March 2010

Ronan Lyons has an interesting post over on his blog discussing whether NAMA can deliver on its promises.  His big worry is whether those running NAMA have got their assumptions right vis-a-vis fall from peak to time-of-tranfer, the yield, and how yields might correct.  Given the data he presents, he suspects that their assumptions are off and concludes, “If NAMA could show that it’s aware of these very basic facts about Ireland’s property market before it starts taking over any loans, I would be a lot less worried about giving it access to tens of billions of euro worth of current and future taxpayers’ earnings. If it doesn’t, the elephant is very much still in the room.”  One suspects that given the drop in land values, the oversupply of both residential and commercial property, and the downward trend in residential and commercial prices and rents – all noted by Lyons and discussed in loads of posts on this blog (see here, for example) – is that the elephant is very much in the room.  The wonder is that certain parties seem completely blind to it.  It must be a lonely elephant as, no matter how it tries to make itself visible, it is ignored!  Is this a case of blind faith?  Time will tell.  Like Ronan, one would be a bit more confident if, a) one felt that those organising NAMA, and are responsible for trying to stabilise the economy and get it back into growth, gave the impression they knew what they were doing, rather than making it up as they went along, b) we had a lot more info about what assets will be in the NAMA portfolio, where they are, and a realistic LTEV in relation to  loan value, so we could judge things for ourselves.

Paul Krugman has a piece in today’s New York Times discussing the similarity and differences between the financial crash in the US and Ireland, drawing on the work of Irish economists, Gregory O’Connor, Thomas Flavin and Brian O’Kelly.  He argues that Ireland’s crash was due to “free market fundamentalism” and concludes that, “we have to focus as much on the regulators as on the regulations”.  Sounds like commonsense, but clearly this was in short supply in the lead up to the crash (and we can debate how much it is been in evidence since).  Rather than summarise, here is the core of the piece:

“Ireland’s bust wasn’t a tale of collateralized debt obligations and credit default swaps; it was an old-fashioned, plain-vanilla case of excess, in which banks made big loans to questionable borrowers, and taxpayers ended up holding the bag.

So what did we have in common? The authors of the new study suggest four “ ‘deep’ causal factors.”

First, there was irrational exuberance: in both countries buyers and lenders convinced themselves that real estate prices, although sky-high by historical standards, would continue to rise.

Second, there was a huge inflow of cheap money. In America’s case, much of the cheap money came from China; in Ireland’s case, it came mainly from the rest of the euro zone, where Germany became a gigantic capital exporter.

Third, key players had an incentive to take big risks, because it was heads they win, tails someone else loses. In Ireland this moral hazard was largely personal: “Rogue-bank heads retired with their large fortunes intact.” There was a lot of this in the United States, too: as Harvard’s Lucian Bebchuk and others have pointed out, top executives at failed U.S. financial companies received billions in “performance related” pay before their firms went belly-up.

But the most striking similarity between Ireland and America was “regulatory imprudence”: the people charged with keeping banks safe didn’t do their jobs. In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party.

There was a lot of that here too, but the bigger issue was ideology … What really mattered was free-market fundamentalism.  … It was largely thanks to this ideology that regulators ignored the mounting risks.”

Which broadly translates as rampant neoliberalism.  Interestingly, the solution to the failure of neoliberalism in Ireland has been to implement another round of neoliberal policies (see our post from last week), rather than look to something different, as for example advocated by TASC in today’s Irish Times.

(And congrats to O’Connor, Flavin and O’Kelly for gaining the coverage in the US broadsheet)

There has been a certain amount of confusion concerning housing vacancy rates in Ireland over the past few weeks.  This is mainly a function of different data being conflated and how the results were reported and discussed (as noted by Pat McArdle in the Irish Times a couple of weeks ago).  Each study has produced three comparable pieces of data – vacancy including holiday homes, vacancy excluding holiday homes, and potential overhang (housing in excess of an expected base vacancy rate – there will always be some vacancy in a market).  The confusion has been caused, in part, by the comparison of the DKM/DEHLG overhang figure (122-147K), the NIRSA vacancy exc. holiday home figure (302K) and the UCD vacancy inc. holiday home figure (345K) as if they are estimating the same thing.  This has further been confused by CIF estimating that the overhang of brand new, unsold homes is c.40K.  Excluding the CIF estimate, there is general alignment between the four sets of estimates that have been put forward (the fourth set produced by Goodbody’s; there was also a global estimate put forward on propertypin that also has alignment).  All four organisations estimate that vacancy including holiday homes is over 300K, that vacancy excluding holiday homes is over 228K, and that the potential overhang is over 100K (and if the top rates are used for DKM/DEHLG and Goodbody then the alignment is relatively strong). (more…)

In Tuesday’s Irish Times, writing about the recent announcement of the closure of Postbank, Fintan O’ Toole suggests that the Irish Government has a “strange definition of ‘systemic importance’”.  Contrasting the apathy with which the impending closure of Postbank (jointly owned by An Post and BNP Paribas) has been met, with the €30 billion of taxpayers’ money pumped into embalming Anglo’s corpse, he writes:

Let’s consider this proposition. Postbank has deposits of €450 million and 170,000 customers. It has 70,000 savings and 35,000 current accounts, 90,000 insurance policy holders and 10,000 credit-card customers. It does what banks used to do – provide financial services for ordinary people in their own communities. (more…)

As has been reported in the media over the past couple of years, unemployment and Live Register recipients have been increasing rapidly as the recession deepens.  To date though we have little detailed knowledge of their geography which prompted us to try and map Live Register data at the Social Welfare Office scale.

Unemployment is measured by the Quarterly National Household Survey (QNHS) which provides details on both the number of unemployed people and the unemployment rate at national and regional levels. According to the QNHS the number of unemployed people in Q3 ’09 was at a staggering 279,800, up from 102,600 in Q3 2006 (an increase of 173%). According to the CSO the QNHS classifies unemployed people as “those who, in the week before the survey, were without work or were available for work within the next two weeks, and had taken specific steps, in the preceeding four weeks, to find work”. Based on this classification the overall national unemployment rate has increased from 4.7% in Q3 ’06 to 12.7% in Q3 ’09. The QNHS also provides details at the NUTS 111 regional level. This gives a useful insight into the broad spatial trends across the country but the survey is not designed to allow an analysis at a sub-regional spatial scale (see Figure 1a and 1b).

Figure 1A and B: QNHS Unemployment Numbers and Percentage Change

Figure 1A and B: QNHS Unemployment numbers and percentage growth

An alternative method of analysing the spatial patterns of unemployment is to use the unadjusted Live Register at Social Welfare Office level. The Live Register is compiled from returns made by each local welfare office to the Department of Social and Family Affairs and passed onto the Central Statistics Office. It comprises of persons under-65 years of age in the following classes:

  • All Claimants for Jobseekers Benefit (JB) excluding systematic short-time workers
  • Applicants for Jobseekers Allowance (JA) excluding smallholders/farm assists and other self-employed persons
  • Other registrants including applicants for credited Social Welfare contributions but excluding those directly involved in an industrial dispute.

The Live Register is not specifically designed to measure unemployment as it includes part-time (those who work up to three days a week), seasonal and casual workers entitled to Jobseekers Allowance or Jobseekers Benefit.  It does, however, allow an analysis of employment trends at both a county level and also at social welfare office level.  142 Social Welfare Offices are listed on the CSO website, data is however not available for all offices on a continuous time series basis as some have been closed for a number of years while others have been replaced by new offices. From September 2006 the number of offices has remained relatively stable with the exception for the Carrigaline Office which opened in Nov ’06 and the North Cumberland Street Office which was replaced by the Swords Office and King’s Inn Street in August ’09 – this data is not included in our analysis.  For the purposes of this analysis we will use 122 Social Welfare Offices open since September 2006.

In September 2006 there were 151,440 signing on the Live Register, this figure increased to a total of 436,936 in January 2010 (latest data available) representing a percentage increase of +188%.  The Live Register figures fluctuated marginally between our starting point (M09, 2006) and the end of 2007 with the percentage increase at 6.7% in November 2007. Figures steadily began to increase at this point and hit a peak of +187% in August 2009. Figures reduced slightly during the last months of 2009 but increased to hit a new high in January 2010 (Figure 2).

Figure 2. Unadjusted Live Register Growth: 09 '06 to 01 '10

The scale of this increasing trend varied across the country with some areas experiencing much higher percentage increases in job losses than others. Figure 3a below details the number of recipients per Social Welfare Office in September 2006 and Figure 3b highlights the percentage increase in each office to January 2010. The vast majority of offices witnessed an increase of greater than 100% with many in excess of 300% (these patterns are clearly shown in the animation below).

Figure 3A: Live Register recipients at Social Welfare Office 09 '06 (Offices are sorted from left to right by NUTS 111 Region (Border, Midlands, West, Dublin, Mid-East, Mid-West, South-East and South-West) and by number of recipients per office in 09 ‘2006. The animation below will provide more detail on the changing patterns.)

Figure 3B. Live Register Recipients by Social Welfare Office: % Change 09 '06 to 01 '10

In order to visualise the trends from our base date we have mapped Live Register growth at approximate Social Welfare Office catchments (see animation). At present the areas served by Social Welfare Offices do not correspond to specific geographic boundaries and registrants at a given local office do not necessarily reside within a precisely delineated area (e.g those signing at the Ballyfermot office do not necessarily have to live within the Ballyfermot area but may be from surrounding areas such as Palmerstown and Ronanstown that might be nearer to another office).  We have therefore created catchments for each office based on the assumption that a recipient will register at the nearest office to their residence.  The areas then are approximate catchments, wherein the vast majority of people live within the designated area, but a relatively small number of claimants might live beyond its bounds.

For a higher resolution animation please visit the NIRSA site (click here).

(a very pale area represents a decrease in Live Register claimants below the Q3 2006 rate, yellow 0-10% increase, pale brown 10-25% increase, light brown 25-50%, mid-brown 50-100% increase, dark brown 100-150% increase, red 150-200% increase, purple 200-250% increase and turquoise 250%+ increase).

What the animated map shows is that Live Register recipients fluctuated up and down for most of 2006, but from the start of 2007 started to increase rapidly, first in the south west before spreading nationally.  From the beginning of 2008 the first areas reached a 150% increase from the Q3 2006 figures, quickly followed by increases of 250% above the Q3 2006 figures in the south west, and increases of 200 to 250% in the commuter belts around the cities. By the end of 2009, most of the country was above the +150% rate with only a few peripheral areas such as parts of Waterford and the Atlantic fringe under that rate. As the Live Register figures continue to increase, those areas in red are likely to shift to purple and turquoise.  For our post on the microgeographies of the Live Register click here.

Justin Gleeson, Rob Kitchin, Matthias Borscheid

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