Are there problems with the Housing Commission methodology?

The methodology used by the Housing Commission to estimate a housing stock deficit of 250k raises more questions than answers. The bigger problem is, why is nobody asking these questions?

Last week’s post argued that Irish housing demand forecasts incorporate pent-up demand but ignore any symmetrical pent-up supply that similiar conditions may also be producing. That argument was about a missing analytical category potentially inflating the demand forecasts.

This week’s post is about problems with the methodology used in arriving at the Housing Commission deficit — the estimate of an approximately 212,500 to 256,000 housing stock shortfall that influences the entire Irish housing demand discussion framework.

There appear to be three methodological problems that compound to inflate the figure.

Problem one: the benchmark has no Irish precedent

The Housing Commission methodology that produces the suppressed-household-formation figure compares Ireland’s current young-adult headship rate against benchmarks drawn from other countries and from surveys of ideal housing preferences: respondents to the Commission’s RedC survey who said they would prefer different living arrangements if cost and availability were not limiting factors. The gap between current Irish arrangements and these comparators is treated as the measure of suppression.

Ireland’s actual headship rates under historical conditions of adequate housing supply are measurable and on the public record. In 1991, during a period of net emigration when housing was not the binding constraint, the headship rate for 20-24 year olds was about 14 per cent. By 2011, after the crash, when Ireland had a demonstrable surplus of housing stock — when ghost estates had become a national symbol and prices had collapsed by half from peak — the rate was 18.5 per cent. In 2006, at the height of the Celtic Tiger when around 90,000 dwellings were being completed annually, it was around 19 per cent. The Irish rate for this cohort, across very different conditions but consistently under adequate or excessive supply, has sat in a narrow band between 14 and 19 per cent.

The Commission’s methodology effectively benchmarks against rates Ireland has never empirically produced. There is no period in modern Irish history in which the country has produced anything like the headship rates that the underlying-supply benchmark implies, regardless of housing supply conditions. The methodology is therefore not measuring suppression of household formation against an Irish baseline; it is measuring the distance between current Irish arrangements and an aspirational benchmark imported from elsewhere.

The aspirational figure found closer to home in the survey of young Irish adults is also problematic.

For survey respondents aged 18-39, their current household circumstances were not consistent with their preferences. Arrangements are currently over-represented, particularly living with parents (26% current vs 4% preferred). At the same time, other living arrangements are under-represented in current living arrangements, such as living with one’s partner (20% current vs 39% preferred). Two-in-five 18-39 year-olds would like to live alone or with a partner. However, just 26% of respondents in this age range currently do. Conversely, while 48% live with parents or with friends/others, just 15% would choose to do so.

The methodology is worth examining in plain language, with a simple albeit somewhat facetious analogy.

Imagine the Society of the Irish Motor Industry conducted a survey asking respondents what car they would ideally choose to drive if cost and availability were not limiting factors.

The survey would inevitably identify a large gap between current vehicle ownership and stated preferences. SIMI could then publish a report calculating Ireland’s automotive deficit — the number of additional Ferraris, Bentleys and high-end SUVs required to close the gap between what people currently drive and what they say they would prefer to drive. The report would be methodologically internally consistent with the Housing Commission report. It would also be useless as a guide to forecasting demand for cars.

The Housing Commission’s deficit calculation rests on a structurally similiar idea. The empirically grounded Irish benchmark — what young Irish adults actually choose when housing supply is adequate — sits substantially closer to current arrangements than the discourse acknowledges.

In fairness to the Housing Commission, they are transparent about this methodology and the fact that the estimated deficit is an aspirational figure - what would the ideal look like?

The problem is that nobody else is acknowledging this idealism, and the deficit figure is routinely reported, quoted and referenced as a realistic measurement of the shortfall in the housing stock that is causing the current problems. Thus it has become the basis for ever increasing new build housing targets.

Problem two: the contemporary figure does not mean what it appears to mean

There is a second layer to the over-statement, and it is documented not by outside critics but by the ESRI. The 2024 ESRI paper Household size in Ireland: Stylised facts and cross country trends by Conor O’Toole and Rachel Slaymaker — both of whom advised the Housing Commission — examined the Irish EU-SILC data that produces the headline figure of young adults living with parents and flagged a specific methodological problem.

The Irish EU-SILC data series changed its definition of a household in 2020. The pre-2020 definition was address-based: a household consisted of the people living at a given address. The post-2020 definition is based on shared income and expenditure: people who pool resources are treated as a single household regardless of where they physically live. Under the new definition, Irish students living away from the family home but who are financially supported by their parents are coded as members of the parental household. Under the German methodology, the same young person is coded as an independent household.

The ESRI authors are explicit about the implication. They note that the Irish EU-SILC figure jumped sharply in 2020 and 2021 — from 6-8 per cent to 10.5 per cent for the share of households containing an adult child aged 25-34 — and that the increase “may at least partly result from this change in the household definition.” They also note that Census 2022 figures, which use a different methodology, are meaningfully lower than the EU-SILC figures imply.

The comparison that anchors the suppressed-formation argument — the gap between Irish and German young-adult independence rates that has appeared in every serious piece of housing commentary in Ireland for two years — is therefore not measuring what it appears to measure. An unknown but potentially meaningful share of the Irish figure is an artefact of how Irish students with parental support are now coded, and would not appear in the equivalent German figure. The comparison that has driven the deficit discourse is comparing figures constructed under different definitional conventions.

Problem three: the high Irish household size is mostly about children, not adults

The observed high average household size in Ireland compared to other countries is discussed in the Housing Commission report, and ultimately the report’s conclusion is:

“key drivers of household size such as fertility and longevity do not indicate any difference in trends that would explain Ireland’s divergence.”

This is directly contradicted by the Slaymaker/O’Toole paper, working through the demographic components of Ireland’s high average household size. Their research produced a finding that is genuinely surprising once stated plainly. Ireland’s outlier status on household size is driven primarily by the high number of children per household, not by young adults.

“We find that Ireland has a high average household size on a cross-country basis. However, this appears to be strongly influenced by demographics, with high fertility rate, younger population and thus high share of households with children important factors in explaining the cross country trends”

The paper explicitly disaggregates household size into adults and children, and the result is that when you look at adults per household, Ireland is no longer an outlier. It sits just above the middle of the European distribution. Ireland’s distinctiveness shows up entirely in the children-per-household figure, where it is the highest in their 16-country sample throughout the period studied.

The paper also runs cross-country regressions controlling for demographic and economic factors. When you control for the share of households with children, marital status, age of household head, and economic variables, the difference between Ireland and the middle group of European countries — Austria, Belgium, Germany, Finland, France, Italy, Netherlands, Sweden, UK — essentially disappears. Ireland’s outlier status is explained, in the main, by demographic structure rather than by housing scarcity.

This is a finding that should have, at the very least, formed part of the discussion. Instead it has been totally ignored.

The Housing Commission’s deficit calculation rests on the premise that, in April 2022, Ireland’s household size of 2.74 was artificially elevated by housing scarcity, and that under adequate supply conditions it would have fallen to 2.4.

The ESRI’s analysis disputes this, finding that the headline household size figure is mostly a function of Ireland having higher fertility and therefore more children per household than its peers. This is not housing scarcity. It is demography. A country with a younger population structure and higher birth rate will have higher average household size for reasons that have nothing to do with whether young adults can find apartments to rent.

The implication of the ESRI findings is that the Commission’s underlying-versus-observed household size distinction is largely measuring the wrong thing. It looks at Ireland’s elevated household size, attributes it to suppressed household formation, and calculates the housing deficit required to close the gap. The ESRI’s analysis suggests that the great majority of the gap is not suppressed household formation at all. It is Ireland having more children. The suppressed-formation component is real but much smaller than the headline figure implies.

It is necessary to be explicit on the timing of these publications. The ESRI paper was published shortly after the Housing Commission’s report, and perhaps the Commission did not have access to this specific methodological caution when it finalised its analysis. I’m not suggesting that the Commission deliberately ignored available conflicting research.

The problem is that mainstream Irish housing research published less than a month after the Housing Commission report, directly contradicts the findings of the Housing Commission, and nobody has even asked the simple question:

Who is correct? The Housing Commission or the ESRI?

The implications of the answer are hugely significant. If the ESRI are correct we are fighting the wrong battle.