Ireland after NAMA

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

Conference call for papers and advance notice

University College Cork, March 28th 2014

Since 2008 Irish society and the Irish welfare state have undergone enormous upheaval and change.  Poverty, unemployment, inequality and related social problems have all increased.   Significant areas of the welfare state are being re-shaped with considerable implications for how social policies are designed and delivered and for their effects. The pace and nature of reform has been substantially altered with the demise of social partnership and three years of policy making under the Troika. Yet this crisis has also instigated campaigns of resistance and alternative proposals to Ireland’s existing welfare and economic model. This conference aims to take stock of these developments and we invite papers that explore any of these and related themes.  Possible topics include, but are not limited to:

• The politics of Irish welfare reform – retrenchment, restructuring, resilience, resistance.
• The impact of welfare state change on particular social groups – unemployed people, migrants, young people, children, families, older people etc.
• The effect of change on particular areas of social policy – social protection, education, health, housing, etc.
• Shifting approaches to welfare policy: modernisation, redistribution, privatisation, activation, social investment etc.
• Resistance, critique and alternatives to austerity.
• Voluntary and community groups in the crisis and its aftermath.
• Crisis and contemporary welfare states, Ireland in a European/comparative context.
• Irish welfare state futures, challenges, prospects.

We warmly welcome papers from academics, post-graduate students, voluntary organisations, and community and policy advocacy groups.  The abstract deadline is January 31^st 2014. For details on how to submit an abstract please visit: www.irishwelfarestateconf.com

The full conference programme will be available at www.irishwelfarestateconf.com by the end of February.

Attendance at the conference is free but registration is required.  To register please e mail socialpolicyconf@ucc.ie to confirm your attendance.

Fiona Dukelow

Previously published on The Journal.ie

The Reform Alliance is gathering momentum as it prepares for its conference on January 25th in the RDS. It appears to be the prelude to the formation of a new political party (although that’s been denied). But in the media coverage (at times overtly fawning) of the Alliance there appears to be little real questioning of the nature of the ‘reform’ they are claiming they stand for, nor much about who will benefit from such ‘reform’.

Lucinda Creighton, who is leading the movement thus far, has stated that the Alliance is “interested in anybody who is interested in reform… genuinely implementing reform and not just talking about it”. However, this, and the majority of their media statements, tells us nothing of the policies they are proposing – such as what would they implement in government?

Where we do get some insight into their policies, and their proposed ‘reform’, is in the political policies and stances that its leading spokespeople like Lucinda Creighton took prior to the formation of the Reform Alliance.

The same policies that caused the crash

Firstly, and most significantly, the economic policies advocated by Lucinda Creighton and the other TDs of the Reform Alliance have been the same neo-liberal, pro-capitalist policies that caused the crash. These are the neo-liberal economics that promote the concepts of deregulating markets, free trade, competitiveness, pro-multinational capital, privatisation of public services, low wages, reducing taxes on wealth and supporting corporate profiteering.

Lucinda and the other former Fine Gael TDs supported wholeheartedly the austerity approach which has kept us in the crisis and has imposed the burden of the adjustment on the poor and those on lower incomes. Lucinda and the other TDs involved in the Reform Alliance voted for each austerity budget since entering government in 2011 and they also led the campaign for the Fiscal Treaty Referendum in 2012, which enshrined austerity into the heart of the euro area and handed over more control over our budgets to the European Commission and EU institutions.

Even when they talk about the necessity of ensuring ‘social inclusion’ it is to be brought about through the Thatcherite economic theory of generating private entrepreneurial and corporate growth that will then supposedly ‘trickle down’ to the lower classes.

Influencing the balance of power

We would discover the true intent of their ‘reform’ policies if the Alliance declared its stance on forming part of the next government. With between five and ten TDs, the Alliance could be in a very influential position holding the balance of power after the next general election. The Alliance, therefore, should publicly state their position on whether they would support a Fine Gael or Fianna Fail led government after the next election (and it is up to the media to ask and get that answer).

If the Reform Alliance answers that question with ‘that will depend on the situation that we face at that point in time and it will require major commitment to radical reform by those parties’ (ie, yes of course we will enter government with either Fine Gael or Fianna Fail), or ‘we have not determined our position on that yet’ (ie, yes of course) or, the straightforward honest answer of ‘yes of course’, then they are clearly not for any serious level of reform of our political or economic system. This is because both Fine Gael and Fianna Fail have been in power since the foundation of the State and have clearly demonstrated that they are unwilling and unable to implement radical reforms, once in government, that would strengthen democracy and benefit the majority of people in the country.

What should we expect?

The policies of these former Fine Gael TDs makes it clear that if a new party emerges from the Reform Alliance its policies will most closely match those of the old Progressive Democrats Party. The Alliance’s policies, therefore, can be classed as right-wing on economic issues, conservative on many social issues, and pro a European Union – that economic and political superpower.

The media should be much more forthright in asking them (and ensure they provide an answer) on the detail on the type of reform the Alliance are proposing, and whether this is just another exercise in spin and PR politics that is becoming endemic in our political system.

Radical reforms that would benefit the majority of Irish people would include calling for an end to austerity and a government-funded stimulus of job creation expanding the number of teachers, guards and nurses, as well as building social housing and upgrading hospitals. They would include a reversal of the decision to introduce water charges and ruling-out future privatisation of Irish water; an increase in the minimum wage and support for worker’s rights; calling on the ECB to cancel the illegitimate Anglo Bonds and threaten default; and a write-off of mortgage debt of distressed borrowers in their family home.

It would also include an imposition of income equality measures such as a cap on bankers and higher earners’ pay, higher taxation on wealth, and a financial transaction tax to be introduced on markets. But we haven’t heard mention of any of these policies from the Reform Alliance TDs.

Therefore, there is no evidence to back up the claims of Lucinda and the other Alliance TDs that the Reform Alliance is about creating a ‘new politics’ and offers ‘radical’ and ‘substantial’ differences in policy from that what already is presented by Fine Gael or Fianna Fail (or even Labour at this stage). But watch how the Alliance spokespeople keep their policies vague, general and all-encompassing in the run up to the next general election. They will talk of ‘change’, ‘honesty’, and ‘accountability’, but in reality this is the PDs being revived in another form, and in time, could become even more extreme.

This is because the economic policies espoused by the TDs involved in the Reform Alliance caused the crisis and won’t get us out of it. They will in fact, as has already been proven in the austerity budgets they have voted for, worsen inequality and poverty.

Public anger

Lucinda and her Reform Alliance followers are politically astute, and just like the recent move of Colm Keaveny, they are prepared to do whatever it takes to get re-elected even if that means contradicting their previous policies. They know that the anger amongst the public will be seen in the coming elections and, therefore, they want to present themselves as something different from the Government. They are likely to gain further momentum given their access to resources, money, PR companies and a cheerleading media, particularly the right wing commentariat.

It is interesting to see how the Reform Alliance and Lucinda are fawned over by the media and promoted in contrast to the treatment of the Left TDs such as the United Left Alliance, who are often jeered and ridiculed. This is because the Reform Alliance is clearly on the side of the upper middle class and elite establishment, those who favour a capitalist Ireland, where everyone knows their place, and where, ultimately, the status quo is maintained.

In responding to the widespread public anger and desire for real reforming politics, the Reform Alliance have, however, highlighted what the Left should be doing. The Left, including the ULA parties and Left wing independent TDs should put aside their differences and get together to form a movement that could offer some real radical reform that would benefit the majority of Irish people, particularly the vulnerable, unemployed, youth and working classes.

Rory Hearne

Like many of you, I have been following the Limerick City of Culture debacle with a mixture of anger and amusement. Recent commentary has noted the lack of true appreciation of what the arts can do and the low level of trust between those in control and the people who create.

The picture in the heritage sector is depressingly similar. Since the 1990s heritage has been seen as a way of regenerating cities and towns through the country. This may take the form of an area based focus or by using a historic building as a totem around which a district may develop. From the outset, the obvious thing to do in both situations is to centrally involve a team of experienced, innovative, heritage professionals. However, just because something is obvious doesn’t mean it will be done.

What usually happens is that key decision makers in both the private and public sectors do their best to minimise the use of heritage professionals. There is a perception that archaeologists and conservation architects will only get in the way, slow things down and not allow them to do what they want!

In Ireland, most schemes in both the private and public sectors originate from the top down. Consultation is something you do after the plans have been made. One consequence of this is that the key decision makers often have a sense of emotional ownership. Put simply, it gets personal. Obviously, this situation does not lend itself well to compromise. Compounding all this is a general lack of knowledge by those in control about what heritage, used innovatively, can actually do.

The consequence of all this is conflict with locals, heritage professionals and national legislation. In this scenario, the archaeology and historic buildings being utilised move from being perceived as an asset to a threat. In the opinions of some decision makers certain heritage assets not seen as being core to the vision are seen as problems to be managed. Ultimately, opportunities are missed and initiatives suffer. Nowhere in Ireland is there a project like the Rocks YHA in Sydney. Located above one of the most important archaeological sites in Australia, this large four storey hostel has managed to reanimate an area of the city by fully utilising the potential that the underlying archaeology provided.

Without doubt, there are people in Ireland’s public and private sectors who truly value the contribution heritage professionals can make. However, within a development culture that is slow to change, they are a minority. Because of this, the prospect of places like the Rocks YHA being built around the country is sadly not great.

Liam Mannix is a heritage consultant with experience of working across the private and public sectors in Ireland, Australia and Papua New Guinea. He project managed the educational programme of the Irish Walled Towns Network which won the EU prize for cultural heritage / Europa Nostra Award in 2013. @maxmannix

On Sunday I blogged on what is happening with respect to housing in Ireland, including a breakdown of some key stats, and also did an interview on This Week on RTE Radio 1.  In response, I got the following question via twitter: “So is it a bubble in Dublin then? And will govt. plans to build more houses help normalise?”  These are not really questions that can be answered with 140 characters.  I’ll take each question in turn.

Is a new bubble forming in Dublin?

Having fallen by 57.4% from the peak in 2007 (houses 56%, apartments 63.3%), since August 2012 prices in the capital bumped along the bottom for a few months then started to rise.  Between Nov 2012 and Nov 2013 prices grew by 13.1% to be 49.2% lower than the peak.  It is clear that property prices in Dublin are rising steadily at present (see CSO data and AIRO interactive graph).

Housing bubbles generally form when there is an excess of demand, credit and confidence in prices.  This is not the case in Dublin at present, with the rise in prices being principally driven by two related forces.  First, both residential buyers and investors are seeking to enter the market at its bottom; this way they minimize their cost, maximize any growth in equity, and for investors gain rental yield.  Second, they are competing for a small number of available properties leading to bidding scuffles.  Unlike a normal bubble when there is a large number of property transactions and mortgage draw downs, transactions and draw down in Dublin are presently at 40 year historic lows.  Slowing properties coming to the market are very high levels of negative equity (c. 50% of all properties with a mortgage) and low levels of new build (less than 10% the number built in 2006, and over 50% are one-offs that are not coming to the market).  Ergo, prices rise as demand outstrips supply.

Does this constitute a new house price bubble?  Not in the classical sense and it is only a bubble if prices rise in excess of what one might expect given the wider economy (and given they are still almost 50% less than their peak at best we’re only at the start of a potential bubble).

Will building more houses help normalise any bubble effect/slow house price rises to maintain affordability?

One proffered solution to tempering rising prices caused by a supply shortage is to increase the level of stock.  New supply might come from six sources:

• new build by the private market
• new social housing provision through government investment
• defaulting properties due to mortgage arrears
• second-hand properties coming onto the market
• new areas becoming active as market activity spreads
• completion of unfinished developments

With respect to new supply by private developers and government.  Whilst there is sufficient land zoned in the four Dublin local authorities (2,575 hectares/6400 acres for 132,166 units) and there are still a large number of outstanding planning permissions, the big issue is development capital and perhaps re-jigging planning permissions to cater for high density housing in some cases rather than mostly apartments.  The same issue applies to the government who have little money to invest in capital expenditure programmes, which they have significantly reduced over the past few years.  In both cases, even if development capital was sourced, it would be 12-24 months before new supply was available to the market/social housing waiting list.  As a consequence, new supply from these sources will be limited throughout 2014.

There are significant levels of mortgage arrears nationally (we don’t have figures for Dublin alone).  With respect to principal residential dwellings 141,520 (18.4%) of all mortgages are in arrears and of those 99,189 (12.9%) are more than 90 days behind in payments.  The situation is worse for the buy-to-let sector where 40,426 (27.4%) are in arrears, where 31,227 (21.2%) are more than 90 days in arrears.  Whilst repossessions have so far been small, it is expected that they will grow over the next couple of years.  This will increase housing stock available to the market.  However, their present occupants would still require accommodation having knock-on effects with respect to the social housing waiting list and the private rental market.

As house prices rise and household emerge from negative equity those wishing to trade-up or down, or to move to a new area, are more likely to place their property on the market.  This would create some supply, but may not lead to prices levelling off.  This is for two reasons.  First, part of the reason that house prices fell so much is that the stock on the market was not representative of all stock, but rather distressed assets that owners felt compelled to sell in a falling market, with owners who could afford to avoid selling staying out of the market (typically those who are better off).  Second, the majority of trading that has taken place has mainly been related to lower priced property rather than higher-end stock.  We might therefore expect prices to rise a little simply as function of the nature of stock coming to the market changing, with better stock demanding higher prices and higher value properties starting to be traded more frequently.  This effect would probably be little affected by more supply.

We lack detailed data concerning market activity in Dublin, but industry sources are suggesting that it is most prevalent in the city core and South Dublin.  As competition for property grows in these areas it is likely that other parts of the city will become more active.  The Dublin housing market stretches far beyond the M50 to the outer suburbs and commuting belt.  These areas still have locales with some oversupply.  Moreover, the completion of some unfinished developments would also add some new supply (though the number of such developments in and around Dublin is quite small).  Both the activation of other parts of the Dublin market and the completion of unfinished developments will re-distribute some demand and work to counter supply driven price rises.  Nevertheless, given the desirability of central and South Dublin and limited new supply in those areas in the very short term, one could reasonably expect rising prices to continue in the city core and South Dublin in the immediate short-term.

Two factors that might disrupt this scenario is a tailing off of demand and limited access to credit.  A phenomena that occurs after some house price crashes is a dead cat bounce wherein prices rise quite quickly from the bottom, but then slow and fall again before finding an equilibrium or rising again (this happened in London following the crash at the end of the 1980s).  The reason for a dead cat bounce is that those who have been waiting for the right time to enter the market (both residential buyers and investors) have done so and market demand drops leading to less competition for property, or supply has risen to meet demand.  Given the level of cash sales at present (c.50%), it is possible to envisage such purchases drying up and the market returning to a more balanced status where mortgage-backed sales predominate, thus removing a significant source of competition-driven pricing.  As such, a dead cat bounce could occur in the case of Dublin.

Moreover, access to credit at present is limited.  In the first three quarters of 2013 only 8,711 mortgages nationwide were drawn down.  Caution on behalf of lenders will limit the number of mortgages issued and the value of such mortgages, thus restricting credit-fuelled speculation and associated price rises.

With respect to the mid-to-long term it seems likely that there will be a continued rise in demand that may create supply issues in the Greater Dublin region.  The new revised CSO regional population projections 2016-2031 predict: “The Greater Dublin Area will see its population increase by just over 400,000 by 2031 if internal migration patterns return to the traditional pattern last observed in the mid-1990s.  … The population of Dublin is projected to increase by between 96,000 and 286,000 depending on the internal migration pattern used, while the population of the Mid-East is set to increase by between 78,000 and 144,000.”  These figures are based on projected national increase and internal and external migration and seem reasonable given the dominant economic position of Dublin in the Irish economy.  In addition, household fragmentation will also be a source of demand.  The extent to which such population growth/household fragmentation will affect property prices is dependent on the extent to which housing supply meets demand as and when it is required.

In summary

In the short term there are potentially different scenarios as to what might happen with house prices in Dublin — they might rise steadily, rise and then level off, or suffer a dead cat bounce.  Or a two-speed market might emerge in the Dublin region, with a division in market activity and pricing patterns between the city core/South Dublin and the rest of the city.  Which scenario plays out is dependent on a range of factors that shape supply and demand and how they evolve.  As I noted on Sunday, the market is far from normal at present and in need of a lot of correctives that could alter how the market behaves, and other factors such as the wider macro-economic context could re-cast how the market evolves.  What we really need right now is some decent modelling using detailed housing, demographic and economic data of potential housing demand and supply for the Dublin region and what we might expect to happen to prices under different scenarios.  We also need similar models for the rest of the country, which has a very different set of issues.  Perhaps the government might commission such work?

Rob Kitchin

Perhaps not unsurprisingly the start of 2014 has been greeted with a number of commentaries in the media concerning the Irish housing market, specifically about the upturn in the Dublin house prices and the possibilities of the start of a new price bubble, and the development of a two-speed housing market between Dublin and the rest of the country.  Part of the impression being given is things might return to ‘normal’ in the capital if issues of undersupply of family homes can be resolved, though the situation elsewhere is less certain given oversupply, demographics and labour market conditions. 

The reality is that housing in general is far from normal across every indicator there is both in and outside Dublin and a rise in house prices in the capital, whilst welcome for those in negative equity, is a symptom of these problems and a lack of a housing strategy to deal with them.   Prices will almost certainly continue to rise in the capital during the year, but it is only when all the other indicators – such as mortgage arrears, housing waiting lists, etc – start to be righted that the market will start to resemble a normal one.  That is likely to take a number of years given the depth of problems at hand.

Here’s the present state of play:

House prices (CSO): Nationally: increased by 5.6% Nov 2012 to Nov 2013 – 46.5% lower than its highest level in 2007; Dublin: increased by 13.1% Nov 2012 to Nov 2013 – 49.2% lower than February 2007; Rest of country: decreased by 0.6% Nov 2012 to Nov 2013 – 46.9% lower than February 2007

New mortgage draw-downs Q1-Q3 (Irish Banking Federation).  2006 (83,860); 2010 (14,289); 2011 (7,907), 2012 (8,582); 2013 (8,711)

Cash sales (industry anecdote): c.50% in 2013

Mortgage arrears for principal residences up to Q3 2013 (Central Bank): 141,520 (18.4%); of those 99,189 (12.9%) are over 90 days in arrears.

Mortgage arrears for buy-to-let (BTL) up to Q3 2013 (Central Bank):  40,426 (27.4%); of those 31,227 (21.2%) are over 90 days in arrears.

Negative equity (Davy Stockbrokers): c.50% in 2012

House building (Dept Environment): 2006 (93,419), 2010 (14,602), 2011 (10,480), 2012 (8,488), 2013 to Nov (7,425).  Of houses built in 2013 (to Nov); 4,274 are one-offs, 2,383 scheme houses, 768 apartments

On social housing waiting list (Dept Environment): 2008 (56,249), 2011 (98,318)

Housing Supply (CSO, Census): Oversupply of property outside of Dublin, with high levels of vacancy (10%+) in all but five local authorities; undersupply of family homes in some parts of Dublin.

Planning permissions (CSO): 2013 up to Q3 – Dublin: 3,116 (houses), 807 (apartments) [3,923] – Rest of country: 6100 (houses), 1035 (apartments) [7,135]; 2006 first three quarters – Dublin 6,482 (houses), 7,153 (apartments) [13,365] – rest of country 87,426 (houses), 8,397 (apartments) [95,823]

Land supply 2013 (Dept Environment): Dublin 2,575 hectares for 132,166 units; Rest of country 11,132 hectares for 262,191 units

Unfinished estates (Dept Environment): 1,258

Pyrite-infected homes (Dept Environment): 74 estates, consisting of 12,250 units.

As I’ve argued previously, we need of a coordinated strategy to deal with all the issues affecting housing in Ireland, including long-term plan of future need, and this needs to be part of a wider National Development Plan/National Spatial Strategy aimed at cross-sectoral recovery.  At present, we just seem to be hoping that the various problems will somehow be corrected through the market or piecemeal, ad hoc or limited schemes, rather than taking a more proactive, coordinated approach.

Rob Kitchin