Can house prices go negative? If so, could it happen here?
Let’s price a house = the discounted sum of future cashflows connected with it. Take the case of an empty “investment” property in Ballybust. What is it worth to a buyer now?
Short and medium term: -ve cashflows = transaction cost, property taxes, maintainence, background heating etc
Long term: +ve cashflows = unknown sale at some unknown future date, or unknown rental stream at some unkown future date.
The Present Value of these cashflows can be negative if realisation of LTEV is delayed enough. i.e a “buyer” needs to be paid to assume ownership now.
Is a house price fall of 100% too optimistic in some cases?
well… the land could be used for other purposes so if someone could knock the house and do something that makes money on the land… then whatever they’d be willing to pay would probably be a baseline.
Negative prices might be a problem from a legal point of view. If the seller pays the buyer to take the property then it might not legally be deemed a sale, and there could be a problem with the title later on. Hence the use of token prices of €1 when selling distressed commercial assets.
If the market were allowed to function, then yes, prices in undesirable areas of ireland, will go to €1. Thats what happened in northern english cities in the late 90s and thats whats happening in Detroit today. Those burnt out houses in Southill Limerick are probably worth €1 right now.
It is beginning to dawn on many people that many development sites in rural Ireland have a negative value - the cost of building on the land does not come close to what a buyer will pay. The concept of a house having a minus value is an intriguing one and must be a probability in some locations. Everyone agrees that there are some houses that will simply be never lived in - so what do we do with them? There is a political and community angle. Should local authorities have the power to take over abandoned estates for the common good? We may even see a constitutional referendum on this and other issues which are challening the very roots of our communities. We may need a new consittuion to cover the very changed world we are entering and where ‘more of the same’ will simply not do.
Yes. As H&S says legal may say €1 but there would have to be a side deal to compensate the “buyer”.
The “buyer” has to pay a solicitor, apply for planning permission for demolition (?), pay for demolition, pay landfill costs less any salvage, excavate and fill the site with topsoil and they pay conveyancing cost if he finds an agricultural buyer.
What about, say, old wrecked cars or certain types of electrical equipment where you have to pay to have them taken away to be scrapped? Precedent, surely?
