Wednesday, June 24, 2020

Housing Prices and Quantities in Q1 2020

There are lots of way Ireland’s dysfunctional housing system can be illustrated.  The 66 per cent increase in private rents since 2012 is as good as place to start as any.  Looking at recent data for the CSO shows that this increase stalled in September 2019.

Private Rents Index 2017 to 2020

In the Consumer Price Index, private rents in March 2020 were pretty much at the same level they were in September 2019.  There has since been modest falls in April and May.

For purchases, the levelling off of prices goes back a bit further.  Prices in March 2020 were essentially the same as they were in September 2018.

House Price Index 2017 to 2020

There is no judgement on appropriateness but it is worth noting that the past year or so has been the only time since the CSO’s house price series began that the annual rate of house price inflation has recorded a sequence of outturns close to zero

House Price Annual Inflation 2006 to 2020

We have a few more years of data for ‘private rents’ from the CSO and going back to 2003 these have never managed a period where the annual rate of change has been close to zero for any sustained period.

Private Rents Annual Inflation 2003 to 2020

On the quantity side, housing completions reached 21,000 units in 2019 up from just 5,000 in 2013 with most of the increases arising from scheme houses.

House Completions Annual 2011 to 2019

Commencement notices lodged with local authorities had reach an annual level of 26,000 units by the end of last year.

Housing Commencement Notices 2017 to 2019

And to conclude here are the number of mortgage drawdowns by first-time buyers.

Mortgage Drawdowns by FTB to Q1 2020

On an annual basis, the number of mortgages drawn down by first-time buyers reached 22,000 in Q1 2020.  Of these, 15,000 were for existing properties and 7,000 were for new builds.  First-time buyers have been drawing down more loans for secondhand properties compared to new properties since early 2009.

Of course, the housing sector is more than just private rentals and owner-occupiers.  Unlike private rents, local authority rents have not plateaued and continue to rise.

LA Rents Index 2010 to 2020

This isn’t a surprise as local authority rents are linked to the income of the tenants.  On the quantity side we can look at government capital spending on social housing (though only up to 2018 in this data).

Social Housing Spending GFCF 2000-2018

Ireland is pretty much the only country in the EU15 where the government sector does capital formation for social housing.  It was less than €150 million per annum from 2012 to 2014 but had risen to reach €600 million by 2018.  Other EU15 governments do support capital spending on housing but typically it is through investment grants to entities outside the government sector.

It is hard to know what the COVID19 crisis will bring for Ireland’s housing sector but that’s a few snapshots of where it stood as the crisis developed.

Tuesday, June 23, 2020

The Level of Government Spending in 2018

Government spending, excluding spending on old-age social protection, in the countries that made up the EU28 in 2018 was equivalent to around 35.8 per cent of the Gross National Income of the region (GNI* is used for Ireland).  Spending on old-age social protection was equivalent to a a further 10.1 per cent of GNI. 

As shown in the following table, the figures for Ireland were 36.4 per cent and 5.2 per cent. [Click to expand.]

General Government Spending 2018

The figures for the “peer” group are the regional aggregates for the nine countries other than Ireland listed in the table. The “nordic” group are the aggregates for Denmark, Finland and Sweden. In the table, the ten countries are ranked by their total expenditure excluding old-age social protection a a share of national income.  Ireland place sixth. 

The bottom panel compares government spending in Ireland (as a share of GNI*) to the equivalent figures for each region (as a share of GNI).  In aggregate terms, government spending in Ireland excluding old-age social protection is pretty much in line with the outcome for the EU-Peer group (Ireland was lower by 0.2% of national income).

Relative to the EU-Peer group Ireland recorded a higher level of spending for housing, health, education and social protection excluding old age.  Ireland was lower for general public services, defence, economic affairs, environmental protection and recreation and culture.

If we limit the comparison to Denmark, Finland and Sweden, EI-Nordic, then we see that government spending in Ireland in 2018 was around 3.3 per cent of national income lower than the aggregate level for this group.  Ireland was higher than these countries for public order, environmental protection, housing and health while it was lower for general public services, defence, culture, education and social protection excluding old age.

The most significant difference between Ireland and all the groupings of countries shown is for spending on old-age social protection.  To match these groups Ireland would have to spend around five per cent more on this category, which is a doubling of the current level.  For 2018, this would have been equal to additional spending of around €10 billion.

This doesn’t necessarily mean those aged 65 and over in Ireland have a lower income compared to the same groups in other countries.  Ireland has a lower share of this group than other countries and have incomes which are supported by private pensions.  The elderly in Ireland also typically have lower housing costs than their equivalents in our peer countries

In overall terms, Ireland does have a lower level of government spending than in our EU-Peer countries.  The single most important reason for this is spending on old-age social protection.  Those countries raise more in social insurance contributions and pay out more in pensions – with higher benefits going to those who made higher contributions, i.e. had higher incomes.

Monday, June 22, 2020

General Government Spending on Fixed Assets

In the general government accounts we usually think of government capital spending in terms of gross fixed capital formation, i.e. investment in fixed assets by the government sector.  The path of this over the past two decades is well understood.

General Government Gross Fixed Capital Formation

In the final years of the credit boom, government GFCF was ramped up significantly and reached €10 billion in 2008 before falling very significantly. It has been rising in recent years.

The timing of the inclusion of this spending is when the asset is acquired or completed so if the government is undertaking a multi-year project there could be cash spending over a number of years but the GFCF in the general government accounts will be counted when the project is completed.  [This is so the GFCF figure can be linked to the capital stock figure.]

Government spending on fixed assets for itself is not the only capital spending the government does.  The government can also provide funding for other sectors to do capital spending.  This could be refurbishment grants for households; capital grants for sectors such as agriculture or grants for one-off projects like sports stadiums.

It will also include government funding of capital spending of publicly-controlled entities which are classified as being outside the general government sector.  This currently includes:

  • Airports including
    • Dublin Airport Authority
      • Aer Rianta
      • Cork Airport
      • Dublin Airport
    • Shannon Airport
  • An Post
  • Bord na gCon including track companies
  • Bord na Móna
  • CIE excluding Irish Rail
    • Bus Eireann
    • Dublin Bus
  • Coillte
  • Eirgrid
  • ESRI
  • ESB
  • Ervia excluding Irish Water
    • Gas Networks Ireland
  • RTE Transmission Network
  • Ports including
    • Dublin Port
    • Port of Cork
    • Port of Waterford
  • Universities including
    • Dublin City University
    • Trinity College Dublin
    • University of Limerick

In this instance the general government sector funds the capital spending but the fixed asset is owned outside the general government sector (households, non-profits or non-financial corporate).  This type of capital spending by government is recorded as investment grants.

If we add that to the first chart this is what we get:

General Government Spending on Fixed Assets

We see that this leads to an even greater peak in 2008.  In that year, general government provided around €3 billion of investment grants.  Investment grants in cash are included in the year in which the payment is due to be made.  The actual GFCF for the sector receiving the grant will be timed in line with the completion of the project. 

The jump in investment grants is likely linked to transport (roads and public transport) and grants for the re-building of the Lansdowne Road stadium.

As with GFCF undertaken by the general government sector itself, investment grants have also been increasing in recent years.  They were €900 million in 2013 and were €1,700 million in 2019.  The above chart gives a fuller picture of general government spending on fixed assets.

If the data was available we could do one step further and get an overall figure for public sector capital spending.  This would include the capital spending of the entities listed above that is not funded from investment grants from general government. 

For example, many of those bodies have their own revenue streams (that is a primary reason why they are classified outside the general government sector) and can make autonomous decisions on capital spending.  They could also borrow maybe through the placement of bonds (like the ESB have done) or by getting a loan from the European Investment Bank.

However, we do not yet have a set of accounts for publicly-controlled non-financial corporates (S.11001).  The UK is the only country that has a full set of sector accounts for this sub-sector published by Eurostat.  The data show that in 2018 in the UK:

  • the general government sector had £57 billion of GFCF
  • the general government sector provided £17 billion of investment grants
  • publicly-controlled NFCs had £11 billion of GFCF (and received £1 billion of investment grants)
  • households received £4 billion of investment grants
  • non-profits received £8 billion of investment grants
  • private non-financial corporates received £3.5 billion of investment grants

Classifications matter.  Looking at those figures it could be that, in the UK, housing bodies are significant recipients of investment grants from the general government sector.  In Ireland, approved housing bodies are in the general governments sector (or at least the large ones are so far).

This means that looking at the GFCF of the general government sector may not give a fully comparable measure of government investment.  Adding investment grants as we have done here can improve that.  And adding all the investment spending by publicly-controlled NFCs would be a step further again.

Over the next 18 to 24 months more countries, including Ireland, are expected to publish figures for publicly-controlled NFCs.  Then we might be able to update this with a chart of public sector spending on fixed assets.  For now, here’s a comparative chart for GFCF + Investment grants for the EU15 in 2018 (the additional investment of publicly-controlled NFCs in the UK is also shown).

General Government Spending on Fixed Assets EU15 2018