The Irish Housing Stock: Growth in Number of Vacant Dwellings

March 23, 2005

News

23/03/2005

 

The Irish Housing Stock: Growth in Number of Vacant Dwellings

Professor John Fitz Gerald (The Economic & Social Research Institute)

Embargo: Wednesday, March 23rd, 2005 at 00.01a.m.



Article appearing in the Quarterly Economic Commentary, Spring 2005.



This article uses unpublished CSO data to derive estimates of the stock and changes for second or vacant dwellings in Ireland over the last thirty years.

 

 

  • The rapid growth in the number of second dwellings in recent years has been particularly striking in the Borders, Midlands, West (BMW) region. The counties where the biggest increase has occurred are those where special tax relief applied.
  • The effect of the enhanced demand for dwellings for investment or holiday purposes has had a very significant impact on the cost of housing in the affected regions. The result has been a significant reduction in the competitiveness of the BMW region, adversely affecting the government’s policy goal of promoting more balanced regional development.
  • In the long run it is likely that the population in Ireland (and elsewhere) will desire a larger stock of holiday dwellings, especially in the BMW region. This is a natural process and would not pose any long-term economic problems if those acquiring or holding such dwellings paid their full economic cost.
  • A property tax levied on vacant or second dwellings would help defray the infrastructural costs that these dwellings entail. It would also reduce demand pressure from this source, helping ease house prices. This in turn would enhance the productive potential of the wider economy.
  • An alternative strategy would be to charge the full economic costs of infrastructure to new second dwellings located outside traditional villages or towns. It would be a second best solution, as it would generally only be paid on new building. However, this would still meet two objectives. It would promote more balanced regional development and it would also reduce the pressure on the building industry generally, cutting the cost of reducing the national infrastructural deficit.
  • Finally, the fact that headship rates (the proportion of the population who are heads of independent households) remain low in Ireland relative to experience elsewhere in the EU suggests that there will be a continued need for significant new building in Ireland over the coming decade. This suggests that there is a floor on how far house prices could fall in the event of a shock.