublin Economic Workshop Annual Conference, September 2016.
29 Lyons, R. C. (2014). Housing supply in Ireland since 1990: the role of costs and regulation. Journal of the Statistical & Social Inquiry Society of 32 World Bank, ‘Doing Business 2017: Ireland’; available at: http://www.doingbusiness.org/reports/global-reports/~/media/WBG/
Ireland, 44. DoingBusiness/documents/profiles/country/IRL.pdf
30 The Census taxonomy, across 17 different household types, is unlikely to be fully fit for purpose in this regard because it primarily focusses 33 The figures in this paragraph are based on the four sources of demand outlined in Section 2.1, allocated to Dublin on the basis of its share of
on marital status. the population and economic activity.
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18 Growing Great Teams in Ireland: 19
The Role of the Residential Rental Sector
5. Policy Recommendations
In summarising the policy priorities to address the housing needs of the FDI sector, three clear themes emerge. The first is
the importance of cost control: central government and all local authorities should know the break-even cost (in up-front
and monthly terms) of key dwelling types and how this compares to affordability given the earnings profile of residents.
Any assessment of costs should be done in a transparent way, where figures can be validated and iteratively improved by
external experts.
The second key theme is incorporating opportunity cost into the planning and regulatory system. This follows on from
the first theme described above: it is imperative that policymakers know if a new regulation reduces viability to such an
extent that the cost outweighs the benefit. Distinctions may also need to be made between targets and minimums. Annual
goals relating to particular property types, reflecting the strong demand for accommodation across Ireland, will help keep
underlying demand salient when local authorities review decisions.
Related to this, the existing stock of buildings is also used sub-optimally. Within the existing stock of residential dwellings,
vacancy rates are high. As explained before, this reflects a lack of comprehensive registers of ownership and occupancy,
and a range of other factors. In addition, it is estimated that there is substantial latent supply of dwellings in Ireland’s non-
residential stock. This is evidenced in the empty space on the top floors of retail streets. Such an issue could be addressed
by encouraging a far greater take-up of the existing taxation and incentives.34
There is a challenge around managing the existing stock of both buildings and land. The wedge that has arisen
between the average cost of housing and the build cost since the 1980s reflects the largely passive nature of land use
policy, particularly in relation to brownfield sites. Consideration should be given to the role of a reformed land value taxation
system to boost supply and lower the cost of development land. Reform should be revenue-neutral e.g. replace existing
commercial rates, while also enhancing investment competitiveness.
Such a land value tax on all commercial and publicly owned land would dramatically increase the supply and lower the
cost of development land. This is particularly relevant in the context of a reform of height restrictions, given the demand
for density in Ireland’s cities. Such a reform would improve housing provision and availability/density in areas with good
physical and digital connectivity, schools and amenities. As mentioned before, sub-optimal use and high vacancy rates
may reflect incentives to hold property/sites as a long-term asset over development. This reflects a low property tax, the
lack of comprehensive registers of ownership and occupancy, and a range of other factors. In addition, it is estimated that
there is substantial latent supply of dwellings in Ireland’s non-residential stock.
Controlling costs, clarifying the role of regulation, and managing the existing stock of land
and dwellings will be key to ensuring that housing no longer acts as a barrier to employment
growth and Ireland’s emergence as a global hub for business activity. These are policy
priorities that will mark a departure in Irish housing policy.
34 Increased information and promotion of these measures is required. Data released from the Department of Finance on Budget Day in 2016
indicated that take-up of the Living City Initiative had been lower than anticipated: http://www.budget.gov.ie/Budgets/2017/Documents/
Tax_Expenditures_Report%202016_final.pdf
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Ireland recognised
within the world’s top
decile as a place to
work and live.
August 2017
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