Is the housing market really picking up in Dublin?

There’s been an awful lot of rhetoric recently that the housing market is picking up in Dublin and that trading is brisk relative to what it was a couple of years ago.  Most of that rhetoric is coming from the property sector backed up with ancedotal evidence.  The question is whether this is reflected in the hard data of the house price register? Here is a graph of the number of housing unit sales per month since January 2010 for Dublin.

What the data shows is that housing unit sales are relatively consistent over the past three and a half years, except for a brief surge at the end of 2012, with December 2012 seeming to be anomaly (probably based around the ending of mortgage interest relief).  The first six months of 2013 are very similar in pattern to 2010.  In fact, in the first six months of 2013 only 328 more units have been sold than the first six months of 2010.  The data does not suggest then that there has been a bounce back in market activity to any significant degree.  What it shows instead is a relatively steady turnover of property.  Market activity in terms of increased viewings on properties, but not in sales, may well reflect a relatively restricted pool of some kinds of properties (family homes; which the property sector is saying is the case).

In general terms, the sales figures reveals that the market is still a very pale shadow of the height of the boom.  The Dublin housing market consists of 527,665 units (in 4 Dublin LAs according to Census 2011).  Normal market turnover would be 5-7% units (higher in a boom), meaning that we could realistically expect in a normally functioning market 2200-3100 sales per month.   So far in 2013 the average monthly sales is 593 (1.3% turnover).

The Dublin market may be stabilising at the bottom of the bust in terms of price falls, but it shows little sign of sales recovery, and it is a long, long way off of being a normal functioning market.

Rob Kitchin

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Still living in a haunted landscape

Yesterday the Irish Times published a short piece of commentary written by me to accompany a map of housing vacancy and unfinished estates, as part of the AIRO Pictures of Ireland series.  I’d originally submitted a slightly longer piece, which got cut by fifty percent due to space considerations.  Here is the full text to accompany the map.

As early as 2006, David McWilliams had coined the term ‘ghost estates’ for the dozens of unfinished developments visible on any trip across Ireland.  As the crisis deepened, unfinished estates became a symbolic and tangible marker of the excesses and follies of the property bubble.  In every village and town in the country were half-built houses and apartments, where the developer had ceased work or where units were unoccupied.

In short, too many housing units had been built for demand, the problem compounded by development finance evaporating.

The families who had bought and moved into what became unfinished estates were left trapped on them, facing a number of related problems.  These included living on or next to building sites and their associated health and safety issues, a lack of services and infrastructure, negative equity, anti-social behaviour, and a diminished sense of place and community.

Move forward to 2013 and very little has changed.  Unfinished estates still litter the Irish landscape, the people living on them face many of the same problems they did in 2006, and there is still a large oversupply of residential property in many areas of the country.

To date, the Department of Environment, Community and Local Government (DECLG) has undertaken three National Housing Surveys to monitor unfinished developments.  In the first survey, conducted in 2010, the number of unfinished estates were reported as 2,846, rising to 2,876 in 2011.  They were present in large numbers in every county in the country, but were particularly prevalent in the Upper Shannon area of Cavan, Longford, Leitrim, Roscommon and Sligo, the result of the tax-incentivised development.

In 2012, the DECLG reported that the number of unfinished estates had fallen to 1,770.  Unfortunately, the fall in numbers is principally because the definition of what constitutes an unfinished estate was changed.  The definition used in 2010 and 2011 refers to estates that have issues of vacancy and oversupply as well as outstanding development work.  In 2012 the definition refers only to the latter.

The map shows the distribution of the 1,770 estates with outstanding development work (black dots; see below).  The shading is the level of residential vacancy as reported in the 2011 Census, where dark red is over 25 percent vacancy.

In total, the Census revealed that there were 289,451 vacant properties (14.5% of total stock) in April 2011.  Of these 59,395 were classed as holiday homes.  In any ordinary housing market, approximately six percent of properties would be expected to be vacant (120,000 in the Irish case), meaning that oversupply is about 110,000.  There are also 17,032 units still under-construction according to the DECLG 2012 survey, excluding one-off sites.

To try and tackle the issues facing unfinished estates, the government set up two schemes.  The first, the social housing leasing initiative has sought to make some properties available for social housing.  The second, site resolution plans, are designed to tackle health and safety issues arising from incomplete or poor construction, with a fund of €5m administered by DECLG.  The former has had little take up and the latter has had little effect beyond fencing off dangerous areas and filling in potholes.

Most worryingly, the DECLG acknowledges that 1,100 of the estates are in a ‘seriously problematic condition’, yet only 250 estates (8.5% of 1,770) are active; that is, the developer is on site and undertaking construction.  That means that 1,520 of the estates that require development work have been abandoned to their fate.

Given that their developers have gone bust they are not likely to move towards completion in the short to mid-term.  In other words, several years after the crisis started, families are still living on developments that are substandard, with huge negative equity that locks them in.

In November, the Housing and Planning Minister, Jan O’Sullivan, announced that decisions would be taken in early 2013 to establish which estates are commercially unviable and need to have parts of them demolished.  Regardless of whether this happens or not, the unfinished estates issue does not seem set to be resolved for a number of years to come.

Unfinished estates and residential vacancy in Ireland

Rob Kitchin

 

The Thorny Issue of Lifting the Load

The Lifting the Load report on mortgage arrears, commissioned by Waterford MABS and written by Michelle Norris and Simon Brooke, makes for a stimulating and often emotionally poignant read.  As previously reported on this site, drawing on desk-based research and in-depth interviews with MABS clients this study gives a fascinating insight into how households became indebted and how they are currently negotiating this indebtedness with lenders.  Moreover, perhaps more than any other study completed thus far Lifting the Load offers a much needed look at how the crisis in banking and property has affected the lives of individuals and families.

The interview material presented in the report is candid and often paints an alarming picture of the affects of stress on those experiencing mortgage arrears; resulting in marital and familial strife, serious depression, and in the case of one interviewee attempted suicide.  It is clear from reading the report that, for those in mortgage arrears, their financial worries have taken on an all-encompassing strangle-hold on their lives.  It is a source of constant worry that perforates all aspects of their day-to-day existence.  Everything is tinged with the burden of debt.  Their identity is swept up in and transformed through being in debt, by the perpetual anxiety about what the future will hold.  Nor are these all stories of families and individuals trying desperately to cling to their homes; for some of those interviewed their house is no longer a home but a constant reminder of their debt, and they would gladly hand back the keys and be done with it.

Although those interviewed offered a variety of reflections on how they got into debt and the effect this has had on their lives – some, for example, considered themselves responsible for taking out such large mortgages, while others to varying extents saw the lenders as culpable – permeating through their responses is a sense that the situation has passed a crucial threshold and is poised at a tenuous breaking point. Given that these circumstances have led to a series of bailouts for the lenders, there is an unfair burden of responsibility placed on individual borrowers.  As one of those interviewed puts it:

I have a legal and moral responsibility to pay this [debt] back. I accept that. But I also think the banks have a moral and legal responsibility for getting us into the position we’re in. But they seem to be walking away scot free. I can’t. They can. That to me is completely immoral. But in a court of law it’s not measured that way. And I will lose every time, because in a court of law you can’t take account of my emotional, my personal, feelings.

The experiences of those interviewed in dealing with lenders vary considerably.  The report suggests that, in general, those who contacted their lender soon after getting into mortgage difficulty had more positive experiences with regard to restructuring repayments than those who waited, and that lenders have become more amenable to negotiating alternative repayment arrangements in recent years.  This willingness of lenders to avoid repossession is indicative of the current dearth in the property market, and has been coupled with short-term alleviative instruments (primarily Mortgage Interest Supplement) brought in by Government.  The report makes clear, however, that in many cases such instruments will be insufficient to get borrowers into a position where they can securely pay back their debts.  Furthermore, given that one of the reasons for lenders’ current avoidance of repossession is the severe depreciation of the asset resultant from the property crash, a rise in house prices would present a very different set of potential options for lenders, making foreclosure a perhaps more lucrative and thus inviting prospect.  Meaning: the situation around mortgage arrears is a burgeoning crisis that is currently being addressed in a stopgap manner that belies the fundamental juncture that the crash of the property market represented.  Radical measures (in recognition of this fundamental juncture) have been taken with regard to lenders, but this has not been extended to borrowers.

The report tracks the experience of borrowers through their pathways into/through/out of arrears.  What is striking in this approach is that it offers a vantage point through which to view the shifting public and personal circumstances that structure interviewees’ experiences of indebtedness.  The interview material relating to ‘pathways into arrears’ (although conducted retrospectively) points towards the all-encompassing property discourses that characterised Celtic Tiger Ireland.  Various interviewees suggested feeling pressured to get onto the ‘property ladder’, some now acknowledging that seeking social housing would have been more appropriate, while a significant proportion of those who admitted to having mortgages that were never affordable borrowed from sub-prime lenders.  These factors are indicative of how pervasive discourses of home-ownership were during this period.

For a sizable proportion of those interviewed, although the amount borrowed was perhaps disproportionate to their salaries at the time of borrowing, repayment of debts only became a significant problem when one or both partners in a household was made unemployed.  One interviewee suggested being “naive enough to think that I would always have the job…”.  This point is revealing, I think, of a sentiment that was broadly held (to varying degrees) by the majority of the population during the boom years.  There was a tacitly held belief that unemployment would stay low and that there would be work available for those who were looking for it, now and in the future.  Morgan Kelly, in an article in the Irish Times dated 29 December 2009, made the point that the benefits of the Celtic Tiger “…went overwhelmingly to ordinary people in the form of something that Ireland had never seen before: abundant jobs”.  He argues that if these jobs (particularly for “…less educated men who were able to earn a good living in construction”) have disappeared forever, Ireland could be on the cusp of endemic social problems, particularly when heavy debt and the prospect of losing one’s home are added to the sense of uselessness stemming from long-term unemployment.

The feeling of security created by abundant jobs also goes some way to explain why multiple indebtedness (from credit union debt, personal loans, and credit card debt) played such a significant role in exacerbating households’ debt problems.  Some households remortgaged their houses (often with a sub-prime lender) in an attempt to get back on track with mortgage payments that had gone into arrears, to save an ailing business, or to clear other accumulated debts.  More households ended up ‘robbing Peter to pay Paul’ in one form or another.  While some of these choices were clearly down to poor judgement on the part of households, the reasons underpinning this do not stop at personal culpability.  As David Harvey has suggested, access to credit (particularly on a personal level) was the chief innovation of the last round of capitalist accumulation, bourn from the situation whereby wage-levels decreased overall but Western nations were increasingly dependent on a consumer-driven economy.  To overcome this contradiction, access to credit was encouraged and facilitated at a structural and policy level.

We witnessed this in Ireland through the introduction of financial instruments such as 100% mortgages, and through the Government’s incresed withdrawal from social housing provision during the boom.  Additionally some interviewees here suggested receiving poor advice from mortgage brokers who they felt pushed them towards sub-prime lenders and gave them overly-optimistic diagnostics on the profitability of a family business.  Again the overwhelming picture presented here is of a whole system geared towards encouraging indebtedness.  If we now have a clearer view of the insanity of this system, we should not be too quick to forget how difficult such a perspective was to come by when the country was in the midst of this all-encompassing property mania.

The Lifting the Load report offers a nuanced and complex portrait of households’ experience with mortgage debt.  While it doesn’t point towards anything like a common narrative, what is clear is that indebtedness has serious ramifications for individuals’ mental health and family well-being, and also for the wider economy and society.  The dramatically changed circumstances in which these households find themselves are testament to the seismic shift that Ireland has undergone in the last three years.  The mortgages these households are repaying no longer correspond to current realities, but to some dreamlike fantasy.  The severity of this disjuncture seems to suggest that these problems cannot be remedied by the corrective forces of the market.  As the report points out, doing nothing will be more costly in the long run than taking measures to address the issue.  Reading this, I was struck yet again by the inadequacy of the policy of austerity.  The country we are all now living in is so dramatically altered, the residual of the catastrophic property bubble so overwhelming, that simply alleviating the symptoms while waiting for the market to auto-correct will almost certainly just delay the crescendo of these problems.  Regardless of how contentious an issue public spending has become of late, Irish citizens deserve an open and frank discussion around the issues that will require significant capital investment by the state.  Playing the austerity waiting game does nothing to plan proactively for any of our futures, and will just delay inevitable public spending further down the road.

Cian O’Callaghan

 

First timers likely to buy, or property sector’s pipe dream?

“Investors, first-timers likely to buy“, so says the headline in the property section of today’s Irish Times in response to the recent Budget.  It goes onto to say, “the Budget’s concessions to first-time buyers are designed to get potential residential property buyers off the fence.”  It is a little way into the article before one of the elephant’s in the room is revealed: “banks will have to start lending on bricks and mortar again before many first-time buyers can get into the housing market.”  The other elephants are, of course, that changing the mortgage interest rate will make no difference to the wider economy, or the unemployment or Live Register rate, or that because of the wider budgetary measures everyone will be worse off and are more likely to be cautious on consumption (this was after all an austerity budget).

All of the people quoted in the piece are of course representatives of the property sector who have a vested interest in talking the market up.  No surprise then that they would like to see first time buyers plunge into the market.  The budget has not led me, however, to revise my assessment of the long term prospects for the residential property market one iota.  Spin is a wonderful thing, but is unlikely to make much difference to consumer confidence, and even if it did, many people are not in the position to enter the market.

The piece finishes with the ‘get in quick before it all disappears’ soundbite.  “Ironically, first-time buyers who are tempted to dip their toe in the market by Budget 2012 might realize it’s hard to get what they’re looking for.  Michael Grehan says that there is a shortage of the three and four-bedroom houses in traditional inner suburbs in northside and southside Dublin – the kind of properties its clients are looking for – on the market.” Only the Irish Times would think that everyone in the country wants to live inside the inner ring road of Dublin.  Even if property is tight there, and I’d want to see some evidence of this, not just the assertion of an estate agent, there is a massive oversupply everywhere else in the country.  Buyers have the pick of whatever type of property they want; assuming they can afford it and can access credit.

Rob Kitchin

 

 

 

 

Six reasons why the property market is going to be very slow to recover

The general consensus amongst economists and property specialists is that the housing market is yet to reach its price floor.  Prices have fallen by 40-50% across the country and are expected to fall by c.60% by the time they are fully unwound.  There has been some speculation that the market might recover quite quickly, especially in the cities, with population growth cited as the prime factor to drive such a turnaround.  The hope is that Ireland might mirror the reasonably rapid recovery of the mid-1990s Finnish property crash, rather than the stagnation of the Japanese crash from the late 1980s wherein present property prices are still below those twenty years ago.  My own view is that the Irish crash will be nearer to Japan’s experience than Finland, with property prices unlikely to rise to peak 2007 prices for at least another ten to fifteen years, and longer for some parts of the country.  There are six reasons why.

1.  Still unwinding

As noted, Ireland is experiencing a steady but relatively slow unwinding of the property market, with property prices still falling.  They seem set to keep falling for at least another 12-24 months and possibly longer.  Until the market has fully unwound there will be no correction or growth.  And once it’s unwound there are a number of factors, set out below, that are likely to see the market flatline or only grow marginally for a number of years to come.

2. Oversupply

The property sector have tried to spin the data around oversupply every which way they can to make the issue appear better than it is.  Principally they’ve tried to focus on unfinished estates, arguing that oversupply is brand new, complete but vacant property.  They ignore the stock still being built on these estates and the vacant, brand new and under-construction one-off properties around the country.  They also largely ignore the vacant stock in the rest of the housing stock, principally on the argument that any property that is owned does not represent a problem, despite the fact that it can still be a part of the housing market and affect that market.  The Census 2011 preliminary results reported that there are 294,202 properties around the country that are vacant and habitable (14.7%).  Some of these properties, c.80-100,000 are holiday/second homes.  In any housing market one would expect some vacant stock, usually 3-4% (the Irish government uses a base vacancy rate of 6%).  Even in Dublin, vacancy is running at 7.8%, with a large oversupply of apartments in particular.  What that means is that there are c.200,000 vacant properties in the country excluding holiday/second homes, c.100,000 of which are in excess of expected base vacancy.  That is a substantial oversupply.  When supply exceeds demand prices fall or remain weak.  Until supply and demand are aligned, it is unlikely that prices will rise to any great degree.  For the last two years the property sector has told us that supply is running out in some areas and we need to start building again.  The data – either in terms of oversupply or units available to the market – does not yet support this assertion.  The property sector can try and spin oversupply estimates however they want but the evidence of vacant oversupply all round the country is plainly evident to purchasers.

3.  Weak demand

Demand for housing in Ireland over the past twenty years has been driven by two principle factors – population growth (net natural increase, net migration increase) and household fragmentation.  Basically, population grew rapidly (by a million people between 1991-2011) and the average household size fell.  The effect of the latter process can be quite profound, for example if the population remained the same size but the average household size fell then the population would need to occupy much more stock.  Whilst we do expect the population to grow over the next twenty years, it is tempered by two factors – emigration (there is presently net migration of -34,000 per annum) and age profile (the bulk of natural increase is accounted for by children under the age of five).  Emigration is primarily being undertaken by young adults (aged 20-40) who are at household formation stage; children under the age of five will not be at household formation stage for another twenty years.  Household fragmentation is affected by economic circumstance with children more likely to stay at home, parents less likely to separate, and young adults to share property to keep down costs.  These are often choices, not a compulsion, and until the wider economy recovers household fragmentation is likely to weaken.  One factor used to try and off-set these arguments is to focus on the social housing waiting list as evidence of pent-up demand.  In March 2011 the DECLG revealed that there were 98,318 households on the social housing waiting list.  However, 65,643 of these were in suitable housing, but they could not afford the rent and were receiving rent supplement.    The need for additional social housing stock then is c. 33,000 (still a relatively substantial need), though it’s fair to say that that much social housing stock is in need of replacement, though the State cannot afford such programmes at the moment.

4. Negative equity and mortgage arrears

Properly functioning housing markets require a mobile population.  It is estimated that at least one in three household mortgages in the state are in negative equity.  Regardless of whether they want to trade-up or down, or to move to another part of the country they are locked into their present property unless they are prepared to realise a loss.  The Central Bank estimate that over 50% of investor, buy-to-let properties are in negative equity.  When prices do start to rise at least one in three housing units with mortgages are largely precluded from moving until prices rise sufficiently that they can trade.  Moreover, 62,970 households (8.1% of mortgages) are more than 90 days in arrears on their mortgage payments and a further 36,376 have restructured their mortgages (and so far are not in arrears).  This is a substantial growth on the 26,271 households in arrears in Q3 2009 and looks set to keep rising as households struggle to meet debt commitments, and might well be joined by many investors on interest only mortgages if they are asked to start paying down the capital.  Further, 25% of properties have more than one loan secured against it.  What this all means is that a sizable chunk of potential movers/sellers are impaired and will be absent from the market for some time.

5.  Downward spiral of the economy and accessing credit

The Irish economy has been severely weakened over the past four years and household income and access to credit is much reduced.  Austerity measures are biting through various tax increases and deductions.  Many are living with a radical change in financial circumstance through unemployment (14.4%) or underemployment.  An unstable Europe and general weak global economy is having a deadening effect.  The banks are reluctant to lend for mortgage credit.  What this all means is that even if a household wanted to purchase a property, their own reserves are depleted and their access to credit restricted.  This is unlikely to change until the wider economy recovers and the banks have worked through their corrections.  This is going to take a number of years, probably the best part of a decade or more.

6.  Confidence and caution

Confidence in the property market and the property sector in general is at an all time low.  Few at this stage believe what property professionals have to say regarding the property crash, housing need and construction.  They are seen as self-interested groups who are more concerned in their own bottom-line than the state of the nation.  People view the work of NAMA with deep scepticism and lack trust in the government and local authorities to address issues such as unfinished estates and taking in charge.  Issues around poor construction typified by Priory Hall and disputes concerning pyrite in concrete have weakened confidence further.   Investment purchases by individual households, a key feature of the boom (27% of mortgages in 2007), is likely to be much less prominent giving how badly burnt many investors have been by the crash. Combined with the issues above, it seems likely that confidence will remain weak and that buyers in future will proceed with caution.  Growth when it does occur then will be marginal and hesitant, perhaps after a short dead cat bounce.   Assuming the market falls 60%, at growth rates of 5% a year, which would be a good target to aim for, it will take 19 years to reach 2007 prices.  Even in the cities, where growth is likely to be the strongest, it’s going to take some time for confidence to return.

I would like to provide a more upbeat, positive assessment, but the evidence just doesn’t support that sentiment at this time.  Ireland’s property crash, aligned with the weak domestic and international economy, is severe.  For the reasons above, it’s my view that the market is going to be very slow to recover.  It will though recover as supply and demand align and the economy stabilises and starts to grow again.

Rob Kitchin

 

What we need now is more zoning and construction: Really?

There seems to a lot of revisionist history going on over the last few days. First the CIF yesterday published a report on future housing supply in the country, arguing amongst other things that “County Galway is facing a chronic shortage of new homes over the next six years”. Now this just seems like the definition of irony in the current climate, akin to suggesting that someone with health problems due to chronic obesity needs more cheeseburgers or that the insomniac needs more coffee. As Rob Kitchin suggests, the CIF report is focussing on new homes exclusively and ignoring second hand homes in coming to their conclusions. Well, it may just be me but I was under the impression that houses had a longer lifespan than say cabbages; they don’t suddenly go off after a couple of months or years – if they do then we have some serious questions to ask the banks handing out 40 year mortgages – but that they were more or less ‘built to last’. We don’t necessarily need our houses fresh from the grocers.

And then today, the Independent published an article by former chief economist of the Central Bank Tom O’Connell suggesting that one of the main factors contributing to the property bubble was “restrictive land zoning”. He argues that the ability of large developers to bank large parcels of land in the cities and drip feed it on to the market was enabled by restrictive zoning policies. It’s hard to believe that I am even living on the same planet, let along country, as the originators of these statements.

While O’Connell’s arguments re zoning make some sense in a roundabout manner, they fail to acknowledge a range of factors. Land-banking has certainly been a pertinent issue which has undoubtedly contributed to driving up the price of property. However, his argument hinges on the assumption that supply and demand were somehow logically correlated during the boom. If this was the case then we wouldn’t have an oversupply of some 120,000 properties at present. Supply and demand are coupled in the sense that there was a demand in the early 1990s and there has been a supply ever since. In the rural renewal counties “restrictive zoning” was certainly not an issue, yet these areas are characterised by massive oversupply. At a certain point the price of land became dissociated from any reasonable demand for it as speculation pushed property into the stratospheres of what Tom McCarthy glibly describes in his novel Remainder as “imaginary futures” that are not valued “by what they actually represent in terms of goods and services”. The suggestion that more liberal zoning policies could have prevented the property bubble is indicative of a blind neoliberal assumption in the ‘logic’ of the market, which, in light of the global crisis, is all too obviously unfounded.

The Irish experience begs for more and not less regulation. Rather than zoning more land, the Government would have been better served to implement the recommendations of the Kenny report on the sale of land or to put in place more restrictions on the time period a parcel of land will remained zoned without development taking place. The CIF’s report induces further bafflement. They just seem to be roaming around the detritus of a party the morning after, shaking the bodies of the shell-shocked hungover revellers desperately trying to get them to do another shot of tequila to get the queasy party up and running again. The last thing we need at the moment is to be hitting the property bottle.

Cian O’ Callaghan

 

Strategic planning versus housing vacancy in Cork

According to the 2006 census there were 51,441 housing units in Cork City of which 6167 were vacant (exc. holiday homes).  Between Apr 06 and end of 2009 the DEHLG housing completion data reveals an additional 3,579 units were built.  To put that in perspective, in 1996-2006 the number of households increased by 2,636 well below the vacancy and new build rates.  At the same time, Cork’s development over the last decade offers one of the best examples of plan-led development in Ireland. The Cork Area Strategic Plan and the Cork Docklands Development Strategy both aimed to implement an approach to development that was coordinated at the urban and regional levels, and aimed to stimulate growth that was in line with NSS guidelines and best practice in spatial planning.  So, if Cork followed an evidence-based approach to planning for development, why is it now suffering such high levels of vacancy?

There are a range of factors that influence this.  For one, development in Cork has suffered from unfortunate timing.  For the last decade, the projected growth expected from the docklands project has informed the scale and type of development in Cork city.  Cork is not characterised by urban density and does not have a legacy of apartment living.  The docklands project sought to fundamentally alter this pattern.  The project planned to stimulate the growth of the knowledge economy in Cork city by providing new office spaces in the docklands.  Additionally, the docklands would provide a range of new amenities (schools, parks, crèches, bars, restaurants, cafes) that would encourage both single residents and families to live and work in the city centre.  By the time the recession hit, the docklands project had yet to really get off the ground.

However, the developments that had happened in the city had based themselves on these projections.  Thus, developments like the Elysian that aimed to capitalise on the emerging trend towards apartment living were coming on stream at a time when the property market was imploding, making them an even more risky proposition in that they not only had to contend with a distressed market but also battle against entrenched consumer preferences.  At the same time, new housing estates were being developed in the suburbs.  Many of these came on stream at the wrong time.  Additionally, many prospective buyers had been priced out of the market as property prices soared, forcing them further out into the county.

Similarly in the County, expected growth was predicated on the designs of the CASP to create a commuter zone around the metropolitan city region.  Many speculative housing developments sought to capitalise on these trends.  Both the CASP and the CDDS are long-term strategies that were only beginning to see tangible results over the last three or four years.  As such, the recent surge of development interest in Cork was unfortunately in synch with the crash.

While these projects were certainly based on a strong rationale couched within the logic of spatial planning, it should also be said that the levels of growth expected from these strategies was excessive; the outcome of entangling reasonable and sensible projections with the fever dream of the Celtic Tiger.  Furthermore, even though Cork attempted to implement an evidence-based forward planning approach parts of the city and county were also characterised by the type of ad-hoc and clientalist developmental practices seen in other counties.  As David Counsell suggests in his study of the CASP, while on paper the plan suggested a coordinated effort by City and County Councils to plan and manage the growth of the region, the actuality was more fragmented.  Local Councillors still managed to rezone land for  development in towns and villages upon which massive housing estates were built that were in excess of reasonable demographic projections and against the objectives of the CASP.  Many of these developments are now unfinished ghost estates, while others are situated in areas without proper social provisions.

Rather than indicating the futility of evidence-based planning, the case of Cork demonstrates the problems associated with the fragmentation of the Irish planning system.  In the absence of joined-up planning, local authorities have only limited abilities to guide development in coordinated ways, and are often at the whim of local Councillors and developers.  While Cork certainly was not immune from the frenzied over-development of the Celtic Tiger period, the fact that to a certain extent this development followed a coherent plan means that in the long-run this may not be as destructive as in other counties, where development has left run amok without rhyme or reason.  Furthermore, it speaks more fundamentally about the difficulty of implementing a strategic approach to planning in the Irish context.  Because of the vagaries of planning structures and the lack of statutory regional policies, strategic planning is constantly challenged and undermined.

Cian O’ Callaghan and Rob Kitchin

 

Redlining apartments

At the end of last week EBS announced that it would no longer provide a mortgage for the purchase of an apartment outside of the four major cities of Dublin, Cork, Limerick and Galway, or the large commuter towns (such as Navan and Newbridge) (see here and here for story).  It’s not fully clear whether the move also excludes large regional towns such as Waterford, Athlone and Sligo, but it appears that way from the media coverage.  In the case of the cities it will only lend 85% of the value of the property, in commuter towns 80%.  It is also changing its rules with respect to second incomes, reducing the amount it will take into account, and only allowing borrowers to lend 30% of disposable income.  This change in policy concerning the purchasing of apartments is worrying for a number of reasons as it appears to execute a form of redlining.

First, it suggests that apartments are a particularly risky part of the housing the market, especially outside of the major cities.  I can find no data to suggest this is the case and, in the absence of a detailed explanation from EBS, my guess is that they feel that there is a serious oversupply of apartments in many areas, which they anticipate will lead to large price falls from present levels.  That said, there is a demand for apartment living in any town of any reasonable size, in terms of lifestyle choice and cost, and all local markets need a diverse stock to cater for different consumer groups.  Moreover, it seems unlikely to me that someone who can afford to front up 20% of the cost of an apartment represents a serious financial risk for EBS going forward and over the long term the value of the asset will increase (and EBS are protected from a future fall of 20% if the borrowers did get into trouble).

Second, excluding buyers from buying apartments across large swathes of the country potentially creates serious problems for both existing owners and EBS itself (who presumably have lent mortgages during the boom years to the purchasers of such properties) as it will undermine the value of the assets by making them much more difficult to sell.  This will potentially lock a number of apartment owners onto the first rung of the property ladder, unable to sell and move on, and also place them in (further) negative equity.

Third, EBS is a nationalized institution, which one would have hoped means that it would serve the interests of all citizens regardless of where they want to live (assuming they meet financial as opposed to geographic criteria) and also the taxpayer (one assumes that many new apartments are heading into NAMA and if no-one can access a mortgage to be able to purchase them they effectively become worthless).

EBS, Bank of Ireland and AIB, are the only lenders in the market at the minute, and if BoI and AIB follow EBS’s lead, then a significant part of the housing market in many areas of the country will become excluded from buyers and lock-in existing apartment owners for the foreseeable future.  It’s hard to see the justification for such redlining.

Rob Kitchin