Monday, July 02, 2007

More Evidence from The Irish Real Estate Market

by Claus Vistesen

Cross posted from Alpha Sources

Not too long ago I posted on the connection between construction activity in and net migration in Spain and Ireland. The point was to demonstrate how demographics might have been contributing (and still is) to the ongoing debacle on Eurozone imbalances and whether the zone's economies are converging or diverging. In this entry I field further evidence of this connection from Ireland on the basis arguments and data from a paper by Chris Paris from 2005 entitled; Housing and the Migration Turnaround in Ireland; here are the main excerpt from the conclusion ...

(ROI - Republic of Ireland and NI - Northern Ireland)

Issues to do with migration and ethnicity have changed dramatically in both jurisdictions since the early 1990s. Net population loss through migration was superseded by unprecedented net migration gain between 1996 and 2002. Most incomers around 1990 were Irish born, and there were very few immigrants from Africa and Asia. That pattern had changed significantly by the early 2000s, as the overall level of immigrants had doubled and much larger proportions had been born overseas. There was much less change in NI; indeed, there are signs that the population became more rather than less homogenous between 1991 and 2001. This article has demonstrated strong interrelations between migration processes and housing markets: the surge of immigration into the RoI after 1996 added substantially to growing demand for housing and house price inflation, despite hugely increased new housing production. The age distribution of immigrants, especially the high proportion between 25 and 44, largely explains their impact on housing markets. But the migration turnaround is partly a function of the booming economy, rather than an independent phenomenon, and thus the relationships between immigration and the housing boom represents cumulative causation rather than simple one-way cause and effect. Internal migration has also had major impacts on urban spatial outcomes, as cities and towns across the island have grown spatially, at lower densities, with increasing commuting fields and extensive development of detached housing in the countryside.

Regarding the general argument and my use of it I have some basic qualifiers. First of all, the fact that migration flows should have contributed, along side low real interest rates, to the boom in the Irish property market hardly constitutes economic rocket science at this point. Rather, the point is how property market booms in some Eurozone countries to a large extent is behind what is known and labeleled as Eurozone imbalances. It thus follows intimately from this that demographics have something do to with intra-country imbalances in the Eurozone and crucially also why countries reacted differently to the universal stimulus provided by the ECB in the first years of the single interest rate policy. In the graph below the cardinal point is fielded as it plots population growth in Ireland from 1991-2006 as a proportion between 'natural increase' and 'net migration'. As can readily be seen by comparing the trend in net migration as a share of total population growth with the graph from the other posts the correlation seems strong indeed.


To be fair I should also include the actual figures for population growth in Ireland in the periods used above. As such in 1991-1996 the total population growth was about 100.000, between 1996-2002 it was 291.000 and between 2002-2006 it was 322.645. This of course suggests a general correlation between population growth and construction actvitity/housing booms but it should be fairly obvious that it is net migration we should be looking at since it is a proxy, not only for total population growth, but more importantly for growth in the consuming and labouring cohorts. In this way, migration also holds the potential to rapidly alter the fundamentals of an economy in terms of capacity utilization measured by the output gap.

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