Markets

19 Dec 2019

Irish Economy: Planning permissions for apartments surge in Q3

Further indications that the increase in housing output is continuing were obtained from yesterday’s Q3 planning permission data from the CSO – more than 10,000 units were granted permission for the first time since Q2 2019. 

The 10,590 housing units approved in Q3 was a 10% increase on Q2, and a 32% y/y increase. Almost 27,700 units received planning permission in the first three quarters of the year, a 23% increase y/y – the lower growth rate in this statistic reflecting a weak Q1 outturn for planning grants. 


The overall increase is being driven by higher numbers of apartment approvals. For the first time on record, more apartment units received planning permission than houses in Ireland (5,656 vs. 4,934). This volume of apartment approvals is +21% q/q, +80% y/y and more than five times the number of approvals in the same quarter of 2017. This increase is likely due to an easing in the design standards for new apartments, strong demand from institutional investors for PRS assets and ongoing increases in rents due to a shortage of housing stock and mortgage lending restrictions. In contrast, the number of approved houses has been broadly stable over the past six quarters and the 4,934 outturn in Q3 was two units lower than Q2.


Regionally, Dublin accounted for 43% of all approvals in Q3, a higher proportion than in recent quarters and which can be explained by the strong increase in apartment grants – almost three-quarters of the apartments approved in Q3 are for Dublin (4,156 units). The number of houses approved in Dublin was paltry in comparison, both in Q3 (411 units) and YTD (1,152 units), and Dublin accounts for just 25% of all houses granted approval YTD in the Greater Dublin Area.


The number of housing units granted planning permission in the past 12 months is now above 34,000, which is encouraging from a housing supply perspective, as is the implied higher levels of housing density in the capital. However, with such a large proportion of approvals being apartments, this suggests that the lead time to completions will be longer than usual and the risk that the units will not be delivered is probably above average given the nature of apartment construction.


Irish Economy: Household debt still declining


Reflecting the buoyant domestic economy, household net worth in Ireland reached a new high in Q2 2019 of €780.4bn, +1.6% in the quarter. The increase was attributable to higher financial assets (+€5bn), higher housing assets (+€5.6bn) and lower levels of household debt (€1.6bn). 


Household balance sheets are continuing to undergo repair. Household debt has been on a downward trajectory since the height of the credit boom more than 10 years ago, declining by one-third in this period to €135.3bn (€27,500 per capita). As a proportion of disposable income, household debt fell by a healthy 2.6pp in the quarter to 117.3% due to both higher incomes and lower nominal debt levels. This ratio has almost halved since 2012 putting Irish households on a much more secure financial footing, although it remains high in a European context. 


Trump impeachment 


As expected, President Trump was impeached last night. In what was a largely party line vote, House of Representative lawmakers voted 230-197 on the first article of impeachment (abuse of power) and 229-198 on the second (obstruction). The result makes Trump only the third President to be impeached.


The next step would be for the House to send the articles of impeachment to the Senate for the trial which will determine if Mr Trump will be removed from office. This is unlikely with a conviction requiring a 2/3 majority in favour; that would require 20 Republicans to switch away from a party line vote. One question now is how quickly the House sends the articles of impeachment to the Senate for trial, amidst talk that Democratic House Speaker Nancy Pelosi might seek to delay this to gain leverage over the shape of the Senate trial in the hope that witnesses that have not yet been called, might be summoned. Senate majority leader Mitch McConnell will do everything he can to avoid this. 


Beyond this, one further question is whether the impeachment process dents President Trump’s prospects for the 2020 Presidential race. So far, his support amidst the GOP remains pretty steady with no Republicans voting to impeach on either Article. 


Reaction in markets has been muted so far. EURUSD traded slightly higher after the vote before recovering. 


Bank of England preview


The Bank of England meet at midday today for their final monetary policy meeting of the year, and Governor Mark Carney’s penultimate meeting. Our expectation is that Bank rate will be held at 0.75%, albeit with the committee split 7-2 once again as external members Jonathan Haskel and Michael Saunders maintain their dovish call for a 25bp reduction. Meanwhile, we look for unanimous votes to hold the stock of gilts and corporate bonds at £435bn and £10bn respectively. 


With the Conservatives winning a comfortable majority, and the Withdrawal agreement likely to be passed by 31 Jan 2020, the “Brexit uncertainty” which had prompted many MPC members to keep policy on hold is now significantly reduced. The offshoot of this is that the Bank of England meetings are now once again a “live” event, with greater possibility of policy action than at any stage last year. Markets are pricing in a 50:50 probability of a rate cut by the end of next year, so no imminent actions are expected, despite the current votes in favour of a cut.


Riksbank herald the end of negative rates


The Swedish Riksbank also held their policy meeting earlier today (8.30am). The central bank, who cut rates into negative territory in 2015 took the significant step of raising rates by 25bps to 0.00% this morning. This makes them the first major central bank to exit negative interest rates. 


The move comes after a year where negative interest rates have come in for significant criticism in Europe, particularly Germany where the recent decision by the ECB to cut rates further into negative territory lead to the resignation of ECB board member Sabine Lautenschlager. The ECB, who also introduced tiering to reduce the detrimental impact of negative rates on banks, have all but admitted that further cuts in rates are likely to have less of an impact, and that looser fiscal policy will be necessary if further stimulus is required. 


The Swedish Krona strengthened slightly on the announcement, but is currently trading at the same levels against the Euro as prior to the widely expected announcement. The Riksbank will hold their press conference at 10am. 

 

Economic Releases


NO 09.00 Norges Bank announcement

UK 09.30 Retail sales

SW 10.00 Riksbank press conference

UK 12.00 MPC decision