Speaker 2: 0:33

So my name is Kate English. I am a director and head of real estate research at Deloitte. I'm a proud Tipperary woman from a farming background but also have a strange but very real fear of cows and cattle. So, delighted my family got out of farming when I was at a very young age In real estate research and, to be honest, it's a little bit of a world that I have fallen into. Not something that I would have expected.

Speaker 2: 1:00

When I finished in secondary school and no idea what I wanted to do, but knew I had a love of economics, so I decided to do a undergrad in it French and economics. Still, when I finished that undergrad, had no idea but knew I was good at economics, was doing relatively well at it, so I decided to continue on with a master's degree and it was during that time that I found that I really found my home. And it was during that time that I found that I really found my home. I kind of excelled at it, won student of the year, got to present my master's thesis at a regional science conference that year before finishing it and after that went to the European Parliament and I was in the Department of Finance there their finance division and I realised, even though it's numbers, there's a big difference between finance and economics and it wasn't really the home for me.

Speaker 2: 1:46

Came back, got an opportunity for a role with as a junior economist and researcher with Sherry Fitzgerald, and that is where my property or real estate journey began and at the time I was like I'll do this for a year, two years max, and of course, that didn't turn out to be the case. I got very sucked in and I think, from a research perspective, what keeps me intrigued and why I am still here is that there's always something changing within the market. We have a wide range of sectors, from your residential to all the subsectors within commercial as well, and, I suppose, within research and economics. My role is to discover what are those changes within the data every six months and not only what are they, but why are they happening and try and tell that story and narrative to people who don't want to be in the weeds of the data, don't need to be, but yet need to understand the narrative and how the market is evolving, and it's my job to do that.

Speaker 1: 2:45

That's quite the journey that you went on to transition across all those different I was going to say fields, but then bring you back to the cows.

Speaker 1: 2:55

And we don't want to scare you out of the room, but I mean, deloitte wouldn't typically be known as being directly involved in the real estate. You know it's not an agent. Typically, research in real estate comes from real estate agencies and that's not really what Deloitte does. So give us a bit of background as to who your main. You don't have to name your clients. But who do you produce the research for, or is it rather just produced in the round to contribute to data and to policy insights?

Speaker 2: 3:25

Yeah.

Speaker 2: 3:26

So I would agree with you when you first hear of Deloitte, you don't think of real estate, you don't think of property. I certainly didn't a few years ago, but actually in reality they have quite a long history and track record of delivering for some of the largest developers and market players within the market and I suppose it originally would have started very much so. In their tax team they have quite a large real estate tax division that works from both an acquisition side, a development side, succession planning, and have quite a large team within that as well. It also then developed out a little bit into the finance team, and so this would have been headed up by a partner, john Dottie, and really was born out of when we were in the depths of the recession and there was a lot of restructuring work taking place and essentially trying to aid developers get through that difficult time. And as the market evolved, I suppose that work kind of changed. It moved and evolved from the insolvency side or the restructuring of balance sheets into more doing debt and capital raises for some of the larger investment funds and also developers within the market, and subsequently then from that we've evolved into a real estate advisory team that includes your chartered surveyors, town planners, quantity surveyors, financial modelers so there's a suite of expertise across all aspects of the life cycle of an asset which, as you said, is from the outside, you mightn't typically think of.

Speaker 2: 5:01

For Deloitte and I think Researcher my role within Deloitte was kind of the final piece of that puzzle they're saying, right well, if we're acting in every part of the market and continuing to build our client base which, as I said, stems from your developers you're both large and small scale domestic developers, but also international institutions and investment funds that are looking at Ireland we need to ensure that we are solid and confident of the data that's feeding into that strategic advice that we're given. And that is my role, our clients or the work that we do. From a research perspective, it differs maybe a little bit from what you would see from some of the commercial agents in that we don't produce quarterly reports. I think there's a lot of them there and the commercial agents do a really good job at that.

Speaker 2: 5:48

So it doesn't necessarily help the market or the industry by adding another one to that mix. What we do is more larger pieces of research a couple of times a year, be it an outlook report, a crane survey report and event that we do, but also then, at the same time, more bespoke pieces of research that a specific client has come to us with an exam question and want a more detailed look into, and that's the type of research reports that we then produce. And obviously, like any research team, there is an awful lot of external engagement as well, so the research role is also to be involved in media conferences, podcasts or wherever there are external forums where the property market is being spoken about and that Deloitte has a voice within that conversation.

Speaker 1: 6:39

Well, we're grateful that that's the case, so that you can come on here and you can talk to us about it. I did tell you that we were going to talk about housing, but, as you know, the secret, real reason for this podcast is Taylor Swift, and so I wanted to follow up on a post I saw that you made and about Taylor Swift. You're an economist. Tell us the truth, taylor Swift. You're an economist. Tell us the truth. Did she really have any impact on the economy, or is it just kind of propaganda to try and get her to come back?

Speaker 2: 7:10

You know what it's funny? We think LinkedIn is serious and it's there for doing our posts on the property market, the economy, but that Taylor Swift post was probably the most engaged post I've ever had on LinkedIn.

Speaker 1: 7:22

We're all secret Swifties. There's two types of people. There's people who are fans and people who lie about it. I'm probably in the latter.

Speaker 2: 7:30

Yeah, the truth is we don't fully know and I'm not going to give you a figure. I think we would have seen, actually, quite a lot of criticism from some of the analysis that came out from other countries or jurisdictions trying to analyse how much she brought to the economy. But we do know from certain data sets out there for example, looking at the SCOR data, looking at occupancy rates or average daily room rates achieved across the hospitality industry that weekend that it did perform particularly well. Occupancy was up over 98%. And there was also some card spending data out from the likes of Bank of Ireland that showed the volume of consumer spending that had increased across different age brackets, up anywhere from between 20 and 40 percent.

Speaker 2: 8:11

But also, very interestingly, there was a real spike in Dublin One and it was put down to that. That is where her official merchandise site was was. So it was people travelling to get the jumpers, the t-shirts, the hoodies, everything that have that Ears Tour logo on it. We're also spending within that locality as well. So she does bring a boost. But my real point with that post was that it's the strong calendar of events that adds to our economy and let's not get too bogged down on how much just one event makes you know Right, because that weekend Taylor Swift played three nights right in Dublin.

Speaker 1: 8:47

You had Shania Twain was in Malahide Castle.

Speaker 2: 8:51

She was we had Green Day on the Thursday.

Speaker 1: 8:54

Green Day were in Marley Park, there was two semifinals on for the GAA in Crow Park and there was Pride was on and Villagers were playing in Trinity as well the same night.

Speaker 2: 9:09

Yeah, an estimated over 600,000 additional people to the city for it, which is phenomenal.

Speaker 1: 9:14

But like you say, people often wonder about cultural spending and cultural support and it seems like a woolly topic, but it's those kind of things that actually drive the economy right.

Speaker 2: 9:24

They do. They get people out and spending across all different aspects. There was again in some of that spending data, even a reference to the increase in spending within beauty on the lead up to it People getting ready, I think, for the concert and for everything else that they were going to. But it's essential for our economy. Essential for our economy. Now, the debate that often lies there sometimes when you're trying to estimate the overall economic value of these events, is that a portion of that spending would already have happened that weekend, just in another channel. But I still think, as a consumer and you and I are consumers we need to also be incentivised to go out and spend and be active over the weekends and during the weekdays. So events like these are very important.

Speaker 1: 10:06

Fun is important, right, it's the main takeaway.

Speaker 2: 10:09

Life is for living.

Speaker 1: 10:10

Well, we managed to get through that without once introducing a pun on any of the lyrics or song titles.

Speaker 1: 10:14

So congratulations there. We'll probably have to go back to boring things like housing. So one of the things I wanted to ask you about, because you're a numbers woman, is numbers right. We see a lot recently of people I call it an arms race to outdo each other on predictions for how many houses are needed. And what strikes me in being in the industry that I'm in, and from having done the podcast and everything, is how little agreement there is, Despite it being such such an important part. We can't seem to agree on how many units are needed.

Speaker 1: 10:52

I'm not a economist, I'm not a statistician, but I would have thought it's not that difficult for people to look at demographic detail and come up with like a ballpark, like not exact numbers. But I've heard in the last couple of months people say 30,000, 40,000, 60,000, 80,000, I think a stock broken firm put out a report saying it was more than 80,000 per year and it just seems to me like how could there be, you know, such differing views and how could you get to such different numbers? And you're going to tell me now why?

Speaker 2: 11:31

And arms race is definitely one way of viewing it or framing it. But I think really what we have seen over the past year and really the last six months, and why you are seeing those increasing numbers, and almost it felt like for a stage there that every week there was a new number that was trying to pip the other and really the reason for that was because we've known for quite a period of time that our population is expanding at a much faster pace than had been previously forecasted or anticipated. For we had census data. Our census was due to take place in 2020. It didn't because of COVID, and we finally got it in 2022.

Speaker 2: 12:12

And after that census, there was a lag period between the census data being collected, collated, analysed and our new set of population forecasts had been generated. And I think during that void period of where we were waiting for our population forecasts to be officially updated, it allowed for a period of version 1, 1.2, 1.3 and 1.4 of what people thought the housing requirements were going to be. And it is all based on the fact that we know that our population was expanding faster than what was anticipated, but no one was fully sure as to what those new population forecasts would be, so it allowed for this kind of bubbling of the figures. But now that we've come past that period and we've gotten our updated population forecasts and we've gotten reports like the Housing Commission, those higher numbers all of a sudden don't seem all that crazy.

Speaker 1: 13:06

Yeah, which is the interesting thing to me and maybe for the lay people including me, you might explain the basis of how these estimates are arrived at. So if you're looking at CSO data like population, I guess, demographics how do you go and build an estimate as to how many houses would be needed to house a given?

Speaker 2: 13:29

population. So there's three main variables within this, and this is whether, again, if you look at, for example, an Irish estimation of this, or else you look at it from a European perspective as well, it's just three same variables that are used, but there's slightly different assumptions behind them, obviously, depending on the country and what those variables are. So the first one is our population growth, which is arguably maybe one of the most important ones and the one that has seen the largest amount of change since our last estimates were delivered to the market. Our second one, then, is the average household size, and this one is also critical and where Ireland, I suppose, of recent times, has kind of deviated a little bit in terms of trend. And that last one is the rate of obsolescence within our housing stock. So if we were to break down the three of those they are your three indicators If we were to start with, maybe, population growth first, because, as I said, it's the largest component and maybe one of the most important when you think of how a population grows or decreases, there are again a number of different indicators within that One is your life expectancy rate, and that influences how many people we have passing each year and therefore, leaving our population figure, we have our fertility rate, so how many births are taking place?

Speaker 2: 14:49

And then the last element is net inward migration. I think the key takeaways maybe for you and listeners to take from this is that in those ESRI forecasts that were released only at the beginning of this summer, so from a fertility rate perspective, they're assuming that there's no real change. We have seen a decrease in the fertility rate within Ireland over the past number of years, but we're still seeing a little bit higher than the EU average and they're assuming that that stays the same.

Speaker 1: 15:15

And that fertility rate. Is that enough to sustain the population and to grow it, even if it's a little bit, or is or is it? You know? You hear in a lot of European countries that if it wasn't for inward migration, the population would be declining. Is that true here?

Speaker 2: 15:30

that's not necessarily true here within Ireland, because I think we have that slightly higher fertility rate. But at the same time, if we didn't have net inward migration at all, I think it would be very bad for our economy and our economic growth and would certainly impact those population figures. You know our fertility rate. I think it sits at about 1.63 at the moment, which, as I said, is above that EU average. But that remaining constant part, I suppose in one way it does leave a little bit of a room for a change in the forecast in the future. For if that was to fall we would have less births, so that would bring down your youth population.

Speaker 1: 16:05

But there would be a significant delay to the effect on the housing market. For that right.

Speaker 2: 16:12

Absolutely, whereas the inward migration is sort of an immediate effect. It's an immediate effect because, when we look at the age categories of our inward migration, it typically is between that 18 and 44 year old category, which are those perfect, almost household formation years. The life expectancy is expected to increase. I don't think that would surprise you. We are living longer, so there's no real debate over that. It will increase a little bit further. There's a little bit of a difference between male and female, which has always been the case historically.

Speaker 2: 16:46

And then that last component of that population growth is, as we said, that net inward migration, and this is where I think there was the largest level of change from what would have been previously the estimates, and I think what is really key here to note is that as our economy began to recover post the financial crash, there was an expectation that we and we had an awful lot of people leave the country of Ireland to go work somewhere else because they could not get jobs here, and at the time it was expected that that figure would return positive, meaning more people were entering Ireland rather than leaving it in about 2016.

Speaker 2: 17:24

And it actually happened a year earlier at about 5,900 persons that year still not all that much, but it really ramped up in 2016, 2017 and 2018. Got up to over 38,000 in 2017 and over 44,000 net inward migration people both in 2017 and 2018 and remained constant at that figure, which was quite significant. And I think that was the change that people weren't anticipated. And there's a little part of me that I look back and I go well and actually still and I've heard it at some industry events this year of is there a little bit of a narrative or a feeling within Ireland of where we are almost afraid to accept that we are a successful economy in many ways. We are continuing to grow and this growth can continue if we put the policies in place to enable that growth, while there was a bit of an expectation of we'd bounce back, but it wouldn't stay at these higher levels, which isn't what has come through.

Speaker 1: 18:24

of we'd bounce back, but it wouldn't stay at these higher levels, which isn't what has come through. Yeah, well, it's certainly a particularly Irish thing to be only looking for the rain cloud on the horizon, but I suppose we do also because of being a small country without really any indigenous. You know, high employment industry here, right, everything is, as an island, comes from abroad. Even tourism is really money from abroad. The technology thing is from abroad, the pharmaceuticals are from abroad and there's just the farming and we won't bring that up. So we do kind of have to be keeping an eye on that. But it's still interesting to hear how these things are arrived at. But I'm just struck by the figures that you're giving there.

Speaker 1: 19:06

So 2018, you know, I'm just doing the sum in my head is maybe 500 housing units a week are required that year to keep pace for the housing stock with the rise in population, in population, and we weren't doing that in 2017, right, and we're probably doing it now. But do we know now, like, uh, post pandemic, has the migration thing turned? I know we hear a lot in the news about, about, um, the international protection applicants and that, but that's actually relatively very small number. But the, the sort of eu migration, which is what was primarily driving people in here. Right, it is for for technology jobs. Has that resumed? Post pandemicpandemic Are we back up at very big numbers again?

Speaker 2: 19:47

Yes, it has resumed post-pandemic. So there was a dip in 2020, but after 2020, our net inward migration figures returned quite rapidly once again, and there is the expectation within the ESRI report and also in subsequent CSO population estimates that have come out since then too, which are separate that have assumed that our net inward migration would remain at an elevated level over the next few years before dropping back. So I think the CSO actually have it that for the next few years we could be up around 75,000 net inward, which is a lot higher than where we started at 5,900 in 2016, and even where we were with over 44,000 back in 2017 and 2018.

Speaker 1: 20:29

Wow, that's that's. I mean, those are big numbers. That's kind of amazing and I wonder. I mean it's not easy to come here, right, like, housing costs are very high We'll get onto that in a minute but you're talking about that number of people moving to a small wet rock in the Atlantic. I wonder what things would be like if housing was cheap. You know, would there be 100,000 people coming here? I mean, if we're actually able to solve infrastructural problems, are we holding back our economy by not fixing these things right with housing?

Speaker 2: 21:01

Yeah, I think and it's been well, I suppose, cited or plugged on by the likes of the IDA or the international business community here from all the FDI investment here that certainly housing is commented on as a real barrier and a barrier that's beginning to have a larger impact on investment decisions.

Speaker 2: 21:24

Now it hasn't led to the case that we do not have any FDI investment or increasing investment from those large firms within Ireland. That simply isn't true, but it certainly is a component as to why they may weigh up another location a lot more now than what they would have a few years ago, and I think it is a reason why we do need to get this right and try and improve the situation. Because we are a small nation, as you have rightly said, a small open economy, and FDI has been such a critical part of our growth for the past number of years and it's important that we keep that going. It's important that we also invest in our SMEs and ensure that we deliver almost the same way as we have an FDI, a DDI, a domestic direct investment industry, and ensure that we continue to grow that. But we want to be encouraging foreign direct investment here as well and that the growth of those sectors within Ireland.

Speaker 1: 22:18

Yeah, and, like you say, it hasn't had any impact yet, but it's. You know it's a bull market, right, people are expanding everywhere and it's a little bit like, you know, running a hotel during Taylor Swift, right, every hotel room is going to get sold. But when it's a wet Wednesday, November, you know it's, it's only then the guy who's competing, who's got the best product, that's going to have the room sold.

Speaker 2: 22:41

Yeah.

Speaker 1: 22:41

And the sort of terrible hotel with that's cold and noisy, that room's going to have the room sold, yeah, and the sort of terrible hotel that's cold and noisy, that room's going to be empty. And we seem to I think we seem to carry on a little bit with FDI like that. That's never going away, that they just love us because we're Irish, which is kind of nonsense right there here because of the policy conditions that exist.

Speaker 2: 22:57

It's not a guarantee. You need to compete for that, and every nation is competing for FDI investment, and it's been incredibly valuable to Ireland. It's been the backbone of our economic growth story, so that's why we need to ensure that we protect it, and I suppose the other part of it is is to ensure that not only are we attracting individuals from other nations to come to Ireland, but that we're also incentivising a lot of very bright and well-educated Irish individuals and young people to stay as well.

Speaker 1: 23:27

Which is a huge thing. That's oftentimes like a casual and I say that truth is the first casualty of war but that we look at stuff like this and say, well, the numbers are still going up, so the number of people coming here are still going up, employment is still going up, but there's, I wonder, are there any hidden data points showing that we are losing people? I mean, we have high net inward migration, but that doesn't count, it's net, right? If you're looking at the growth figures, there are still people who are emigrating and Irish people are still emigrating, and not insignificant numbers.

Speaker 2: 24:01

I do think, though I'm a firm believer of that If, in the morning, we solve the housing crisis, some young people would still leave because they want to experience the world out elsewhere as well, and so they should be able to. Critical part is that they're incentivized to come back and go get their experience in London, australia, somewhere in Europe, wherever it is Canada, the States but that they come back and see a way of coming back.

Speaker 1: 24:24

Bring back the secrets. Yeah, yeah, we'll, we'll, we'll, we'll get back to that. One other just point when I asked you earlier and I forgot, cause this is something that gets brought up a lot dereliction, or you used a nicer word Obsolescence. Obsolescence Is that. Is that much of a factor, because I mean, we all see derelict houses, but is there enough of that being created year on year to have any impact, like houses coming out of use, you would think? In the current climate, that would be brilliant.

Speaker 2: 24:58

Yeah, so obsolescence is a difficult one for the SRI and anyone else to get a handle on the rate and the level of it each year. Research into it is slightly limited, and so there's assumptions around it that it's a rate of 0.25% of your total stock each year. But I suppose the reason why they are insisting on putting it in there and I agree with it too is that the key for me with this point is that even if we had, in a very strange world where not our population didn't increase or decrease by one person and our age structure stayed exactly the same, even within that year, we would still require a level of development activity and delivery of new stock to replace that obsolete stock. It's almost the way I described it to someone else the other day was you have your pair of winter boots, you wear them throughout the entire winter, you get every penny's worth out of them, but by the end of the period of wearing them there's a hole in the sole. The cobbler says I can't repair it, and the following winter you replace those boots, and you could almost view that housing as the same perspective.

Speaker 2: 26:01

We will always have an element of obsolete stock that will need to be replaced. So even if we had no population growth, we had no change in our age structure, there needs to be a level of development activity and I think that's probably, I suppose, one of the items that allowed us to get into a position where we have such a high level of unmet or historic pent up demand is because we did go through almost a decade of where there was no delivery whatsoever, and that was always going to hurt at some stage. It was just difficult, I suppose, when you're in the depths of that very dark periods, to see that if we're not delivering now, this will hurt us in a few years time.

Speaker 1: 26:43

And that was another thing I had on my list to ask you, because that rate of obsolescence is obviously a prediction, right? You're saying certain number of houses are going to go, you know, go out of use every year. So we have, we make estimates, we make predictions all the time. Could we have seen this coming? Or rather, did we see this coming and we said, well, we've got no money, so we're just going to have to let it happen? Or, you know, was this a shock? Is there any redemption really for us as a society to not have done something about this earlier than we started? I mean, I would argue that we're still not really doing anything about it, but we can get onto that later. But you know, did you see it coming? Did anyone see it coming? I know there's going to be a lot of Cassanders out there who said I was this lone voice of reason, but the data was it very clear? This is happening.

Speaker 1: 27:32

You guys need to be building, and we didn't do it.

Speaker 2: 27:35

Yeah, I think in one way, hindsight is golden, but at the same time, when you look back, firstly, I would say, if you have a decade of absolutely no delivery back to my opselessons point, it was always going to hurt at some stage and we saw the impact of that. The second part is and it's back to our lovely population forecast is that in between each census period, there is annual population estimates that are produced by the CSO period. There is annual population estimates that are produced by the CSO. So even when we were waiting for a revised population forecast to be released now in 2024, we were getting an indication or a level as to where our population was growing and whether it was outpacing growth that was expected there before.

Speaker 2: 28:19

And I think in one way it's useful to look back at. If we look at the previous forecasts that were there, so your population was expected to grow by about 916,000 persons from the period 2016 to 2040. And the annual growth rate of the population during that time was expected to be 0.7%, which was quite a pullback from where it was during the period 1966 to 2016. But if we look at the population estimates from 2016 up to 2019, so prior to, or even up to 2022,. Just before we got to our census data, those annual increases were averaging around 1.4%, which is much higher than your 0.7%.

Speaker 1: 29:09

It's a double.

Speaker 2: 29:10

Double and we had an additional well over 200,000 people added during just even a four-year period alone. So there was an indication that our population was surpassing what we expected it to be. And if your population is growing at a faster pace than what you expect and we know that during those time periods that development activity or your level of completions in the market was still actually relatively low we had gotten back to doing some form of delivery, but still very, very low levels of delivery it was going to impact at some stage. And the best way I think of almost showing that that acknowledgement has taken place is, as I said, over 916,000 people were due to. The population was due to increase from 2016 to 2040 by the year. So right In their most recent set of forecasts and we now look at from 2022 to 2040, so, cutting out those six years, that population is forecasted to increase by over 922,000 people, but in a smaller timeframe.

Speaker 2: 30:10

Higher level of net inward migration which, from the feeling of the data at the moment, you could suggest that base or that high scenario is actually quite likely as well. We see an increase of well over a million and we're getting to a population of over six million by the 2040. So even within that, we're seeing that now we're expecting the level of population growth to happen in a much smaller period of time, but to even be larger than what it was in a larger period of time only four years ago or six years ago.

Speaker 1: 30:48

Those numbers are kind of astounding to me.

Speaker 2: 30:51

Someone did actually push me the other day as well to go do you think Ireland will get to double digit population growth? Let's think here and go, how ambitious or realistic do we need to be? And there's a little part of me somewhere that went oh, double digit population growth, will Ireland ever be a 10, 11, 12 million population? And I was typically I was a little bit reserved in holding back from it, but then it's back to the element of well, in one way, when we're approaching this, I think it's important, going forward, that we're ambitious and realistic in terms of what we can deliver at certain points throughout each year, but that we're also ambitious and realistic as to the extent of growth that Ireland could potentially have.

Speaker 2: 31:35

And let's not almost hamstring ourselves or hold back that growth from taking place because we don't believe Ireland can get to that level. And I think it's also why and the Housing Commission did a really good job, I think, of highlighting this in their report that was released in June We've a lot of reports that have been delivered only in the last three months.

Speaker 1: 31:54

Subject of a future episode.

Speaker 2: 31:56

Yeah to the housing market, but that they made a very good point of let's ensure actually, that we're not getting bogged down on just one housing requirement data each year figure. So whether it's that 80,000 or it's the average of 44,000 that the SRI have now on their baseline up to 50, I think 2,000 on an annual basis for their higher growth scenario, and instead that it should be a range so that we're not constricting ourselves. Because that's really what happened on the previous version when we looked at how the NPF, the National Planning Framework, was applied down to your local area plans. It was quite rigid of each area was grown to grow by a certain number and there was no wiggle room either side of that, which really limits the growth that can potentially happen in each area. So it's almost let's not get bogged down in one figure and ensure we're being that range is both ambitious and realistic.

Speaker 1: 32:55

That's a really good point. There actually was an example of this I'm not going to name the council, where it's not really the council's fault. There was a small town and there was a zoned this land. It would have been 700 persons and so the I don't know if the planning regulator actually struck it down or whether it was said you know, you can't zone the land because it's going to put you over the limit. So the difference between 500 and 700, so it meant that 100 and something houses didn't get built for the fear that there'd be 100 more people within an area, I mean and it's funny that I the debate that has often taken place, um, politically and otherwise, about, about zoning land and about delivery and everyone afraid about units.

Speaker 1: 33:55

Um, and I'm cast back to the ghost estates. Remember those when we had all these houses that we're never going to fill them? That was only a few years ago. Right, these were headlines in the newspaper to the ghost estates. Remember those when we had all these houses that we're never going to fill them? That was only a few years ago. Right, these were headlines in the newspaper about the ghost estates. And we're the ghost estates now, right?

Speaker 1: 34:07

I mean the simplest way to lower housing costs. Who am I telling an economist? Supply, demand right, make loads of them, then they'll get cheap, and then, when they're cheap, it's good.

Speaker 2: 34:17

Exactly, and there's also an element of I'm probably digressing or going back a little bit to what we were speaking about earlier but when we were looking at those, what are the three components? I said your population growth, your obsolescence rate, both of those which we've spoken about, but also that average household size, and this is something that does also have an impact on our requirements for housing, but also not today, but in the future. And why? Maybe it's not a bad thing that an additional 100 people or whatever it is, units are delivered within a certain area, because our average household size has actually stagnated a little bit over the last decade and I think a reason for that, some of it is due to supply, that there isn't the ability to form new households because the stock isn't there.

Speaker 1: 35:02

So this is adults living with their, or kids living with their parents.

Speaker 2: 35:05

Yes, so we're sitting at 2.7 persons is our average household size at the moment.

Speaker 2: 35:11

But again, if we were to assume that, you know, all remained equal and we'd no increase in our population growth but the average household size decreased, it automatically generates a new portion of households that would be formed and therefore require housing.

Speaker 2: 35:26

And I think it's particularly say, if we look at if we had an average household size of four persons we don't, we did back in the 60s and 70s, but we don't anymore An additional 1.1 million people living in the state and that's that higher rate by the ESRI of if we get to over the 6 million population, that would create an additional 281,000 households.

Speaker 2: 35:49

But if that figure is 2.8, that additional household rises to over 400,000. And if we expect to fall in line with where EU average is, eu average more so sits between I think it's about 2.3 or 2.4 as the average household size. If we were to continue to move towards that trend and you get where I'm going with this and that 2.8 was to drop further, that 400,000 rises even more. So it's another element of we have changing households, we have changing families, we've changing dynamics across our society and I do think that household size figure will decrease further, or certainly will, if the supply is there. So an element of that will satisfy some of that excess demand that someone may be fearful of as well.

Speaker 1: 36:37

Yeah, well, certainly no danger of excess supply at the moment. I don't think I was going to ask you about those demographics, but you have really answered the question ahead of time. But I do hear that a lot about the trend like reversion back to the EU and I'm always like the EU now 27 countries and culturally we're all very, very different and maybe you don't have this information, but I'd be kind of curious to know what the situation in the UK is like, because we culturally as much as I get shocked for saying this, you know sort of similar-ish attitudes to things as people in in in the UK Are they having? And if you don't have the answer to this, it's fine but are they having the same kind of demographic shift? Like, is everywhere the household numbers, household sizes declining? Is this just like an unavoidable trend?

Speaker 2: 37:29

In one way, yes, it is an unavoidable trend. In another way, it's happening here in Ireland quicker because we really sat at the top of the European table. Say, if we were to throw the average out the door and look at it on a country by country basis, ireland sat at the top of that table for quite a long time. We had larger families to begin with. That really impacted that and we were a very different society back in the 50s, 60s and 70s than what we are today, and we were poor as well.

Speaker 2: 37:56

We were poor, so that average house size, as I said, sat above six back then and we've come down quite gradually until the last two census periods. I think the UK does sit a little bit lower than where we do as well. They're not quite at the EU average, but they're certainly close to it. I don't have the figure exactly off the top of my head. There are other nations that haven't seen as much of a level of change within that, but I think that's because they were at the opposite end of the scale to begin with.

Speaker 2: 38:24

So an element of it is is the a little bit of the modernisation of Ireland and how we are changing, and we see that across a number of different factors is that we probably never maybe be at exactly the European average, because we do sit out a kilter for a number of different figures. It's the same you mentioned with the proportion of adults who are living at home with their parents. That percentage for Ireland sits higher than what it does at the EU average. So I think between your 18 and your 36 year olds it's somewhere slightly over 30 percent of your adults are living at home and that is sorry over 40%, and the EU average is under is just over the 30. But we've historically sat a little bit higher as well. But it doesn't necessarily negate the fact, I think, that that is still a negative figure to have, and the impact of housing supply has certainly played a role in the growth of that percentage over the past decade.

Speaker 1: 39:18

That wouldn't be the case if housing was available at you know. First of all available and secondly, available at affordable rates. Yeah Right, in large numbers.

Speaker 2: 39:26

Yeah, I think, if you speak to many younger people who are living at home with their parents at the moment. They would like to get out.

Speaker 1: 39:37

Well, that's real interesting and actually I wonder. I mean, maybe we can look this up about Japan, because I was always struck in Japan, how you know, the idea of a three bedroom apartment was kind of like crazy.

Speaker 2: 39:49

Like nobody.

Speaker 1: 39:49

Why would anybody need that? Right, Because everyone is single, or even if they're married, there's just the two of them. They might have one kid, and that's kind of considered. You know, even they have their own demographic challenges with that. So maybe we'll we'll look into that and put it in the show notes, or maybe not. I might forget, carrie, you'll remind me, hopefully.

Speaker 1: 40:11

Okay, magic wands. As you know, I give everyone a magic wand, okay. So if I, I'm going to give myself a magic wand for the first time, right? If I just created 80,000 units for the next five years, right? So five eights? Who's good at maths? What do you think would happen? Like, we hear a lot about it and we need all this housing, we have to build this housing, we'd build all these housing. If we suddenly had an industry that was like let's say three times, to make the math simple bigger than it is today, like a construction industry, would that have enormous impacts on the economy? Leave aside, for example, that society would be better off by having more housing and it would be cheaper, but like the construction industry, traveling in size, for example, how do you think that would impact the economy?

Speaker 2: 41:02

That is a good question. I think let's start maybe with GVA, so our kind of GDP broken down by sector, and how much does construction activity account for that? At the moment and it's actually been pretty stable over the past 10 years as as GVA has grown construction only accounts for about 3% of that. Your real estate activities then as a whole, which is slightly separate, I think, is another 9%. So combined they're 12.

Speaker 1: 41:32

And what would it have been back in the day? Because you hear like crazy estimates that it was 25% of the economy. It was 30% of the economy, this kind of thing.

Speaker 2: 41:40

Yeah, it was a lot higher. They're not so crazy estimates. You're probably about right. They're around that level. But what I think is important today as well, though, is that, if we look at how our economy has grown over the past number of years, and even since COVID where we've had despite there's been lots of challenges with COVID Ireland as a nation, or certainly on GDP terms or GVA terms we've continued to grow, and the largest components of that is industry, of which manufacturing seems to account for the largest part of it, and that's where some of your more multinational sectors feed into that, particularly pharma as well, and that accounts for, I think, about 58% of your overall economy at the moment. Your tech sector as well at the moment, as of 2023, accounted for about 30% of our total output within Ireland Doesn't account for that proportion of the labour market, but it is in terms of our overall economic output, and that's up from about 12%.

Speaker 1: 42:42

All right, so that's huge right.

Speaker 2: 42:44

Huge growth within that sector over the last number of years and that growth has been continuous, even as we have seen, I suppose, a period of where there has been maybe a small bit of a pullback from a jobs perspective, or that we've seen some redundancies announced across the tech sector. In terms of its total output of the economy, it has continued to grow and we know that a lot of that. So both of those industries if you were to combine your 58 and your 30 percent are largely driven by that multinational or international side of our economy. So in one way, I do think there's room for growth. I guess why you would ask the question, and it's more so is there an element of risk of if we go back to the day where construction accounts for a much larger share of our GVA output? How much are we leading ourselves open to a decline in activity again? What would be the impact on balance sheets.

Speaker 1: 43:40

Well, that's one thing that I'm getting at. The other thing I'm getting at is like sort of circular inflationary effects, like second, third order effects that have. I wrote a blog post a couple of weeks ago about how it's finally dawned on people that we need, you know, 17 to 20 billion euros a year for housing investment. That's to meet current targets. But when we talk about these higher numbers, like those numbers go up. So you're talking about bringing in, uh, capital it has to come from somewhere into the economy of 15, 20, 25, 30 billion euros per year. And the knock-on effects of have to hire all those workers to do all that. They have to come from somewhere, right, so that's outside ireland. They have to be accommodated somewhere. So, like we create a further squeeze on the accommodation in order to later deliver more accommodation.

Speaker 1: 44:28

You know, have we, have we thought about those things? Is anybody? Is that factored into any of these forecasts? Right? Because obviously, if it gets massive and then we have another crash and in the meantime governments, as governments do, will have spent all the tax revenue that it will have been generating, and then look around and be like what happened? Where's all the money gone? Um, but is any of that thought about like that? We just keep saying we need more and more and more housing. We don't really think about well, how are we going to pay for it? Right, because the government can't fund all of this.

Speaker 2: 45:00

Absolutely not, and I do think it's positive that you would have seen the Department of Finance report that came out again only a month ago. We've been back to back reading reports for the last few weeks and they clearly acknowledge that there was that of that, I think it was 16.5 billion. That would only get you to about 40,000 units. So we know that figure needs to be higher, which probably brings you to about the 20, that the bulk of that has to be private delivery. It's over 13.6 billion comes from the private capital, while the remaining is public funds Per annum. Per annum exactly, and I do think again it was highlighted in the Housing Commission report they were very clear in stating that the majority of capital to fund this needed to come from the private sector, not public. And again, you might have only seen it actually today or was it yesterday that the Department of Finance yet again are kind of speaking to Jack Chambers, our new finance minister, in exactly that commentary of highlighting the importance of if we're going to deliver more units, it needs to come from a huge pool of private capital. And I think I suppose an element of when you look at that, even, let's say, the 13.6 billion of private and we know it's going to be higher because that's only for 40,000 units, so it does need to be higher than that. Is that even within that there's different kind of, I suppose, risk categories of how likely is it that it could come from?

Speaker 2: 46:26

Because we all know at the moment there is certainly an increase in the level of activity that's happening from a social and an affordable perspective within the market and any development activity that is taking place that has some form of an offtake from an LGA or an approved housing body.

Speaker 2: 46:44

So the land development agency or the approved housing body that there's a security of, I suppose, exit from that.

Speaker 2: 46:51

So it is allowing for, there is capital there for it and there is appetite from the banks and from your lenders for that specific part of the sector, so that part will be funded. I think where there is more risk and I'm sure that you would have potentially even stronger views on this than what I would is that element of the market that's looking at your private rental market. That is the part that has the largest question mark over it. If you were to divide up instead of that 16.2 billion by public and by private and divide it up by unit type and then say, well, what capital is feeding into each of those tenure types maybe is a better phrase than unit types? It's this bucket over here with our private rental market that there is the biggest concern over, and what is that total investment volume that is required there and what are the potential policies that are number one, off-putting it at the moment, or two that could improve that risk appetite that is there?

Speaker 1: 47:51

Yeah Well, we chased most of that capital out with lit pitchforks a couple of years ago and from the conversations that I have, it ain't coming back absent some significant change. So we wait with bated breath. Now that the government have finished publishing all their reports, maybe somebody might read them and actually enact some policy change.

Speaker 1: 48:13

Well, we appreciate it. We have at least one sole voice of reason. So look, go into your head then. How many units, how many do we need? What do you think? I'm not going to ask you for like 10 years, but if you were just able to do it in Lego, how many units would you build? 24, 25, 26, next three years?

Speaker 2: 48:35

Well, I don't have my own forecast, so I'm not going to pretend I do. I would also say, too, that remember to what I said earlier, in our conversation as well, is that I think it's really important that we don't hold ourselves to one figure, that there is a range and there's a reason for that range there and, as I said, it's to aid with that planning the zoning policies that are there as well. But I do think it's back to. Let's go back to our ESRI report and the requirements that were released by them. So they said that, across the 12 different scenarios and on average per annum for the initial time period so up to 2030, there was to be 44,000 units delivered per annum. Right On that high scenario, which is high net inward migration, which I, from a data perspective, I'm more leaning towards that, that figure sits higher.

Speaker 2: 49:31

It's about 52,000 units per annum. But that's not where I stop and it's how we probably end back up at that 80,000, is that the ESRI made it very clear at the start of their report that they were solely estimating for structural demand. And well, what is structural demand, you might ask me.

Speaker 1: 49:51

Who was going to ask?

Speaker 2: 49:52

It is demand solely coming from future population growth and demographic changes. Ok, it does not account for historic unmet demand, of which we know there is a significant amount.

Speaker 2: 50:10

So for the units we didn't build, For the units we didn't build over the past decade or even 15 years that we should have been delivering to the market.

Speaker 2: 50:19

That estimate sits anywhere between I think it's about 212, but the top end of it is over 250,000 units.

Speaker 2: 50:27

Is the unmet or the backstop that needs to be filled or that wasn't delivered over the last number of years. And really if you had a magic wand and I was able to in the morning conjure up a lot of workers who were free and ready to go out and deliver these units, and the planners and the financers and everything that goes with it, you would want that those unmet historic demand is delivered in quick succession over the next number of years. That 250 is maybe broken down over the next four to five years and added on top of that 59 or 52,000 annual delivery figure by the SRI. So it's back to, as we said, that 80,000 seemed really maybe scary or high at the start, but if we're combining of trying to tackle the undersupply of the past but at the same time ensure that we're not ignoring our population growth that is taking place right now but also every year from now, we certainly need to be quite up over that kind of 70,000 or 80,000 over the next several years.

Speaker 1: 51:35

By the sums I just did, in my head there was 102,000.

Speaker 2: 51:39

Do not quote that to me. Takeda in the show tonight Predicts 100,000.

Speaker 1: 51:41

Do not quote that to me, to Kate, and.

Speaker 2: 51:42

Littles of Deloitte.

Speaker 1: 51:43

Predicts 100,000 units a year.

Speaker 2: 51:45

But it's a range. I just think we need to tackle that historical figure quickly.

Speaker 1: 51:48

It's not the point though, like you say about the range, is that we get caught up and head up in this stuff, but actually we just need to get out there and start building.

Speaker 2: 51:55

Yes and not limit level of building, Because the market will sort it out right.

Speaker 1: 51:59

If we have too many, the house prices will decline, and then there'll be less and there will be a pullback as well.

Speaker 2: 52:04

I think again, if we were in a perfect world, you would have a five, six year period now where there is a very high number of units that are being delivered, as I said, to fill that backlog. That's there and that it would taper off then after that and we would adjust as the market and the demand requires it to do so. But it's back to having the range and just making sure we're not putting in place a cap or a ceiling that limits an output for a year or for two years, whatever it is, when we know that there's both a structural and a historic pent up demand there that can also change quite quickly too.

Speaker 1: 52:42

It certainly. Yeah, makes a lot of sense. Did I give you your magic wand? I mean, you kind of took your magic wand there and you said you were going to use it to build a backlog. Are we sticking with that, or do you have another magic wand? I'll give you two, just because you've been so good. Is there anything else that you'd like to see changed? It can be anything, it doesn't have to be, you know.

Speaker 2: 53:04

So what else would I like to see changed? I think there's a number of items and one. Don't worry, I won't go on for too long.

Speaker 1: 53:11

One is more so a highlight too.

Speaker 2: 53:15

And it's back to our population and our demographics. And you're going to wonder is this literally all I talk about or think about every day? But it consumes a large part of my brain. I'm going to be honest. Is that? And it's almost of you know?

Speaker 2: 53:28

You asked the question earlier of did we see anything happening in the data that would have suggested that our population was growing faster and maybe we should ramp up our delivery previously? And the answer was yes, we saw it there, but it was difficult maybe to act on it at the time for various different reasons. And there is another element of that population change that's happening right now that isn't getting the narrative that I believe it deserves, and that is that changing that we have with we have a rapidly expanding population, but we also have an ageing population, and we have obviously Ireland at the moment is one of the youngest populations in Europe. It's one of our you'll see it as a badge of honour almost on a poster for why invest in Ireland? But also because of that, then we're expected to see quite a change in that older population over the next number of years and we are beginning to see an element of it come through, particularly from kind of, if we're to break it down. You can break it down in many different ways. So maybe from 65 years up, or from 70 to 85 years up, and even if we look back solely again, forget your future gazing and look back at what is the current data telling us and we see whether you break it down by everyone over 65, everyone over 70 or everyone over 80, that over the past kind of 10 to 12 years, there's been a growth of between 40% and up close to 50% within those age categories, and it is expected to increase further over the next number of years as well. There is no volatility in that. That will happen. It is a certain outcome. But yet, in the same breath or vein, we have where between 2020 and 2023, a significant volume of nursing home closures that have taken place and actually a reduction in the total level of our long-term care beds that are there, and we do see it as well.

Speaker 2: 55:25

Even in Deloitte, I do a little bit of work with the turnaround and restructuring team, and coming through in those insolvency stats is continuously a little bit of concern around the nursing home sector as well, and it's all down to cost. How is it, you know, managing the cost within that area, and we haven't had changes in, you know, fair deal schemes and stuff like that for quite a period of time, and it's just a part of the market that I'm fearful of. The data is telling us there's, like many other indicators, there's no volatility with this. Without doubt, our population will age and we need to be catering the accommodation for that, be it in a senior living kind of style, all the way then up to your more dedicated care facilities. And it's not getting any attention.

Speaker 2: 56:10

If we're losing stock, not even adding to it, losing it today, where will we be in five years time, six years time, 10 years time? And now is the time to address that. And my second magic one and I'll combine the two of these really quickly is from an incentive perspective. I know you believe that it's going to be very difficult to get investors back into the market, and it's because there's been no certainty there whatsoever. But we need to ensure that those incentives are there and I think rental caps or rental growth policies is one way of addressing that. That can't be pushed to the side and again, our lovely Housing Commission report was very clear on that that the current situation of those is not working and should be changed. The IMF were clear on it last year and said it needs to be changed.

Speaker 1: 56:55

Yeah, it needs to be changed. And again, like you say, with the older people it is a certainty Rent caps don't work. It's been proved again and again, and again.

Speaker 2: 57:04

It aids the people of today, but not the people of tomorrow.

Speaker 1: 57:06

Yeah, and the people of tomorrow, as we all know, are the future. Thank you for that. The point that you made around elderly accommodation is it's a little bit like childcare. I know there are opposite ends of the life spectrum but again like childcare, huge problem Crash is very difficult to operate, very difficult to make money, no real incentive for people to open them, desperate need for them. Same on the other end, nursing homes closing while the population is getting older Makes no sense.

Speaker 2: 57:33

If you put time and energy into trying to help that part of the market and I wanted to distinguish as well that there's differences between almost kind of senior living all the way through to very dedicated kind of full time care facilities as well is because you know there's data out there that shows that Ireland is at the top of the league table in the European perspective from the highest volume of under occupied units. So we're essentially using our stock inefficiently when we already have limited level of stock, and a part of that is down to our structure of our housing stock. Fun fact, we actually have one of the youngest housing stocks in Europe. If you compare it to the States. It's very different as well, and I think it's because it's back to how our economy evolved.

Speaker 2: 58:19

We went through a boom, maybe much later than a lot of other areas did, yes, but also within that. So it's one of the youngest. But it's also very different in that we have a much higher proportion of houses versus apartments, so we have a much higher proportion of bedrooms to each individual than what we do, than what some of our neighbours in Europe would have. And there is an element of unless I know, it's very, very difficult for people to trade up and to trade down, but if we're not providing the right accommodation to again incentivise someone to leave that four or five bedroom house that only one or two people are maybe walking around in every day, to something within that area and of a category or a type of accommodation they like, it's not going to happen. But it would free up a housing unit for someone else in a different stage of their life.

Speaker 1: 59:09

Absolutely.

Speaker 2: 59:09

it makes perfect sense If you were in business, you'd try and use all your resources efficiently, and we're not doing that.

Speaker 1: 59:15

We're not doing it, and there you know, and there's a lot. I saw a thing in the newspaper a while ago, kind of having a bit of a pop at people living you know, these empty nesters, they call them.

Speaker 2: 59:27

They're living in these big houses and they don't need them, but where are they meant to go? Where are they to go?

Speaker 1: 59:28

Exactly Say okay. So the option is they sell their house and then go where, to a nursing home. These are perfectly able-bodied people.

Speaker 1: 59:43

They don't need the space. Fine, but where? And this is one of the consequences of apartments being so difficult and expensive to construct? Pensioners are not for the most part. I mean, there will always be corner cases, but they're not going to want to go and spend 700,000 euros on an apartment in Balls Bridge. No Right. They need to have a nice accommodation option that takes account of their financial circumstance, and our attitude seems to be well, you own a, a house, so sell that and spend it all on an apartment. It just seems crazy that there's a complete ignorance of this, and it's it's again an Irish thing. We're storing this problem up for probably 15-20 years time, when there's going to be an absolute crisis.

Speaker 2: 1:00:16

And it's the same on the other end of the spectrum too, of where we got rid of co-living, which was also another stage of the life cycle that I think would have fitted a certain cohort of our population. So it's also about I think again back to this idea of being ambitious and realistic that we need to be ambitious in our thinking of well, what is accommodation, what are the different stages that are required, rather than solely looking at it as a house or an apartment for a family of two or three kids, because that's not what society is no, it's not.

Speaker 1: 1:00:47

And it's again making policy for what we think should exist rather than what exists. I mean, co-living is one of the reasons, the ban on co-living one of the reasons I started the podcast to begin with, because it was so nonsensical. I mean, we didn't ban co-living, we just banned specific planning permissions for it, because co-living is going on all over the city and has been. Anyone who lived in a house shared. That's co-living. You're sharing a kitchen, right, that's it. And when they want to try and professionalise that and put it into a better scenario and densify it, no, no, no, no, no. We must not. So listen, I don't want to get annoyed. It's only Wednesday, ok, what else we got on here? Did I ask you to recommend a book?

Speaker 2: 1:01:27

Yes, you did. Is it a good one? What do you got? So my book recommendation is I'm a little bit. What I would say is I'm a reader when I'm on holidays OK, that's when I plough through my books.

Speaker 1: 1:01:38

Well, you're too busy reading government reports.

Speaker 2: 1:01:40

This is it when I'm working on a regular weekly basis. I actually don't read all that much for pleasure, even though, look, I find the likes of the ESRI and the central bank reports to me are very fascinating as well. So there is pleasure in them.

Speaker 1: 1:01:54

But you're not going to recommend the central bank report.

Speaker 2: 1:01:57

I haven't sold myself as very cool in this context. So when I do read for pleasure, then it's crime thrillers or what I'm into, something with a little bit of a twist, maybe a little bit of a murder. That's where my street is up, and my recommendation is a book I finished earlier this year and it is by Steve Kavanagh. It's called the Accomplice. It is essentially about a husband who is a serial killer and we're trying to figure out where he is. He disappeared and has left his wife to deal with the trouble of it, and the prosecution, I suppose, are blaming her, and she is up for jail and is trying to figure out. Where is he? Who did he kill how many people? And there's like every good crime thriller. There's a lot of twists and turns towards the end that genuinely had my mouth open going what? So I would highly highly recommend it.

Speaker 1: 1:02:51

Just a quick addendum here to say that we got sidetracked talking about books and I absentmindedly stopped recording before I thanked Kate for coming on the show. So, kate, thank you again. It was a fascinating chat that could have gone on for hours. You can follow Kate on LinkedIn, where she posts some genuinely interesting insights into the real estate market in Ireland. There's a link in the show notes. Thanks for listening.