In Dublin, it’s Elon Musk against the housing market (1)

(Bloomberg) — At Twitter’s European headquarters, surviving employees have a major problem with Elon Musk’s demand that everyone return to the office: find a place to live.

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Dublin, the Irish capital where the tech firm has an office with around 500 employees, is in the midst of a housing crisis driven by a chronic shortage of new homes and a mass exodus of private landlords. Prices recently surpassed the peak reached in 2007, just before an economic collapse that nearly bankrupted the nation.

Musk’s order sparked complaints on Twitter that it’s impossible to simply move to Dublin and start working from the office. The Twitter CEO clarified in a tweet that employees can work from home for logistical reasons, personal matters or “if their manager guarantees excellence”.

Although Twitter’s Dublin office has shrunk by around a third following the recent exodus, the spat is highlighting a growing problem for the Irish economy as it faces the prospect of recession. Dublin has flourished in recent years creating attractive conditions for large companies to open large offices. The city of 1.3 million will quickly lose its edge if it cannot provide housing for companies eager to get employees back to work.

“Even if you have the funds to rent, you can’t rent,” said Stephen Kinsella, professor of economics and head of department at the University of Limerick. “This is a systemic risk.”

Some large international companies are taking matters into their own hands. A firm associated with Goldman Sachs Group Inc, which moved its European wealth management business to Dublin after Brexit, is looking to build nearly 1,000 flats in a shopping center car park in northwest Dublin at a value of £400m euros ($415 million), according to the Sunday Times. Ikea’s investment arm has committed €100 million to finance the development of more than 250 social housing units.

Just under 1,200 properties were available to rent across Ireland on popular listings website as at 18 November. On August 1, the number was just over 700, a fifth of the average from 2015 to 2019. The average rent increased by 12.6% to 1,618 euros year-on-year in the second quarter, the most recent statistic available. This was the highest year-over-year increase since at least 2005.

Dublin is no stranger to property crises, but this one is very different from the bursting of the so-called Celtic tiger bubble in 2008. At the time, it was all about oversupply and unsustainable credit. The problem this time is that there aren’t enough houses to meet the demand.

Read more: ‘It’s demeaning’: Londoners battle for flats in hot rental market

The number of private landlords exiting the market doubled in the second quarter from a year earlier as rising property prices, rent caps and the prospect of higher mortgage payments made it increasingly unattractive the rental of a property.

Meanwhile, Ireland’s population is growing and the war in Ukraine has pushed up the cost of building materials, reducing incentives for developers and landowners. Activity on residential projects has declined in four of the past five months, according to a BNP Paribas Construction PMI report released last week.

A new block of flats in Dublin owned by Irish Residential Properties REIT Plc was fully occupied a week after being completed in the summer, according to CEO Margaret Sweeney. The company received 600 inquiries within an hour and a half for the first 20 units it shipped and continues to see high levels of demand across the city, she said.

Read more: Ireland’s financial blind spot hit by Mass Tech job cuts

So far government support measures such as grants for developers have done little to ease the supply squeeze. A target set in September 2021 to provide an average of 33,000 new housing units annually through the end of 2030 is already expected to be revised due to increased demand. Incoming Prime Minister Leo Varadkar pledged on Saturday to speed up action on housing. “We will build more houses and apartments and get more people to live in adequate and affordable housing,” he told a party conference, listing plans to build more social housing and extending a “purchase aid” program. Meanwhile, the central bank will ease its per-lending income requirements from next year, making it easier for would-be borrowers to qualify for mortgages.

“There are no signs yet of reduced demand,” said Dermot O’Leary, chief economist at Goodbody, following data released Wednesday that showed home prices and transactions rose in September.

Job cuts in the tech sector, which currently provides around 6% of jobs in Ireland, have hit big Irish employers like Facebook parent company Meta Platforms Inc. and could ease some pressure. even if that will cost the economy. Globally, the tech industry lost 9,587 jobs in October, the highest monthly total since November 2020. The Irish government has so far received notification of around 140 layoffs on Twitter, Varadkar told reporters on Friday.

On the flip side, however, job insecurity could allow Musk to have his own way by getting people back into the office, which would put even more pressure on the housing market.

Recruitment decisions “are increasingly shifting towards the candidate who offers return-to-office flexibility,” said Robert MacGoilla Phadraig, Chief Commercial Officer at Sigmar Recruitment Consultants Ltd. in Dublin. “People who upped their sticks and moved on the premise or promise of a full-time, long-term remote work option may need to reconsider.”

(Adds Leo Varadkar’s comments on housing plans in 13th paragraph)

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