There is no official data regarding negative equity in Ireland in general, nor its geographical distribution. By mid-2012, once house prices had fallen to 50% of their 2007 values Davy Stockbrokers estimated that more than 50% of residential mortgages were in negative equity. Consequently, any house bought from 2000 onwards is likely to be in negative equity.
Negative equity is a significant issue because it creates a spatial trap that restricts mobility. Because the value of the property is less than was paid for it, owners cannot sell and move to another property without realising a loss. This trap has three consequences. First, it restricts labour market mobility. Second, it keeps families in homes that may no longer be suitable to their needs. Third, it restricts the pool of properties available to the market and limits any recovery to first time buyers, those prepared to realise a loss, those whose property is not in negative equity or have investment capital. All three have social and economic consequences causing hardship and stress and slowing the recovery of the wider economy.
Negative equity is not evenly distributed because it is determined by the price paid relative to present prices and this is largely shaped by when the house was bought. So where might this spatial trap be operating most perniciously in Ireland?
This is not an easy question to answer given publicly available data sources. We have been looking at proxy measures and present one here, though it should be noted that it only captures one kind of property in negative equity – houses that were built post-2001. It does not include secondhand houses in negative equity, nor buy-to-let properties in negative equity (though the latter can be estimated using a same method).
Our solution is to use two Census 2011 variables at the Small Area level. The first variable is the ‘% of housing units built post 2001’. The second variable is the ‘% of outstanding mortgages in an area’ (i.e., the property has been purchased not rented privately or from a local authority or voluntary body). These variables are not perfect, but when combined do give us, we think, a reasonably good proxy.
The figure below is a density smoothed scatterplot of the two variables for all 18,488 Small Areas in the country. Each Small Area has approximately 80-130 households. We have divided up the scatterplot into four quadrants, one of which is subdivided based on the clear pattern of points, to create six categories that denote different levels of negative equity (category 1 has very low rates of both post-2001 build and outstanding mortgages), which we have then mapped from the country and for Dublin.
It is important to note that all the Small Areas potentially have some households in negative equity, but that some areas have greater concentrations than others. In broad terms, categories 5 and 4 are likely to have similar levels of private residential negative equity, but we have left them separate to denote their different characteristics.
When these categories are mapped the pattern that emerges is perhaps what one would expect. The areas with the highest concentrations of negative equity are in the outer suburbs of the cities and the fringes of commuter towns. These areas experienced high rates of newly built properties and new household formation all through the boom, but especially in the latter years when the inner suburbs became too expensive for first time buyers and those trading up to a family home.
This pattern is very clear around Dublin, Cork and Limerick, but is slightly different around Galway, where a number of rural Small Areas are highlighted where there was a lot of one-off housing and small nucleated settlement. This pattern is repeated for many smaller rural towns.
Owner occupiers in these areas are more likely to be spatially trapped, though as noted any individual household in any part of the country could be suffering such a fate. It is also likely that the same areas will have higher concentrations of mortgage arrears, given that negative equity and mortgage arrears are related.
Whilst further research is needed to refine this analysis it does give a proxy measure of one kind of negative equity in the absence of detailed data from mortgage providers. We would be interested in any feedback about the approach taken.
Rob Kitchin
January 29, 2014 at 4:16 pm
Hi Rob,
Very interesting chart and likely a close proxy for the spatial distribution of the problem. Have you considered using more advanced small areas estimation techinques for this (see Rao 2004)? The use of sae techniques with SILC data (which has been used previously by the Central Bank to look at mortgage related issues might allow you to get a better grip on the issue and account for local demographic and income factors.
January 29, 2014 at 5:43 pm
Ger, thanks for the advice. We’ll look into it. We were just trying to identify potential locales in the first instance, but it would also be interesting to look at the other characteristics of the areas to see what kinds of households are potentially being most affected, though there are issues of conflating area data with households if other census variables were used.
January 29, 2014 at 9:25 pm
Has the government created the current property price hike?
It recently introduced three measures that immediately spiked house prices – thereby squeezing out already hard pressed families and individuals. These are (1) tax relief for investors and (2) lower stamp duty and (3) property tax relief.
Firstly, tax free sales on gains in property were introduced in December 2012. This exemption from CGT applied to properties bought after the Budget date and before 31 December 2013. I see that it’s now extended to December 2014. It applies for seven years during which time it is reasonable to expect an increase in the value of the house being sold on.
Secondly, this government reduced stamp duty from 6% to 2%, also from last year.
Finally, first-time buyers purchasing a second-hand home were exempt from property tax for a period- but a mistake now means the credit applies to all people who bought a second-hand house.
If renters want to point their finger at the culprit, they should look not at their parents’ generation but towards the policies of successive governments which have rewarded the rich at the expense of the average worker.
I’m a lay, PAYE, person and this is my understanding of the current market forces. I would welcome honest and impartial debate
January 29, 2014 at 9:41 pm
I would say key factor is lack of supply in some areas, and we are only talking about parts of Dublin at the moment. Too many folk – both investors and families – competing for too few properties now that they think that prices are not going to fall and they want to buy near the bottom. This scenario will not play in the rest of the country for a while because of levels of oversupply and lack of demand.
January 30, 2014 at 9:56 am
Its important to note that we live in a extreme neo liberal economy.
As such the jobs people increasingly travel to serve no domestic economic purpose.
The new jobs for instance in the newly deregulated utility sector involve double jobbing on stuff requiring perhaps half the workforce of before.
The objective it seems is to destroy industrial efficiency so that people can access credit (via having cashlow /jobs)
They can then get access to 0 % finance so as to buy a car and travel to their pointless job.
We live in a country which is now approching zero industrial production to service local demand.
Electricity output of the state is in structural decline and at late 90s /early 00s levels.
Electricity is supposed to be price insensitive !!!!
It remained static during the early 80s depression but this decline is of a different order of magnitude.
Electricity output of the state in structural decline and at late 90s /early 00s levels.
http://www.cso.ie/px/pxeirestat/Statire/SelectVarVal/Define.asp?maintable=MSM01
Instead we have 0 % credit on cars for the people who remain creditworthy.
i.e. the system managers of a (domestic) system which no longer exists so they perhaps must find work managing a external system of flows.
The euro system from its very inception has deflated the domestic economy so that it can create space for more external inputs. (see early 80s depression)
Its the only explanation for why it costs me 4.50 for a Pint of Heineken brewed down the road while it is 1.25 a can (shipped from Holland) in the local supermarket.
Something is very wrong with the production / distribution / consumption system……i.e. the entire industrial system.
We cannot be allowed to consume what we produce in Euroland for some funny reason.
Everything orbits around pointless trade.
The externalties from this weird trade system remains fully charged on the customer via tax and inflation increases.
Its a wonderful system of extreme centralized control / scarcity operating on a vast scale……..pushing money tokens every higher into a apex.
January 30, 2014 at 10:29 am
This is what Industrial failure (in our world this = life support failure) looks like.
Elec output of state (gigawatt hours)
Y2013M11 : 1,989
Y2012M11 : 2,275
Y2011M11 : 2,302
Y2010M11 : 2,378
Y2009M11 : 2,292 (first crisis period)
Y2008M11 : 2,532
What has happened is a total collapse of local industry servicing local demand.
This is not a new process …….this has happened since Euro entry.
We have had a decline of local industrial oil inputs and a increase of oil inputs transportation (cars mainly)
Taken from IEA energy stats of OECD countries (years 2011 &13)
Industry oil consumption
Y1960 : 382 Ktoe
Y1971 :1,780 Ktoe (peak~)
Y2008 : 1,295 ktoe
Y2011 : 840 Ktoe
Irish transport oil consumption
Y1960 : 393 KToe (our little Beeching cut period)
Y2008 : 4,361 Ktoe.
Y2011 : 3,428 Ktoe
We can clearly see what is happening since euro entry………the objective since euro entry (1973 or 79) has been to destroy local industry (much of it servicing domestic demand) and use the new energy surplus created by deflation events in the early 80s and today to buy and drive yet more cars.
People are driving around in circles for no purpose whatsoever…….real end use energy consumption has been in crisis since the early 1970s and the eurosystem is at the very hear of these strange events.
The jobs are utterly pointless(other then to scramble for scarce money tokens)..therefore the mobility meme is defunct.
January 31, 2014 at 8:56 pm
NIR has recorded explosive growth in its passenger numbers.
“The weekly average rail passenger journeys in July to September 2013 increased by 19% from 0.21 million to 0.25 million compared to the corresponding quarter of 2012. During the same time period, weekly average rail passenger receipts increased by 21% from £0.67 million to £0.81 million.”
How can this be explained ??? McCarthy has spoken from his high chair and stated to the hushed nation that rail is only useful between large metro areas such as London to Birmingham ……….certainly not Londonderry to Belfast !!
Whoever is in charge of this sod has completely stopped the real physical flow so as to maintain a stock of symbiotic debt.
The North is a type of scientific control is it not ?
Now even Irish milk consumption is tanking despite the addition of 1 million ~ extra souls and a explosive rise in infants since the early 90s
Irish Milk sales for human consumption (million litres)
All Milk
1992 : 525.2
1998 : 543.2 (peak)
2013 : 479.0 (trough)
The Euro prevents internal adjustment , all economic activity is focused on external trade .
These Irish goods should be cheap relative to cash flow and external goods more expensive.
Instead the Euro most especially creates a strange inversion of physical economies where trade is no longer a question of who has comparative advantage , trade activities is merely used to pay external debt causing dislocation flux and malinvestment.
This malinvestment is fully charged to former citizens via increased taxs , wage deflation , and internal goods inflation (all of these are essentially identical )
Why do we allow this perversion of economics to happen on our watch ?
February 9, 2014 at 1:57 am
Electricity data recently revised and or corrected upwards
The CSO now reports that Y2013M11 is now 2,007 gigawatt hours.
Also
Y2013M12 : 2,214
A decline from 2012 levels but not as dramatic.
It makes you wonder…………..
Are they making it up as they go along or are they listening……….
At least we can look forward to slightly darker skies down in South Kerry for 2014 and therefore people might regain a more rational perspective on this strange market state project that they have designed for us.
What we do know for a almost certain fact is that any so called growth in the system will no longer benefit the mean resident person as bank credit production (creating more scarcity via new cars , houses and other conduit products) and external labour following this “growth” will merely mean more entropy per capita..
i.e less energy per person or less usable end use energy per person as people are forced to buy cars at 0% interest rather then spending money on social goods and services.
March 6, 2014 at 11:59 am
or move to a viable urban area and cycle? cities are the engines of humanities development remember, for good or evil. Four decades of outward transfer from Germany/EEC/EU to the Irish regions has produced little more than guaranteed maintenance/service fees for garages, and higher food prices for consumers. Ireland hover’s around the highest per capita energy importer in the OECD. We are a small country….. an addiction to nationalised suburbanisation is at fault and the big and small farmer’s alike desire to build for their offspring wherever they like…. middle class urban dwellers are worse, subsidised to drive everywhere at the collectivities loss. Arcadian idealisation is good fun but likely impractical due to the need for endless energy to waste….. maybe obesity and anthropogenic climate change will be what the future remembers of this banal civilisation. keep up the good work.