The housing crisis: some radical solutions for the coming Budget

In the midst of a mounting frenzy over the Central Bank’s plans to introduce new rules relating to mortgage lending, Rory Hearne offers a detailed and sobering analysis of the bigger picture housing crisis. Published in today’s Irish Examiner.

Providing solutions to the housing crisis have to be central to the forthcoming Budget. But the government needs to be willing to radically transform how the housing market operates in Ireland and reorientate housing policy to meet the needs of the majority of the population rather than the interests of the property development industry. It is surprising how much rising house prices are being celebrated as a new property boom in the media including interviews with buyers (often engaged in cash purchases) about how they are being ‘outbid’ for properties in wealthy Dublin suburbs.

Meanwhile the real housing crisis is affecting hundreds of thousands of households (who are mainly lower income). Fr Peter McVerry has described the growing ‘tsunami’ of homelessness on the streets of our cities and towns. Between January and July of this year 267 families became homeless in Dublin, including 549 children and some of those have been housed in hotels.

But the crisis is much, much, larger than these figures suggest. Almost 90,000 households are defined in housing ‘need’. The majority of these are living in private rented accommodation. Rapid rent increases in recent years (most significantly in Dublin) and the introduction of rent ‘caps’ by the Department of Social Welfare, has meant that more than half of those receiving rent supplement (40,000) have to top up their rent in order to get access to housing.

Then we must include the 132,000 households in mortgage arrears on their principal residence. The government appears to be just hoping they will sort themselves out somehow. But a staggering 70% of these households are over 720 days in arrears and the banks are silently, but steathly, increasing repossessions and evictions. In the first four months of this year the banks have issued legal proceedings in 3,093 of these arrears cases and 281 properties were repossessed further adding to housing pressure.

Overall then, approximately 262,000 (16%) of the total 1.6 million households in the state are in serious housing need. This doesn’t include those who are forgoing basic necessities to cover their mortgage or rent nor does it include those affected by substandard conditions in social housing estates throughout the country. This is not a crisis. It is an emergency.

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Expect the various crises in Irish housing to continue for the foreseeable future

The various crises in housing in Ireland has been a constant focus of the media since the start of the crash.

First, it was plunging house prices, developers going bust, construction workers losing their jobs, and the collapsing of PPPs.

Then it was NAMA, vacancy, unfinished estates, pyrite-infected homes, Priory Hall and other poorly built estates, negative equity, and mortgage arrears.

Now it is rising rents, rising prices in Dublin, a shortage of homes in some locations, social housing waiting lists, rising homelessness, and probably from this summer on increasing numbers of repossessions.

Since 2007, all elements of housing, in all parts of the country, have been in crisis. For seven years we have effectively had no housing policy, no housing reforms, and no strong, proactive management designed to address the various problems. Rather, the government’s strategy under both the last regime and the present has been to tinker round the edges — site resolution plans, social and housing leasing initiative, a pyrite committee, minor reform to the Planning and Development Act, etc. None of it in a coordinated, holistic way.

With the exception of putting millions into NAMA to look after the banker and developer interests in an effort to try and salvage something from the disastrous bank guarantee , these are all low cost, minimal effort tactics to give the impression of doing something, but actually toothless and spineless and making very little difference on the ground. They were shamed into sorting of the mess relating to Priory Hall residents.

There has been no substantive investment in tackling various issues such as the 89,872 on the social housing waiting list, or the 96,474 in 90+ days in mortgage arrears, or rising homelessness. Investing in housing has not even to date been seen as a means of tackling two birds with one stone — creating jobs/investment in business and addressing various housing crises. Instead there has been massive disinvestment. For example, since 2008, the capital expenditure for social housing has been reduced by 80% (from €1.3bn to €275m) while there has been a 90% decrease in housing output from local authorities between 2007 and 2011.

The strategy in effect has been to try and muddle through to such times as the private sector and the market return to sort things out. At which point any state investment will be targeted at reviving market interests, with social housing continuing to be supplied through private development and rental supplement. In 2010, 97,260 families received rent supplement allowance to enable them to live in private rental stock due to a lack of social housing at a cost to the state of over €500 million per annum. In whose interest is such a policy? It is difficult to argue, unless you are a vested private interest, that it is the state’s or taxpayers’.

We will continue to have housing problems for a good number of years, especially in the absence of any holistic strategy and set of policies designed to try and coordinate and regulate development and how all aspects of the housing sector functions. That strategy needs to see good, affordable housing as a right; to see housing as homes rather than simply assets and investment vehicles. And it needs to get value for money for the state in terms of private services rendered.

That’s not to deny market interests’ profit, but that this profit is reasonable without being exploitative and does not rip-off both tenants and the state. Much of continental Europe manages to do this. Ireland, however, has swallowed the neoliberal mantra hook, line and sinker, and seven years of crisis has not led to any kind of re-think or change in vision or policy.

As the market returns and house and rental prices rise, in the absence of checks-and-balances such as rental control and adequate supply, affordability and the need for social housing and homelessness will increasingly become an issue, especially if local authorities remain emancipated of resources.

House prices turning and rents rising does not mean that that various problems of housing in Ireland are soon to be solved.  They signal the arrival of the next wave of issues.  Expect on-going housing crises for the foreseeable future.

Rob Kitchin

 

Fiddling while Rome burns: housing in Ireland

For the last couple of months there have been a number of media pieces suggesting that the Irish housing market is turning and house prices are starting to stablise more broadly and rise in parts of Dublin.  It certainly seems from government data and industry and buyers that for some types of property (family homes), in some select places (desirable parts of Dublin) house prices have levelled off and are growing marginally.  The proffered wisdom from these observations is that house building needs to start again.

There are two points to note, however.  First, any stabilisation and recovery in the market is highly segmented by type and geography.  Apartments are still in the doldrums, as is just about everywhere outside the M50.  Secondly, and more importantly, concentrating on house price rises and the shortage of family homes in South Dublin deflects attention away from the much more serious set of housing crises in Ireland.  They include:

Oversupply: The 2011 Census shows that there are 289,451 vacant units in the state, with an oversupply of c.110,000 (plus 17,032 under-construction units on unfinished estates) on a base vacancy of 6% and excluding holiday homes.  This oversupply has been very little eroded over the past two years.

Unfinished estates: In 2012 there were 1,770 estates that still required development work, with 1,100 of these estates in a ‘seriously problematic condition’ and only 250 estates (8.5%) active.  These estates suffer from a number of social issues.

Mortgage arrears: At the end of Q1 2013, the Central Bank reported there were 95,554 (12.3 per cent) private residential mortgage accounts were in arrears of over 90 days and 29,369 (19.7 per cent) of buy-to-let mortgages were in a similar position.

Negative equity: In 2012, Davy Stockbrokers estimated that over 50% of residential mortgage accounts were in negative equity.

Social housing shortage: the Dept of Environment reports that 98,318 people on the social housing waiting list in 2011 (65,643 of whom can’t afford the accommodation they are in).

An over-reliance on unaffordable private rental stock: In November 2011, the Department of Social Protection reported that 96,100 households were receiving rent supplement.  Much of the rental stock is sub-par in standards.

Stalled regeneration: Regeneration projects have largely halted leaving hundreds of families living in substandard and unhealthy accommodation whilst they wait for projects to restart.

Pyrite-infected homes: The government recognises that there are 74 estates, consisting of 12,250 units, whose foundation hardcore is contaminated with pyrite, though it seems clear that there are other infected estates.

Build quality: There are a number of estates affected by build quality issues, the highest profile of which has been Priory Hall.

These are all serious issues which are largely being ignored by the government and media beyond acknowleding occassionally that the issues exist.

Housing policy and the market in Ireland is largely broken.  New housing in South Dublin is not going to fix it and rising house prices is not evidence that things are getting better.

I’m not saying that there should be no new housing in South Dublin.  If there is sure-fire demand, then fine, the market and investment capital can supply.  Nobody is stopping anybody from developing such housing, certainly not the government.

Government investment, however, needs to targeted at sorting out the issues above, much of which has the potential at creating construction work and economic growth, whilst addressing serious social need.

What would be really nice to see is a comprehensive, integrated housing policy that puts together a five to ten year action plan that recognizes that all these issues are interrelated and need to be tackled in concert rather than in a piecemeal, ad hoc fashion.  Now why can’t the media and property professionals focus on persistently arguing for the need for that?  A cynic might think that it’s not property supplement friendly.

Rob Kitchin

 

Mortgage crisis overstated?

The front cover of the Indo today is a piece entitled: ‘Central Bank figures ‘overstating’ number in mortgage crisis‘.  The piece argues that the issue of mortgage arrears is not as problematic as it might be assumed from the figures.  Noting that 77,630 mortgages are more 90 days in arrears at the end of March 2012, the argument is that the “figures include several types of borrowers who are no longer in trouble [such as] those who missed payments long ago and have since resumed paying normally; those who fell behind and agreed ‘restructuring’ deals with their banks to lessen monthly payments; those who have successfully done more informal deals to work through their mortgage problems.”  So, is it the case that the mortgage crisis is overstated?

My answer would be no, it’s not overstated: there is undoubtedly a crisis.  In all these cases, the mortgage holder is still 90+ days in arrears and still has the capital and interest to pay down over the life of the mortgage.  They might be meeting the restructured payments, but their mortgage is still in trouble until it is back on the correct payment schedule and the arrears paid down.  The Indo piece also suggests that the 77,630 includes people who have restructured and are not in arrears on the new plan.  It does not.  The Central Bank figures are clear on this.  It breaks down like this:

116,288 accounts either in arrears of over 90 days or restructured and performing as per new schedule (15.2%), of which:

77,630 are in arrears of 90+ days (10.2%) a proportion of which has restructured but nonetheless are still 90+ days in arrears (41,054 mortgages are restructured and are in arrears of varying lengths, both more and less than 90 days).

38,658 are restructured and are performing as per new schedule, though this is an impaired schedule that will have to be re-regularised at some point.

More worryingly:

59,437 of mortgages are 180+ days in arrears at end-March 2012, equivalent to 7.8 per cent of the total stock.

In 11,378 cases a formal demand has been issued (but where Court proceedings have not been issued)

In 3,080 cases court proceedings have been issued to enforce debt/security on a mortgage

The Indo also claims that “The Central Bank figures — which show that more than 10pc of households are in arrears — also fail to capture a “significant” improvement in payments that some senior bankers claim they have seen.  This is because the quarterly reports focus on households that owe more than three months of mortgage payments. This means that a change in arrears cases won’t be reflected in the figures for three months.”

The Central Bank data shows that the figures for those in 90+ days in arrears has been consistently growing over the past number of years.  The figures at the end of June will give us some indication as to whether things have improved, but it seems unlikely given the trend for people is to slip in 180+ days arrears rather than out of the +90 days, and even then it is more likely that they will become restructured rather than impair free.  To claim that a restructured mortgage is one that is not in trouble is incredibly disingenuous; it is restructured precisely because it is in crisis.

In terms of the restructuring there are a number of approaches being taken:

Interest Only Payment  27,798
Reduced Payment (greater than interest only) 13,854
Reduced Payment (less than interest only)  11,390
Term Extension   9,667
Arrears Capitalisation  9,576
Payment Moratorium  3,400
Hybrid  3,831
Deferred Interest Scheme  178
Other  18

One other thing to note about the Central Bank data is that it relates to a “mortgage on the residential property which is or will be occupied by the borrower as his/her principal private residence”.  It does not include buy-to-let or buy-to-flip mortgages related to property the holder is not living in.  It would be very interesting to know about arrears and restructuring with respect to these mortgages, which in 2007 were 27% of all new mortgages.  The suspicion is that these are in just as bad a state as residential mortgages.

There is no doubt that having 116,288 (15.2%) mortgages in arrears of 90+ days or restructured constitutes a crisis.  1 in 6 mortgages in the state is in some form of trouble.  The restructuring of payments is helping households, but just because a household is now managing to make payments does not mean the mortgage is now performing as it should – it is either still in arrears or the payment is not on schedule to pay off both the capital and interest owed.  I’m not really sure what the Indo is hoping to achieve with the article, other than to make a bad situation seem better than it actually is or to try and bolster confidence in the banks.   I doubt it’s made anyone who continues to struggle with paying their mortgage feel any better.

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

 

Lifting the load: Help for people with mortgage arrears

Anyone interested in the effects of the crisis on households who are struggling to pay their mortgages should take a look at Michelle Norris and Simon Brooke’s lengthy report for MABS on the issue – Lifting the load: Help for people with mortgage arrears.  The report is based on desk research with respect to government and industry data and policy responses, and interviews conducted with 49 MABS clients (in 43 households, in nine MABS offices across the country).  Divided into six sections the report details the study parameters, provides a general overview of the housing bubble and bust, details pathways into and through arrears from the perspective of households, and looks at prospective pathways out of arrears.  The study gives a fascinating insight into how households became indebted (mortgages and other credit) and how they are trying to negotiate their various debts, including dealing with mortgage arrears.  The report concludes by noting that ‘the costs to the State of putting in place appropriate measures to tackle the issue of mortgage arrears will be less than the costs of not doing so’, and it makes a number of recommendations with respect to changes in policy interventions.

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