My recent attempt to put some figures on the scale of negative equity in Ireland – which concluded that about 40% of Irish homes are worth less than when they were bought and that as many as 20% of homes may be in negative equity – sparked some discussion here, on thepropertypin and most thoroughly on irisheconomy.ie.
The original post was designed just to put some numbers on the potential problem of negative equity, leaving aside for the time being the implications. Two important strands of discussion have arisen about the implications. The first relates to financial consequences, as mentioned by Karl Whelan, particularly in relation to the proposed NAMA and the fate of the banks. The second broad strand of discussion, being led by Liam Delaney, relates to how negative equity has labour market implications, particular when unemployment is on the rise. (Unemployment and negative equity are mirror images of the home ownership/labour mobility discussion being led in the US by Richard Florida.)
I’m currently working on estimates of how many households are affected by the dual problem of unemployment and negative equity. Combined with the likelihood of falling rents over the coming two/three years, rents being the alternative income a homeowner could get from their house, this is a cocktail for widespread misery currently partially staved off by all-time low interest rates and therefore mortgage repayments.
A next step in working out where both negative equity and unemployment will strike is looking in more detail at the problem of unemployment. The CSO provides very detailed statistics on unemployment by county/town and more occasional detail on the age profile and duration of unemployment. The map below gives an idea of ‘unexpected’ unemployment (original visualization here). It show the increase in those signing on by county in April 2009, compared to the average of 2005 and 2006, meant to indicate a natural level of unemployment (whether long-term or just switching jobs).
Those looking with relief at counties in a light brown – such as Waterford, Louth, Donegal and Mayo – should be aware that in all counties, the April 2009 was at least twice the 2005/2006 average. What’s more worrying, though, is that there are a number of counties where unemployment is three times what it was three years ago. In Meath and Kildare -stalwarts of Dublin’s commuter belt – unemployment has more than trebled. Likewise in Cavan and Laois.
The next part of the puzzle is to revisit county-level estimates of negative equity based on comments on the last set of figures and then try to put some numbers on how many households finds themselves faced with both unemployment and with a house worth less than their debt to the bank.