Friday 13 December 2019

We can't solve our negative equity problems by creating a new wave of mortgage slaves

Anecdotes of sharp property price increases abound
Anecdotes of sharp property price increases abound
Ivan Yates

Ivan Yates

Residential property prices are a more prevalent conversation topic than the Premier League. But between the competing vested interests – homebuyers seeking affordable accommodation; financial institutions and NAMA with property portfolios to off-load seeking maximum returns; existing homeowners in negative equity, hoping house values realign with their loans – where lies the national interest?

Cheaper housing costs are critical to reasonable living standards. Dearer homes mean higher wages – making house prices a vital competitiveness component. In this conflict whose side is the Government on?

For income stability we need ratios of residential values to total household income of no more than a multiple of three or four.

The face and shape of modern Ireland will be unmistakably different to past picture postcards. Whether we like it or not, whether it's fair or not, the economy's engine and population hub is set to develop in the greater Dublin area.

Inside the M50, by 2035, more than the entire national population growth for next two decades will be situated. By then 600,000 more people will reside there.

In the UK similar patterns have emerged whereby London and the South-East of England powers net state cash transfers to Scotland, Wales and northern England.

The key issue for us is no longer the possibility of balanced regional development, but whether our capital can compete successfully with global cities for investment and jobs. If it doesn't happen in the capital, it won't happen anywhere.

The next generation of culchies are coming to town – hey, it's better than having your kids in New York or Sydney – therefore house prices in Dublin are of national, rather than local, concern.

Discernible long-term social trends in household formation include: general moves towards urbanisation; longer life expectancy; people both marrying and having their first children on average a dozen years later.

People must live where they work. So, although many would prefer to reside close to where they were born and reared, it ain't going to happen if they want the higher incomes and well-paid jobs. And these migratory pressures are only likely to accelerate. More potential parents and 30-somethings will be looking to rent or buy a home in this east coast zone, even accounting for longer commuting times. Resultant pressures of demand are visibly impacting on escalating accommodation costs – right now.

Anecdotes of sharp price increases abound: three-bedroom duplex accommodation in south county Dublin, with an asking price of €360,000 sells for €470,000; all ranges of houses readily surpass guide price requests often by between 18pc and 25pc; gazumping on committed deals at higher rates; queues of anxious potential buyers appear on restricted viewing days; houses in the same estate are routinely making €50,000 more than those sold a few months previously; annual rent reviews are leading to common hikes of 20pc.

These symptoms are compelling house hunters into increased anxiety; they're moving to acquire soonest, to avoid being left behind as prices may rise further. Cash buyers, be they returning emigrants or previous vendors of the boom, need to get aboard the train before it leaves the station.

Panic may occur on procuring the best locations close to public transport corridors, especially Luas and DART lines. A heretofore anaemic market has caught fire, with prices rising by double-digit percentages annually.

Markets are determined by supply and demand. Our problem is lack of supply, particularly in desired locations. It doesn't matter if it's a bubble or balloon, the reality is that 20,000 to 40,000 units annually are required to meet demand. Public policy is a determining factor in ensuring adequate supply. This year may yet be the year of repossessions. Mortgage-to-rent schemes aren't gaining traction – only five completed in two years, despite targets of 500 per year. And 31,000 legal letters have issued to those in prolonged mortgage arrears or non-payment by just indigenous banks (AIB, BoI, Ulster and PTSB).

There is a likelihood of 13,000 court proceedings, followed by de facto eviction of several thousand householders.

It's in the best interests of house supply dynamics that voluntary sales of houses are agreed between mortgagee and mortgagor to avoid trauma and maximise sale values.

Therefore government should promulgate a template of incentivising agreed departures by full right downs of residual unpaid mortgages upon sale – an invite to end mortgage distress.

The Government owns the mortgage books of AIB, EBS and PTSB. NAMA owns 22 hectares in prime Dublin sites that could deliver thousands of high-density apartments. And NAMA controls the business activities of many developers, but all these institutions have a hidden agenda.

Constricted supply of housing suits them just fine as holes in their balance sheets contract with increased asset values.

It's apparent that the Government is not a bystander but a player in ensuring recovery to previous market values.

Historians say the principal cause of World War II was World War I. There is every possibility that official Ireland has decided that the solution to our debt crisis is a repeat of overvalued property. But you cannot solve this legacy problem by creating a replica of our most recent crisis. It's a recipe for another cycle of boom to bust. We can't solve the problems of negative equity by creating a new wave of mortgage slaves.

Finance Minister Michael Noonan told a Sunday Independent audience last week that there was no need to panic as nationally house prices were still 47pc of peak 2006/7 values, but national indicators/ statistics are as relevant to real demand as ghost estates in rural counties are to remedying shortages in Dublin.

Nothing has been done to fast-track planning processes on green/brown field sites, and there are no incentives or limitations to achieve higher density development in key sites. Capital gains tax incentives only encourage overseas investors' cash to outbid genuine home seekers, overheating markets.

Higher house prices mean more Local Property Tax (LPT) revenue. This is not complicit complacency; it's complicit conspiracy to bleed the next generation of parents with excessive housing costs – on top of umpteen stealth taxes, penal PAYE/ PRSI/USC, new water bills and exorbitant health insurance. Waiting until 2016 for extra saleable housing stock looks a deliberate strategy.

The usual suspects – ordinary families – are systemically screwed yet again.

Irish Independent

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