Pent Up Supply

The Concept Missing From Every Irish Housing Forecast

For two years, every serious projection of Ireland’s housing requirement has rested on the same analytical move. The Housing Commission, in its 2024 report, established it. The Central Bank adopted it. The ESRI works with it. The Department of Finance’s recent Future Forty report extends it to 2040. Government targets are calibrated to it. The recent national extension of Rent Pressure Zones cites it. It is now the load-bearing assumption underneath the largest sustained capital allocation in the Irish economy.

The move is the concept of pent-up demand: the idea that Ireland has a deficit of housing represented by moves and transactions that would have taken place in conditions of adequate housing supply but did not, because supply was insufficient. The Commission estimated this stock deficit at between 212,500 and 256,000 dwellings as of April 2022. The figure has propagated through the institutional landscape, and it has acquired, in the process, a degree of apparent solidity that its underlying methodology does not really support.

This piece is the first of two on the framework that has produced this figure. The argument here is that the framework is wrong in a specific way: it incorporates pent-up demand as a stock variable requiring satisfaction, but ignores a symmetrical phenomenon — pent-up supply. When you correct for this omission, the projected housing requirement comes down. The second piece, to follow, looks at the demand side of the calculation in detail and shows that the figure is over-stated for additional reasons that compound with this one. For now, the conceptual point is enough.

This matters because the consequences of getting it wrong are not symmetric. We have been here before.

Why the standard framework cannot see the other half

The framework that produces the deficit estimate works like this. You take the observed average household size from the Census — 2.74 in 2022 — and compare it to an underlying preferred household size that would supposedly be seen if housing were adequate. The Commission’s estimate of underlying household size is around 2.4 to 2.45. The gap between observed and underlying, multiplied by the population, produces the deficit. Roughly: if Ireland had enough housing, more households would have formed, household size would be lower, and the implied additional housing requirement is the difference.

This is a coherent way of thinking about the question. It has the structure of a counterfactual: how many more dwellings would be occupied if conditions were different from how they are? The problem is not the structure. The problem is that the framework asks the counterfactual question on the demand side only.

Here is the same question applied to the other side of the market. Irish residential transaction volumes have been suppressed for over fifteen years. Long-run historical norms for housing market turnover sit somewhere between 4 and 6 per cent of stock per year, across most developed economies. Pre-crisis Ireland averaged around 4.8 per cent. Since 2010, Irish turnover has run at roughly 2.5 to 3 per cent — between forty and fifty per cent below the long-run norm, for fifteen consecutive years.

The conditions producing this suppression were a perfect storm in 2010 and the effects have been compounding ever since.

A number of factors created what is understood in the US market as the “lock-in effect”. Negative equity meant households who could not sell without crystallising a loss. The build up of long term mortgage arrears and restructuring arrangements. Ultra-low interest rates incentivised people to stay put to retain tracker mortgages. The absence of a bridging finance market prevented households from buying before selling. The collapse of new-build supply removed the trade-up options that would have unlocked the chain.

Notice that these are the same conditions that the Commission cites as producing pent-up demand. Negative equity, low new-build supply, shrinkage of intermediate stock, and so on. The conditions do not produce a one-sided phenomenon. They produce a market that has stopped clearing. When a market stops clearing, every transaction that would have happened under stable, functioning conditions but did not is a missed transaction. Some of those missed transactions would have been households forming. Some would have been households moving.

The Commission counts the first. It does not count the second. There is no analytical reason for this. It is simply a feature of how the framework was constructed.

What pent-up supply actually means

Take a household that would have moved in 2014 but did not. Perhaps they wanted to downsize but no suitable smaller dwelling existed in their area. Perhaps they wanted to trade up but could not afford the gap. Whatever the specific friction, the move did not happen. That household is now sitting in a dwelling they would, under stable conditions, have left. The dwelling itself is occupied — it is not vacant — but it is locked-in. It is not available to anyone else, even though under normal market conditions it would by now have been released two or three times over.

Multiply this by fifteen years of suppressed turnover, and the cumulative quantum is substantial. The rough arithmetic: if Ireland’s annual transaction volume should have been around 100,000 per year at long-run norms, and has actually been around 55,000 per year, the cumulative gap over fifteen years is over half a million transactions that did not occur.

That is not the same as saying 500,000 dwellings did not enter the market, because most transactions are internal chains — Person A selling to Person B who sells to Person C — and the net effect on listings at any moment is much smaller than the gross transaction count. The relevant figure is the net stock of households currently sitting in sub-optimal arrangements. That number is harder to estimate precisely, but it is unambiguously in the high tens of thousands at minimum, and plausibly substantially higher.

The chain effect

The standard objection to including pent-up supply in housing demand calculations is that internal reallocation of existing stock does not change total supply or total demand. If a downsizer moves to an apartment and sells their family home to a trader-up, the same dwellings exist before and after; the calculation is unchanged. So the argument runs.

This argument is incomplete because it treats housing allocation as a series of static bilateral matches rather than as a multi-stage system in which one unlocked transaction can release dwellings into the market that satisfy multiple unmet demands.

Consider three households. A retired couple in a four-bedroom house wants to downsize. A family with growing children in a three-bedroom semi wants to trade up. A young couple in a rented apartment wants to buy a starter home. Each of these households wants something they cannot get. Each is also sitting on something somebody else wants. In the standard framework, this scenario is read as three units of unmet demand, requiring three new dwellings to satisfy. A deficit of three.

But look at what happens if just one of these households is enabled to move. Suppose the retired couple is given access to bridging finance and downsizes. Their family home enters the market. The trading-up family buys it. The semi they vacate enters the market. The young couple buys it. One unlocked transaction has produced three completed transactions and satisfied three units of unmet demand. No new construction has occurred.

This is the chain effect, and it is well-documented internationally. UK Treasury analysis of downsizer mobility, academic work on Dutch housing chains, Australian research on retirement housing transitions — all converge on the finding that downsizer-initiated chains typically produce between two and four onward transactions before terminating. The figure varies by market structure and the depth of the secondary market, but it is consistently substantially greater than one.

The implication for Irish housing forecasting is that the supply potential of the existing stock, when activated through chain transactions, is materially larger than the supply potential the same stock represents in a static view. A framework that ignores this — which is to say, every current Irish housing forecast — systematically undercounts the supply side of the equation.

The asymmetry of consequences

The natural response is to ask: so what? Even if the targets are over-stated, the result is that we build more housing than strictly necessary, which is hardly the worst problem an Irish housing system could have. Better to over-build than under-build. The visible problem is scarcity. Surplus is theoretical.

This response is wrong in a specific and important way. Over-building and under-building are not symmetric risks.

Under-building produces continued scarcity, continued price pressure, continued political demand for policy response. The system has well-understood feedback loops. The error self-corrects through pain, but it self-corrects.

Over-building produces something quite different. Construction is heavily debt-financed. Sustained over-supply collapses prices. Collapsed prices destroy developer equity. Developers fail. Banks bear losses on construction loans. Credit availability for housing finance constricts. Supply collapses rapidly. The over-supply turns into under-supply within a single cycle, and the financial damage takes a decade or more to repair.

This is not theoretical. Ireland built approximately 90,000 dwellings in 2006 against the same kind of confident long-range demand projections that we are constructing today. Within four years it was building 8,000. The damage to the banking sector, the construction industry, the public finances, and the social fabric took fifteen years to substantially repair, and arguably is not yet fully repaired. The 2008 collapse was preceded by exactly the same kind of institutional consensus.

The country that experienced the worst property crash triggered in 2008 should be the country most vigilant about avoiding a second. Instead, it is the country least willing to discuss the possibility. Every demand projection institution in Ireland has now publicly committed to a deficit framing that does not accommodate the symmetric risk. The Department of Finance has extended the time horizon for pent-up demand to 2040, which has the structural feature of guaranteeing that any future moderation in demand can be characterised as the pent-up demand still working through, rather than as evidence that the projection was over-stated. The framework has been made effectively unfalsifiable for the next decade and a half. That is not how forecasts in a healthy epistemic system work.

The country that just spent fifteen years recovering from a housing collapse produced by one-sided demand forecasts should not be calibrating its next decade of construction against another one-sided demand forecast.

What this is and is not

This is not an argument that Ireland does not need to build more housing. It does. The deficit framing may be over-stated, but the underlying scarcity in particular regions and dwelling types is real, and a substantial increase in supply is required.

This is not a prediction of a 2008-style collapse. The conditions of 2026 are not the conditions of 2007 in important ways. Credit availability is different, demand fundamentals are different, the demographic structure is different.

This is an argument for is the recognition and inclusion of an analytical category that has been omitted. The framework can be improved by including pent-up supply. The policy response can be improved by adding an allocation-focused dimension to what has become a single-axis supply-focused debate. The intellectual basis for both of these exists in publicly available Irish research.