Time to thaw a frozen market
Thousands of people in Northern Ireland are living in temporary housing.
Temporary in the sense that over the last six years, in a stable market, they would have been buying a house (or apartment) or trading up to a larger unit.
On a conservative calculation, over 20,000 fewer new housing units have been built in the last five years than in the previous five. Possibly over 35,000 housing transactions, including people buying existing units, might have taken place.
The will to ease these problems is hard to find. 'Wringing hands' is unacceptable.
People, in the market for family housing, are living through troubled times which may be an influence for another three-four years.
The unappreciated dangers started to emerge in 2004 when private sector house prices began to rise unsustainably. The sequences were appealing: buy now while cheap funds are available, only low (if any) deposits needed, and complete your purchase before prices rise even further. Few people saw the early signs of trouble.
In September 2011 average house prices are described as 50% lower than in 2007 (which statistically is about correct). Stated alone that is misleading. Prices in late 2011 are now back to near normal after a massive distortion. Today's prices are not too low; they are about what would be expected relative to earnings and relative to other UK regions.
Not only are about 20,000 households not in homes that they might have had but there are other tensions. When the housing market fully restablises, the inherited back-log will be large.
More noticeably negative equity and repayment defaults are rising and crippling the financial stability of many hundreds of households. Legal actions for mortgage repossession, which were well under 1,800 each year 10 years ago, have more than doubled to 3,500. It is no surprise that there is now proportionately more negative equity in Northern Ireland than other regions because no other region had such a distorted house price bubble.
The problem with mortgage defaults is potentially so serious that the current legal repossession mechanisms are under strain. For some social reformers, the search is on for solutions that allow default without a lifetime of debt obligation and short of more onerous bankruptcy.
The housing market needs to be unfrozen.
Prospective purchasers need to gain confidence that the market place has become more stable. Prices are 'flattening out'. Providers of home loans need to offer loans at competitive interest rates with realistic initial deposits (taking sympathetic account of a carry forward of any existing negative equity). With government encouragement, changes are possible.
The number of transactions has begun to slowly recover, as the recent University of Ulster survey shows. Action is also needed to support the market place.
In different ways, house builders should be incentivised to complete unfinished schemes.
Already some developers and builders have devised special financial deals (presumably with help from banks) to retain a partial equity interest in houses being sold. A 5% - 15% retention of an equity interest could leverage house sales.
A parallel scheme might be advocated, through NAMA, for housing projects now compulsorily possessed in Northern Ireland, where NAMA puts up finance to finish a development and NAMA retains an equity interest until market prices improve.
Either to supplement these ideas or to offer a separate mechanism to activate the housing market, Northern Ireland could initiate a scheme similar to Scotland through the Scottish National Housing Trust. Converted to local application, the Northern Ireland Executive could provide (low risk) financial guarantees to Housing Associations who borrow extra funds to buy more houses for mid-market rents, somewhat higher than rents for social housing. It would widen the remit of the Housing Associations and kick-start more house building.
If there is a will, an inexpensive mechanism could incentivise a short-term house building boost. Standing idly by is an inexcusable strategy.