The Lost Recovery: Families trapped in negative equity are key to solution
Published 27/09/2015 | 02:30
Calls for older people to be taxed or bribed or otherwise induced to sell up their large family homes could be considered unfair, if it wasn't for the housing crisis. They were there first, after all.
But as demand for family homes has escalated, so have complaints about so-called empty nesters rattling around huge rooms and vast back gardens.
Economists have been talking for years about how these "empty nesters" are contributing to the housing crisis by occupying coveted family homes. But as the Government tries to tackle what is now being termed a "housing crisis" and the knock-on effects of homelessness, it takes on extra significance. In a supply shortage, every single house counts.
The Economic and Social Research Institute (ESRI) has begun a study of the market based on age profile. Demand for their homes is about to get louder as more and more people emerge from negative equity.
Older people hogging all the best homes is just one blockage in the pipe work of the property market - another is negative equity.
The numbers of homeowners in negative equity has peaked and is on its downward spiral, which means that those trapped in a house worth less than the mortgage can finally start trading up (or down).
According to the ESRI's housing analyst Dr David Duffy, 314,000 mortgage loans were in negative equity at the end of 2012, but rising house prices means those numbers have been halved.
According to Dr Duffy, 45,000 homeowners in Dublin were lifted out of negative equity in 2013. Last year, the number of mortgage loans in negative equity dropped to 160,000, and, according to Dr Duffy, they are likely to fall again this year.
If property prices continue to rise by around 9pc, all households could be free of negative equity by the beginning of 2018, he added.
These householders will feel richer and start spending more, which will all increase economic growth. But the main impact will be in giving these homeowners "mobility" - the option to move.
"The role negative equity plays is this. If you are in negative equity you are less likely to move because you don't want to crystallise the loss," said Dr Duffy.
"People who previously felt they couldn't move because of the debt would now be able to enter the market. So you would get some increase in supply. But there will also be an increase in demand, as they look for new properties."
Many of these new buyers will be looking for larger homes, of the type that are currently occupied by older people whose children have left.
The ESRI is now undertaking a major study of this older cohort of people who have unwittingly found themselves at the eye of a housing crisis storm.
"We are starting to do some work on this," said Dr Duffy.
There are no precise figures on empty nesters. But elsewhere on these pages, Conor Skehan, head of the Housing Agency, does his own "back-of-the-envelope" calculation, working out that an extra 2,000 homes would come on the market for every 1pc of the over-55s who can be tempted to downsize.
This isn't a new trend. Fifteen years ago, a sociologist with the ESRI, Dr Tony Fahey, suggested a tax regime that penalised homeowners with empty rooms to ease the housing shortage back in 2000.
Nor is it unique to Ireland. A study in the UK last year showed that the number of people occupying more space than they needed rose to one million.
Empty nesters accounted for one-third of under-occupied households, followed by single pensioners living alone.
These days, economists, such as Ronan Lyons, have suggested either imposing a higher property tax or introducing tax incentives for downsizing.
In his report, the 'Housing Market Monitor', he warned that there was no pressure on people whose children had left home to move to a smaller house.
He identified negative equity and empty nesters as a double whammy for the housing market. However, he is not so sure that the nation will emerge from negative equity in two-and-a-half years' time.
It depends on how much people borrowed and the type of property they bought. Values in some segments of the property market are about 40pc below 2007 levels, while others are still closer to 70pc below.
One commentator recently posted a prime example of this on MyHome's property website.
Ciaran said he took out a 100pc mortgage for €220,000 in 2007 to buy a house. Today he owes €204,000 for a property that would fetch no more than €65,000 to €80,000 on the market.
"There's no way in hell I'll be out of equity in two years," he said.
Although many households have already bounced back into the red, Ireland's exit from negative equity will be slow and steady, rather than market-wide, according to Mr Lyons.