COPING WITH NEGATIVE EQUITY
AT THE HOUSEHOLD LEVEL
An in-depth study into the deployment of coping strategies
in relation to housing career aspirations
MASTER THESIS
HOUSING: PEOPLE, PLACE AND POLICY By
MAX M.P.C. BERGMAN
University of Amsterdam Amsterdam, Netherlands
August, 2014
Submitted to the Faculty of Social and Behavioural Sciences of the
University of Amsterdam in partial fulfilment of the requirements for the Degree of
MASTER OF SCIENCE
Supervisor: F. van Slijpe, MSc
1 ACKNOWLEDGEMENTS
By writing this page I complete this master thesis and therefore finish my Masters in Urban and Regional Planning at the University of Amsterdam.
Without the help of certain people, I would not be able to finish this research. I want to sincerely thank Floris van Slijpe for providing support, giving different points of view and sound academic guidance in order to finish this research. His support gave me useful tools to retain focus in this research and gave me a clear understanding of the process of writing. I also want to thank Paul Mulder, the statistical advisor at the municipality of Almere, for providing access to the Almere panel and providing the infrastructure to select the interviewees. Without the both of them, I would not have been able to conduct this research.
Furthermore, I would like to thank again, all fifteen interviewees, for participating in my research by investing time, effort, and their willingness to talk about their personal situation.
Max M.P.C. Bergman
2 ABSTRACT
Since the housing crisis, Dutch households increasingly have to cope with negative equity, which can have a major impact at the level of households. The general macro-economic effects of households that face negative equity are becoming clearer: There are many studies focussing on more general trends of negative equity and its effects (e.g. delayed household mobility). Unfortunately, little research is done on the individual behaviour that homeowners exhibit when they face negative equity. It is generally expected that households either wait for house prices to rise, or that they are forced to move because of mortgage default. However, there is a wide variety of actions and constraints possible between these situations which are underexplored in current scientific literature. In order to gain more insight into how households cope with negative equity, this research focusses on a household-centric exploration of coping strategies that can be deployed. A negative consequence of negative equity can be the impediment of housing career aspirations of households, which creates a discrepancy between aspired and actual housing career behaviour. As coping strategies are an effort in mitigating or removing the consequences of negative equity, housing career aspirations can have a close link with different coping strategies deployed. Therefore, coping strategies are placed in the context of housing career aspirations throughout this research. The first part of this document elaborates on relevant literature and identifies coping strategies by using scientific literature. These coping strategies are scrutinized and placed in a main model that uses housing career aspirations as starting point. The second part of this research presents the outcomes of a conducted questionnaire and individual interviews on homeowners facing negative equity in Almere. These in-depth empirical insights are tested on the main model. New coping strategies have been found by empirical data and are placed in the model which lead to a more in-depth understanding of how households cope with negative equity in the context of housing career aspirations. This research also contributes to new insights into coping strategies and their relation to housing career aspirations, as their link is deeply analysed.
3 TABLE OF CONTENTS
CHAPTER I: INTRODUCTION ... 6
CHAPTER II: RESEARCH DESIGN & METHODOLOGY ... 9
Research design ... 9
Methodology ... 12
Theory ... 12
Development of main model ... 13
Conducting empirical research ... 13
Methodological precision ... 17
Methodological limitations ... 18
Structure of this document ... 20
CHAPTER III: THEORETICAL FRAMEWORK... 21
Routes into negative equity ... 21
Stepping into a mortgage ... 21
A decline in the value of dwellings ... 22
General characteristics of households facing negative equity ... 23
Type of mortgage ... 23
Current step in housing career... 24
Moment of buying ... 25
Stage in life cycle and the age of homeowner ... 25
Geographical factors ... 26
Income of the household ... 26
Consequences of negative equity ... 27
Stress ... 27
Constraints in housing career aspirations ... 28
Coping strategies ... 32
Definition... 32
Overview ... 32
CHAPTER IV: MAIN MODEL ... 36
Coping strategies in relation to housing career constraints ... 36
4
Justification of model ... 40
Limitations of the main model ... 41
CHAPTER V: EMPIRICAL RESEARCH ... 43
Questionnaire ... 43
Results & analysis ... 43
Discussion ... 44
Individual interviews ... 46
Results & analysis ... 47
Discussion ... 55
Achieved insights ... 57
CHAPTER VI: CONCLUSION ... 60
CHAPTER VII: DISCUSSION ... 63
CHAPTER VIII: RECOMMENDATIONS ... 65
BIBLIOGRAPHY ... 68
APPENDICES ... 71
Appendix I : Average sale price of existing owner-occupied houses in Almere... 71
Appendix II : Questionnaire (in Dutch) ... 72
Appendix III : Specification of variables from questionnaire ... 78
Appendix IV : Justification of questions asked in questionnaire ... 79
Appendix V : Structure of question asked on interviews ... 81
Appendix VI : Anonymized transcriptions and overviews of household characteristics ... 83
Respondent A ... 83 Respondent B ... 88 Respondent C ... 92 Respondent D ... 96 Respondent E... 100 Respondent F ... 105 Respondent G ... 109 Respondent H ... 112 Respondent I ... 116 Respondent J ... 120 Respondent K ... 124
5
Respondent L ... 129
Respondent M ... 132
Respondent N ... 135
6 CHAPTER I:
INTRODUCTION
During the last decades, deregulation and marketization have been promoted by Western governments. This neoliberal policy implied reduced state intervention and therefore created much room for markets to design their ‘field of play’. As it influenced many commercial markets, it radically influenced housing in many countries. This is shown in the research of Forrest & Hirayama (2009) where the causes and consequences of neoliberalism on housing opportunities are inquired. In their research the authors state that “… privatization and monetization have had rapid and far-reaching impacts on the pattern of housing provision and housing opportunities” (Forrest & Hirayama, 2009, p. 998). In the United States ultimately problems arose with sub-prime mortgage lending because of a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by mortgages (The financial crisis inquiry comission, 2011, p. 418). As housing was getting stronger influenced by the financial world, the faulty sub-prime mortgages swap led to the housing crisis in 2008, and a decrease of the value of real estate was induced. This trend had a particular impact on the housing market in the Netherlands (Schilder & Conijn, 2012, p. 1) because in no other country the mortgage load in relation to the gross domestic product, is as high as in this country. This decline in house prices has a noticeable impact on local scale: A share of Dutch households are nowadays confronted with a situation in which they are not able to pay their mortgage if they would sell the dwelling. This potential residual mortgage debt is generally called negative equity. Multiple definitions of negative equity exist, whereof some are more expanded. A detailed definition of negative equity is “… a situation in which the (estimated) market price of a house has fallen below the original mortgage advance that was used to buy that house” (Dorling, Gentle, & Cornford, 1992). A more broad definition of negative equity is given in the text box below1:
Negative equity: a situation where the outstanding mortgage debt exceeds the current value of the dwelling
(Forrest, Kennett, & Leather, 1999, p. 2) Negative equity is a virtual debt and therefore does not have to be an immediate problem per se, however, this virtual debt can become problematic when a dwelling is being sold on the housing market because the virtual debt is then transformed into a real debt. Households can encounter a (large) debt which can lead to a variety of emotional and practical problems, because the repayment of the debt can be difficult and very stressful. Even if the sale of the dwelling will probably not occur in the (near) future, homeowners and other members of the household can have a feeling of anxiety when confronted with negative equity, because their feeling of ontological security can have been
7 affected (Colic‐Peisker & Johnson, 2010, p. 352). If this ontological security is reduced or eliminated, people can encounter stress.
There are approximately 4 million owner-occupied homes in the Netherlands, of which approximately 3.4 million households have a mortgage (Teuwen & Eijk, 2012, p. 28). In mid-2012, 29.2% of the households with a mortgage were facing negative equity, which is a total of 989,871 homeowners (Ibid.). These homeowners had an average negative equity of 23,960 euro (Ibid.). See Figure I for clarification. Over the years, more and more households are facing negative equity in the Netherlands, which has led to serious debates: Banks that traded in the faulty sub-prime mortgages and faced indebtedness were ultimately saved by the Dutch government. However, households that face potential financial difficulties caused by the financial crisis generally cannot rely on the Dutch government to be helped with their (sometimes) financial pressing situation2. The intention of this research is not to engage in an ethical discussion, however, this debate highlights and stresses the importance of good insight into the situation of households that face negative equity.
Figure I Amount of households that are (not) facing negative equity in the Netherlands
Adapted from (Teuwen & Erik, 2012, pp. 28-29)
Despite the fact that a multitude of macro studies have been done on the effects of negative equity, relatively little knowledge exists on how households cope with it. This is due the fact that most studies concerning negative equity only focus on more general trends of negative equity and its effects.Those studies are generally approached by housing finance theories and prospect theories. Many studies also have been done that focus on negative equity and its effect on household mobility (Schulhofer-Wohl, 2010) (Ferreira, Gyourko, & Tracy, 2010) (Gentle, Dorling, & Comford, 1994) (Helderman, Mulder, & Ham, 2007) and the participation on the labour market (Henley, 2008). These studies led to a better understanding of macro economical and geographical effects of households that experience negative equity. However, these inquiries gave little insight into the household-centric
2 Some arrangements have been made, such as arrangements from the national mortgage guarantee (NHG) (Stichting
Waarborgfonds Eigen Woningen, 2014) but these arrangements are only applicable for households under specific circumstances. These arrangements will be discussed further in this research
8 situation, while it is very important to have a good understanding of the consequences that negative equity can have and how households cope with this situation. This insight is especially important in the Netherlands, where a relatively high share of the mortgage holders face negative equity.
Some studies have been done that focus on the consequences of negative equity, how households cope with it, and the characteristics of these households. A big share of these studies elaborate on the situation of house price decline in the United Kingdom in the early 90s, such as the study by Dorling & Cornford (1995). In their research the authors investigate how price falls have hit different groups of home buyers and what their characteristics are. In order to specify the way in which households can cope with negative equity, these studies use the term ‘coping strategies’. Studies that give important insight on the usage of these coping strategies is the study by Forrest & Kennett (1996) ‘Coping Strategies, Housing Careers and Households with Negative Equity’ and the book ‘Home Ownership in Crisis?’ (Forrest, Kennett, & Leather, 1999). In these studies the authors also describe the housing market slump of the early 1990s in the United Kingdom and show the characteristics of households facing negative equity. However, these studies gave more insight into the route of households towards negative equity and some of the coping strategies used by these households. Munro & Madigan (1998) explore how households’ perception on the housing market and the strategies of those households has changed in this housing market slump. The authors elaborate on some coping strategies, but this study does not focus on coping strategies in-depth. A more recent study in the Netherlands has been done by Schilder & Conijn (2012) in which the characteristics of Dutch households facing negative equity have been described. It gives a good insight into the housing crisis in the Netherlands as it gives a national macro-economic view of negative equity, and elaborates on the causes and the extent to which it occurs. This study also looks at the role of the financial institutes and brings this into a debate. However, it does not inquire coping strategies that are deployed by households.
This research is an effort into obtaining a holistic insight into the coping strategies that can be deployed by households that cope with negative equity. This is done by developing a main model in which coping strategies are placed in the context of households’ housing career aspirations. Multiple studies, including the studies of Munro & Madigan (1998), Forrest & Kennett (1996) and Forrest, Kennett, & Leather (1999) contribute to this model by describing some coping strategies that households can deploy when they face negative equity. As this study tries to obtain a holistic insight on the different coping strategies that can be deployed, this research uses empirical data to support, supplement, or eventually contradict these insights. By conducting individual interviews, the relation between coping strategies and housing career aspirations is clarified. Also, newly identified coping strategies have been found throughout this research. Therefore, this research supplements those studies on coping with negative equity with additional insights.
The next paragraph focuses on the research design and explains the methodology used throughout this research.
9 CHAPTER II:
RESEARCH DESIGN & METHODOLOGY
Research design
Because there is a lack of holistic knowledge on what coping strategies are deployed, or can be deployed by households, insight has to be achieved in how households cope with the negative equity they are facing. A definition of coping strategies, which will be used for this research, is given below:
Coping strategies: a degree of conscious planning in adverse circumstances Adapted from (Forrest, Kennett, & Leather, 1999, p. 76) In order to mitigate or remove the (possible) negative consequences that negative equity has, different coping strategies can be deployed. These coping strategies are deployed by households. But what defines a household? There are multiple definitions of the concept of ‘household’ and those definitions can differ between studies. Therefore, the following definition by the anthropologist Haviland is used in this study: “A household consists of one or more people who live in the same dwelling and also share at meals or living accommodation, and may consist of a single family or some other grouping of people” (Haviland, 2003). Negative equity can have multiple consequences for a household. An important consequence is the impediment to their housing career aspirations: Households in the Netherlands generally are ambitious in making a housing career (Schilder & Conijn, 2012, p. 1). This means that households aspire to find a dwelling type that fits their needs, income and other external factors, which generally implies that households aspire to move up on the ‘housing ladder’. However, negative equity can impede these housing career aspirations. In addition to the knowledge gained by macro studies, it is generally assumed that households either wait for the price of their dwelling to rise, or that they are forced to move because of (impending) mortgage default (i.e. foreclosure). This implies that negative equity can lead to other behaviour on the housing market than aspired by households. Therefore, a possible mismatch can arise between intended housing career behaviour and realised housing career behaviour. As stated above, households can mitigate or eventually remove the negative consequences of negative equity by the use of coping strategies. Thus, housing career constraints can be mitigated or even removed into fulfilment of housing career aspirations. This clarifies that the deployment of certain coping strategies is related to housing career aspirations. It is evident that coping strategies have to be articulated with the concept of housing career. Therefore, this research questions how households cope with negative equity in the context of housing career aspirations. The main question of this research is:
10 A conceptual framework is shown in Figure II. This framework shows the unit of analysis on the left: households facing negative equity. The field with the dotted outline shows the concepts that are related to the concept of a housing career. The figure shows that housing career aspirations can be constrained by consequences of negative equity. In order to mitigate or remove these consequences, households can deploy coping strategies, which possibly can lead to fulfilment of housing career aspirations.
Figure II Conceptual framework
(Own work)
A central point in this research is the development of a main model that incorporates coping strategies of households facing negative equity as found in scientific literature. As coping strategies and housing career are related, this model places these coping strategies in a scheme with housing career aspirations as starting point, in order to measure what different types of coping strategies are deployed by households with different housing career aspirations. The fulfilled or unfulfilled housing career aspirations are shown as terminus in the model. Subsequently, this model will be empirically tested by sending a questionnaire and conducting individual interviews with households that are facing negative equity. The empirical findings can support the insights of the model, add new insights to, or eventually contradict the main model.
In order to get insight in how households cope with it negative equity according to different housing career aspirations, sub questions are asked and answered throughout this study. The sub questions of this research are:
1. How do coping strategies mitigate or remove housing career constraints?
None of the scientific studies about households coping with negative equity have analysed coping strategies in-depth, therefore it is somewhat unclear how some coping strategies contribute to the removal or mitigation of negative consequences of negative equity. In other words: what are the mechanisms behind the coping strategies that have been described in literature? As can been seen in the conceptual framework, negative equity can lead to negative consequences, whereof constraints in the housing career aspirations of households is a
11 significant consequence. Therefore, this question analyses the different coping strategies that have been identified in the literature and tries to identify how the relationship of coping strategies on housing career constraints is.
2. How do coping strategies relate to housing career aspirations?
Now that insight is gained on the mechanisms behind different coping strategies, this research looks at how these coping strategies relate to different housing career aspirations. After this analysis has been done, the main model is presented in which housing career aspirations are placed in relation to the different coping strategies.
3. In what way do the empirical findings support, supplement, or contradict these insights?
In this part, the obtained empirical data will be evaluated and the gained insights of empirical research are placed in the developed main model in order to gain a deeper insight on how households cope with negative equity in the context of housing career aspirations. The findings of this empirical research can support, add insights to, or eventually contradict the insights of the main model.
12 Methodology
This research tries to gain in-depth knowledge on how households cope with negative equity. By doing so, these coping strategies are placed in the context of housing career aspirations. This research uses a descriptive approach that scrutinizes individual household behaviour on coping with negative equity in the form of coping strategies. Descriptive research is used to describe characteristics of a population or phenomenon being studied. This type of study is usually a good method for collecting information that demonstrates relationships and describe the world as it exists. It does not answer questions about how, when or why the measured characteristics occurred (Shields & Rangarjan, 2013).
The plan of action for this research has been made below, see Figure III, in which different steps are followed. The left side of the scheme shows the first part of this research that consist of gaining theoretical knowledge by using literature that focuses on households facing negative equity. Hereby, insight is achieved on what households’ route into negative equity is, what the general characteristics are of these households, what the consequences of negative equity are, and what different coping strategies can be deployed. In the subsequent chapter, the coping strategies are analysed in the context of a housing career which leads to a main model. This chapter tries to answer the first two sub questions. The right side of the scheme (and thus the second part of this research) consist of empirical research. This part is divided in two subparts: a questionnaire and individual interviews. The Y-axis in the scheme shows the chronological order in which the steps of this research are conducted, for example: the development of the model occurred at the same time as the sending of the questionnaire, and selecting and approaching the respondents. The following subparagraphs describe this plan of action in detail.
Theory
The theoretical framework of this research is deductive. A deductive approach represents the most common view of the nature of the relationship between theory and social research (Bryman, 2008, p. 9). Deductive reasoning works from the more general to the more specific. In order to fill in the knowledge gap of households facing negative equity, this research firstly scrutinizes the relative small number of scientific articles dealing with negative equity on the household level. As a share of the literature used describes macro effects of negative equity on households or the housing market, this literature will also be used and deduced in order to describe household-specific characteristics. It is important to get a good overview on what the characteristics are of households that face negative equity because it will give a better picture of the unit of analysis. Subsequently, this research will expound on the possible consequences of negative equity on households. These consequences have a correlation with the coping strategies applied by households because coping strategies are a way to mitigate or remove negative consequences of negative equity. After these consequences are treated, the different coping strategies as described in scientific literature are enumerated in the fourth paragraph of the chapter.
13
Development of main model
After performing this inquiry into scientific literature, the enumerated coping strategies are deeply analysed in their relation to housing career constraints and thus housing career aspirations. This leads to the main model. The main model clarifies the behaviour of households facing negative and the coping strategies used. As stated before, this model uses housing career aspirations and actual housing career behaviour as main principle.
Conducting empirical research
Empirical data will be used to gain more in-depth insights on how households cope with negative equity in practice by conducting an embedded case study. An embedded case study design is an empirical form of inquiry appropriate for descriptive studies, where the goal is to describe the features, context, and process of a phenomenon (Yin, 2003). It includes multiple units of analysis and it may include main and smaller units on different levels, by looking for consistent patterns of evidence across units within a case. The embedded case study approach is particularly relevant for examination of an environment where the boundaries between the phenomenon of interest and context are not clearly evident (Ibid.). For example, it is difficult to define rigid boundaries of coping strategies as actions of a household can influence many facets in their direct life: when is an action deployed by households a coping strategy? Households that face negative equity are the unit of analysis in this research. This study is containing more than one sub-unit of analysis (Ibid.). The identification of sub-units, individual households that currently face negative equity, allow for a more detailed level of inquiry. Similar to a case study, an embedded case study methodology provides a way of integrating quantitative and qualitative methods into a single research study (Ibid.). The case study research method focuses on multiple sources of evidence to add depth to data collection. This method can bring a more in-depth understanding of the coping strategies applied by using triangulation to contribute to the validity of the research (Ibid.). The unique strength of triangulation is the ability to combine a variety of information sources including documentation and interviews (Ibid.). In this research scientific literature and empirical data (a questionnaire and individual interviews) will be used in order to gain knowledge on the level of households.
Unfortunately, it is not easy to select the research participants (the sub-units of analysis), as households that face negative equity can have different characteristics and are therefore not situated in one particular area for example3. Furthermore, because of privacy regulations, it is not possible to identify households that face negative equity by using statistical data. This is apparent in Statline, the electronic database of the CBS (the central statistical office in the Netherlands) where data about the composition of the capital of private households cannot be shown on a smaller scale of region than the level of provinces (Centraal Bureau voor de Statistiek, 2012). Fortunately, this research found a way to tackle problem by using a panel in the municipality of Almere. By sending a questionnaire to
3 Progressive insight made clear that households facing negative equity can generally be more dominant in specific
14 1,000 respondents of the panel, households that face negative equity could easily be identified. The municipality of Almere has been used as region to obtain the sub-units of analysis for this research because Almere has a substantial panel of approximately 3,000 respondents that enables to contact resident of Almere to participate in an interview. Almere is also an interesting area for research because it is situated in the province of Flevoland: Of all provinces in the Netherlands, Flevoland has been affected the most by the housing crisis in terms of the number of households facing negative equity. The amount of households with negative equity in this province is relatively high: approximately 40%. Almere has a household volume of 79,800 (Gemeente Almere, 2012, p. 15) and the proportion of owner-occupied housing is 61.9% (Gemeente Almere, 2012, p. 39). Since 2008, those homeowners have to cope with the impact of the housing crisis which became visible in stagnating housing prices (see Appendix I). Therefore, there is a high probability that a relatively big amount of the households in this city face negative equity.
Questionnaire
The questionnaire had the main purpose of identifying homeowners that face negative equity in order to conduct individual interviews with them. Therefore, the questionnaire inquired if people were willing to do an interview. The members of the Almere panel voluntarily subscribed themselves into the panel. During enrolment in the panel, certain data was registered (see Appendix III) although this data could be outdated because it was possibly approximately four years old. Of these panel members, 2,000 people have reported that they were approachable by email (Mulder, 2014). To prevent excessive sending of questionnaires by different researchers, 1,000 panel members were ultimately available to be approached by mail. These 1,000 panel members were registered in the database of the panel as current mortgage holders and were (except for the variables of ‘home possession’ and ‘approachable by email’) selected at random. The final version of the questionnaire which was sent, is displayed in Appendix II. The data from the questionnaire was saved in a digital spreadsheet (of a program for statistical analysis called ‘SPSS Statistics’) in order to scrutinize and filter the data. The justification of the questions asked in the questionnaire is enumerated in Appendix IV. The used variables (and the types) are enumerated in Appendix III.
Individual interviews
The respondents were contacted by email in order to make an appointment for individual interviews. These interviews were held to gain more insight on the coping strategies deployed by households. Individual interviews have the advantage of going in depth in the household situation because the interview focuses on one particular case with much time available. The result of these interviews is a detailed exploration of the individual situation. The individual interviews had to be conducted in a neutral, central location in Almere which was suitable for conducting interviews (i.e. a quiet and relatively silent zone). Therefore, the public library in Almere Stad was used to conduct the interviews. Finally, fifteen individual interviews could be arranged with members of different households that face negative equity in the municipality of Almere. Each interview focused on a different household and only one member of the household was interviewed per session.
15 In order to cover the relevant information of the respondent that this research needs to obtain, and to assure that the information between different respondents can be compared, this research makes use of partial structured individual interviews by making a form of questions that can be used as a guideline (Bryman, 2008). Structured interviews have a defined, static set of questions, which does not allow for diversion. However, the fifteen individual interviews need to have room for discussion and elaboration of their behaviour and experiences on the housing market, so the respondents could have their saying and all the coping strategies are identified. Therefore, a semi-structured interview is used, a method of research that is often used in social sciences. The interviewer in a semi-structured interview generally has a framework of themes to be explored. However, it allows for new ideas to be brought up during the interview as a result of what the interviewee says. As the interviewee now can give extra input, more insight on the situation of the household can be obtained. An overview of the questions asked in the semi-structured individual interviews is shown in Appendix II.
In these individual interviews, the explored coping strategies and consequences which were obtained from scientific literature were treated. The interviewees could elaborate on these coping strategies and eventually elaborate on coping strategies they have deployed, or are going to deploy, which were not described in literature. The interviews were held in May and June and had a duration of approximately thirty minutes. The interviews were recorded with two audio-recording devices. One is redundant in case the other device fails (back-up), so there is a much smaller chance that data will be lost. The recorded data of the individual interviews has been transcribed, see Appendix VI. The transcriptions are in Dutch, as the native language of the interviewees is mostly Dutch. In order to use some of the quotes of the respondents in this research, the quotes had to be translated into English. When this translation was done, much attention has been paid to the accuracy of the translation, by trying to ensure that no information was lost or distorted in translation. Personal data in the transcription is censored and the interviews are anonymized, in order to maintain privacy of the respondents. Finally, at the end of this research, the data of the transcriptions is analysed and reflected on the main model in order to add, support or eventually contradicts existing knowledge in relevant literature. This will lead to a more in-depth insight on how households cope with negative equity in the context of housing career aspirations.
16
Figure III Plan of action of this research
17 Methodological precision
To identify the strength of methodological precision that is used, Bryman (2008) describes in the book ‘Social Research Methods’ three criteria in which social research can be evaluated.
First, social research has to be reliable. Reliability has to do with the consistency of the measures taken for social science (Ibid.). To ensure the reliability this research determines and describes definitions of the concepts used (e.g. the concepts ‘coping strategies’ and ‘negative equity’).
Secondly, a research has to be valid. Validity concerns the integrity of the conclusions that are drawn from the findings of the research. Different types of validity exist:
› Internal validity questions if a conclusion indicates a causal relationship between variables. In order to ensure that the identification of coping strategies is correctly done throughout this research, a constant verification will be done to see if the deployed strategy can be causally linked with the occurrence of negative equity on households.
› External validity is concerned with the question if the results of the study can be generalized beyond the specific research context. This type of validity is not applicable in this research, as this research has conducted insufficient individual interviews to make a reliable generalisation.
› Ecological validity is concerned with the question if the technically valid findings that the social research has produced approximate the real-world that is being examined. This study is greatly reflecting reality as it uses multiple households to construct an image of the coping strategies used in households.
› Construct validity concerns if a measure used for a concept does reflect the concept that it is supposed to inquire. This construct validity is established in this research by creating the main model in which the different concepts and their relations are displayed.
(Bryman, 2008)
To ensure enhanced validity, the individual interviews are transcribed and added in the appendix4. Thus, data used in the empirical analysis of this research can be checked on validity.
Thirdly, a research must be able to be checked if it is replicable (Ibid.). In order to do this, the procedure has to be explained in detail so the research can be reproducible. Reproduction can be done by following the steps that are described in this chapter.
4 For a further check on the validity of this research, the audio recordings of de individual interviews can be handed over
18 Methodological limitations
Literature
As stated before, there is relatively little literature available that describes the situation of households that face negative equity. The majority of the literature that does describe it, is relatively old. It is important to mention that some literature used in this research is more than one decennium old. These older studies generally cover the occurrence of negative equity in the United Kingdom in the early 90’s. This could make particular findings in literature partially outdated, for example: household characteristics. However, this is not a major problem as insights and findings are tested by using current empirical data.
Households
The first paragraph of this chapter already elaborated on the concept of household. By sending the questionnaire to the respondents and conducting interviews with a share of these respondents, this inquiry assumed that the respondents are speaking from the point of view of the members who ‘are in control’ of the household and therefore can speak for the household. For example, there could be a discrepancy between the housing career aspirations of the household as a housing career identity and the housing career aspirations of the respondent being surveyed or interviewed. This research assumes that this is usually not the case, except for cases in which a couple has had a divorce or are going to be divorced.
Questionnaire
The panel members from the Almere panel are not representative for Almere: they are generally older than the average person in Almere, they are higher educated, and more people have an owner-occupied house than the average person in Almere (Mulder, 2014). This information was important for interpreting the results of the questionnaire. However, this research is descriptive and therefore does not aim to make a generalisation for households facing negative equity (in Almere).
The original plan was to conduct four focus group interviews. The idea of using four focus groups was that each group was divided amongst different housing career aspirations and constraints, in order to clarify the relation between the usage of coping strategies and housing career behaviour. Therefore questions were asked in the questionnaire in order to arrange respondents in different groups of housing career aspirations and constraints (e.g. the desire to move on short-term, satisfaction with dwelling and neighbourhood). The focus groups would ideally consist of six people, with the idea that the amount of six people gives an optimal insight in the situation of people: If approximately more than six people are gathered, there can be a possibility that more people are not participating actively (Bryman, 2008). If four or less people participate in one focus group, it is possible that less coping strategies are identified and less strong conclusion can be made on the different coping strategies each focus group deploys. In the questionnaire, a total amount of 114 respondents stated that they faced negative equity. Of these people, 27 respondents stated that they were willing to participate. This amount was relatively low, however this amount would be enough for conducting group interviews.
19 Unfortunately, focus groups were not feasible. There was little response when respondents were approached by mail in order to make an appointment for the focus group sessions: Eight people did not respond to the mailing. Of the people that responded, eight people were able to make an appointment. As this result was not enough to create focus groups, another approach was used: the conduction of individual interviews. All panel members that faced negative were mailed and asked if they wanted to conduct an individual interview on a self-proposed date. Fortunately, this led to a higher response. Finally, it was feasible to make new appointments so fifteen individual interviews could be conducted, whereof two were conducted by phone. Because conducting the focus group sessions was the original approach, multiple questions have been asked in the questionnaire that became superfluous in the process of writing. The superfluous question were intended to be used for dividing respondents in different focus groups. Although most of the answers in the questionnaire created an insight in the situation of 114 people in Almere, these findings could not be used to give an insight on the general characteristics of households in Almere (or even the Netherlands) due to different reasons: the panel members from the Almere panel are not representative for Almere (which is stated before), and the amount of respondents that face negative equity was too low. Different test have been run on SPSS, such as a chi square test to measure if there is a relationship between the willingness to participate on the focus group interviews and the amount of negative equity, and to measure if there is a relationship between the year of purchase of the current home (moment of buying) and the amount of negative equity. A Spearman's rank correlation test to measure if there is a relation between the amount of negative equity and the year of birth of the respondent (age of homeowner), and to measure the relationship between the amount of negative equity and the year of the start of the housing career of the respondent (stage in life cycle). Unfortunately, these tests did not give significant results as the sample amount was too low. Therefore, the household characteristics of the respondents of the questionnaire are not used in this research. However, in the individual interviews these characteristics of the households are shown in order to get a complete insight in the situation of the household.
Individual interviews
A possibly disadvantageous facet of using individual interviews over focus group interviews is that the power in which different coping strategies and different housing career aspirations are scrutinized can be diminished: multiple people in an interview can probably lead to different insights, ideas and views which will encourage other people to contemplate on those as well. Focus group are a good tool to ensure that people will think about each other’s coping strategies because of the social interaction that takes place: People can debate and elaborate so more factors will be visible in the process. However, these problems can be tackled by using insights of previous individual interviews and pose them to the respondent that is going to be interviewed. Also, individual interviews offer a good way to deeply find coping strategies that are deployed or going to be deployed by the respondent as there is much time available for each respondent.
20 Structure of this document
The structure of this research will follow the chronological steps as described in the plan of action: The subsequent chapter scrutinizes scientific literature to get a good understanding of households’ route into negative equity and what the characteristics are of these households. The first paragraph of the chapter elaborates on how households get into the situation in which they face negative equity. The second paragraph inquires what the general characteristics of these households are, in order to get a complete overview of the units of analysis. The third paragraph looks at what the consequences of negative equity can be. In order to mitigate or remove these consequences of negative equity, households can deploy different coping strategies. These coping strategies are treated in the fourth paragraph of this research.
The fourth chapter will provide the main model which will be tested by empirical data. Hereafter, a chapter will elaborate on the outcomes of empirical research. The first part of this chapter will provide knowledge obtained by the questionnaire, the second part will provide insight which is obtained by individual interviews. The last three chapters consecutively consist of the conclusion, discussion and recommendations of this research.
21 CHAPTER III:
THEORETICAL FRAMEWORK
This chapter expands on the relatively small amount of literature that deals with negative equity on the level of households. It gives an insight on the relevant concepts and is a step into gaining more insight in households facing negative equity by elaborating on the concepts used by using literature. The first paragraph will elaborate on households’ route into negative equity: What general conditions lead to a situation in which households get confronted with negative equity? The subsequent paragraph expands on the general characteristics of households facing negative equity as described in literature, in order to get a detailed image of the households (the units of analysis for this research). The third paragraph focuses on the consequences of negative equity. If households want to mitigate or remove these consequences, they can deploy coping strategies. The fourth paragraph will elaborate on those different coping strategies as found in scientific literature.
Routes into negative equity
Stepping into a mortgage
In literature, different factors have been described why first time buyers step into a mortgage, such as: dissatisfaction with their current tenure and the lack of alternatives, as social housing (Forrest & Kennett, 1996, p. 53). However, probably the most influential pull factor of taking a mortgage is the concept of a housing career: “In 1980s the housing market was buoyant and people were encouraged to think about housing in terms of a 'housing ladder'. This was a device used by building societies and estate agents in particular to emphasise the investment potential of house purchase.” (Munro & Madigan, 1998, p. 714). Therefore, in some countries in Europe, the desire for people is to step in on a housing career which will give a form of security, stability and progression (Colic‐Peisker & Johnson, 2010). At the individual level, households do not all have the same set of housing aspirations, but at the aggregate level there is a dwelling hierarchy (Musterd & Kempen, 2007, p. 315). As housing is central element in the life of people, the maintenance or upgrade of housing status and security is a key priority for households. (Forrest & Kennett, 1996, p. 474). Not all moves of households are to a high rank on the housing ladder. Households generally move upwards, but they may also move sideways (which mostly occurs at households of lower incomes) or downwards (Musterd & Kempen, 2007, p. 315). Because of this idea of a housing ladder, buying a home as the first step into a housing career is generally perceived as a positive step. This is especially the case in the Netherlands, where buying a house is approached as a long-term investment and perceived as a form of ‘banking’ (Schilder & Conijn, 2012, p. 1). The fact that in no country the mortgage load in relation to the gross domestic product is as high as in the Netherlands (Schilder & Conijn, 2012, p. 1) is a strong indicator of this phenomenon: In the Netherlands, there are approximately 4 million
22 owner-occupied homes, approximately 3.4 million of these households had a mortgage in mid-2012, which is 84% of all households in the country (Teuwen & Eijk, 2012, p. 28)
The wealth effect
Gentle, Dorling, & Comford describe in their study ‘Negative Equity and British Housing in the 1990s: Cause and Effect’ (1994) how negative equity in the United Kingdom is distributed on temporal, geographical and social terms. In this research the authors describe how negative equity has risen in the United Kingdom in the early 1990s and how the ‘wealth effect’ occurred that contributed to the housing crisis. Comparable to the United Kingdom, the Netherlands has also dealt with this so-called ‘wealth effect’. This is an effect whereby individuals with rising house values tend to become confident consumers that are able to borrow against the rising house value. Coupled with the liberalisation of housing finance markets, this situation encouraged individuals to borrow money against the value of their home, whereby a rise in house prices encouraged the growth of consumer credit. This in turn, led to an upsurge of the number of mortgage holders (Gentle, Dorling, & Comford, 1994, p. 182).
A decline in the value of dwellings
As stated before, negative equity is a situation in which there is a negative discrepancy between the actual value of the dwelling on the housing market and the mortgage value of the dwelling. Therefore negative equity can occur if there is a decline of the house price, like the decline of the house value in the municipality of Almere (see Appendix I). As stated in the introduction, this decline of house prices has occurred at many dwellings in the Netherlands, because of the faulty sub-prime mortgages swap which led to the housing crisis in 2008.
This paragraph has shown that the literature states that the route of households into negative equity is subsequently: obtaining a mortgage (with a high loan, eventually induced by the ‘wealth effect’) and a decline in the value of the dwelling.
23 General characteristics of households facing negative equity
Now that there is an insight on how households can get into a situation in which they face negative equity, it is important to clarify what the general characteristics of these units of analysis are. In this way, these households can eventually be identified and targeted for empirical research. The characteristics that have been described in (mostly macro) studies give a better image of these households and the circumstances they situate in. The research of Schilder & Conijn (2012) on negative equity in the Netherlands gives important insights for this paragraph. The subparagraphs below focus on those general characteristics as described in literature.
Type of mortgage
The type of mortgage can correlate with higher negative equity for households because each type of mortgage has his own financial construction. For example, when people have a mortgage that does not include repayment, there is a probability that they encounter more negative equity when the value of their house declines, because their mortgage loan has not been paid off over time. The type of mortgage also has another influence: If households have to pay high monthly costs (i.e. mortgage interest), they have a higher risk in facing mortgage-default. In this way, the mortgage type does not influence negative equity, however, it influences the chance of transforming negative equity into a real debt. Many different types of mortgages exist in the Netherlands. The most occurring mortgages are shown in Figure IV.
Figure IVDifferent types of mortgages in the Netherlands
› Interest only mortgage › Annuity mortgage › Linear mortgage › Endowment mortgage › Investment mortgage
(Nibud, 2014)
Interest only mortgage
The interest only mortgage is a type of mortgage where repayment is not included. Mortgage holders only pay monthly interest on the mortgage loan and do not build financial capital on which mortgage debt can be repaid (Vereniging Eigen Huis, 2014). Households that have this type of mortgage are therefore more prone to face (higher) negative equity when the dwelling is put on the market.
Endowment mortgage
An endowment mortgage is a loan combined with a life insurance policy. The monthly charges consist of interest (on the mortgage debt) and the premium for life insurance. With an endowment mortgage, homeowners do not have to repay the mortgage directly, but only at the end of the term (Vereniging Eigen Huis, 2014). Because homeowners only repay on the end of the term, homeowners
24 that have this type of mortgage are therefore have a higher chance in facing (higher) negative equity when the dwelling is being sold.
Annuity mortgage
Mortgage holders that have an annuity mortgage, repay their entire mortgage loan during the term. Until the mortgage term expires, households pay a fixed monthly amount to the lender, the so-called annuity. The fixed amount consists of interest and repayment. The ratio between interest and repayment changes during the term. In the beginning, mortgage holders replay little and are paying a lot of interest. At the end of the term mortgage holders repay a lot and pay less interest. The mortgage is guaranteed to be repaid at the end of the term (Vereniging Eigen Huis, 2014). Because homeowners only repay little during the beginning of the term, they have a higher chance of facing (higher) negative equity when they sell the dwelling and recently obtained the mortgage.
Investment mortgage
Mortgage holders do not repay the mortgage instantly, but invest to repay the accumulated capital of the mortgage at the end of the term. It is uncertain whether the investment has yielded enough to repay the mortgage at the end of the term enough (Vereniging Eigen Huis, 2014). Households that have this type of mortgage can have a relative high risk of negative equity because the repayment could be backed by an investment which has a high risk.
Linear mortgage
Mortgage holders pay monthly a part repayment and a part interest. The repayment is an equal amount. This reduces the mortgage debt in a straight line (linear), even as the interest (Vereniging Eigen Huis, 2014). The mortgage is guaranteed to be repaid at the end of the term. Households that recently obtained this mortgage also have a chance of facing negative equity. Although until the middle of the term, this chance of facing negative equity is lower than when households have an annuity mortgage, because relatively more mortgage loan is repaid when households have this mortgage than if they would have an annuity mortgage.
Current step in housing career
A housing career is a sequence of housing states defined in terms of tenure and the quality or price of the dwellings that households occupy while they make parallel careers in family status and the job market (Clark, Deurloo, & Dieleman, 2003). It provides a useful way of integrating the residential mobility and filtering literature in understanding operations of households on the housing market (Kendig, 1984, p. 271). Forrest & Kennett (1996) inquire the situation in the UK in the early 90’s and discover that homeowners facing negative equity are generally first time buyers. One third of the people investigated in their research were previous owners. Schilder & Conijn discover in their research that starters in the Netherlands have a higher chance of facing negative equity (Schilder & Conijn, 2012, p. 13). The findings of those two studies may be explained by the fact that households
25 that are more advanced in their housing career have generally accumulated more capital and therefore have a lower chance in facing (more) negative equity.
Moment of buying
It is generally known that households that bought their current home prior to the housing crisis generally face more negative equity. This is due the fact that house prices were rising before the decline of the value begun, for an example see the development of the average house price in Almere (Appendix I). As the recent buyers bought their house when the value was peeking, the subsequent decline of the value probably lead to a situation in which they face negative equity. Research shows that the residence time is a very important predictor for households to face negative equity because of this mechanism (Schilder & Conijn, 2012, p. 15).
Stage in life cycle and the age of homeowner
The stage in the life cycle is a household characteristic which shows the composition of the household, for example: single, couple, family, and older household. This stage has a correlation with the current step in housing career and the age of the homeowner. Some studies of movers have shown the relationship between the stage in family life cycle and the ability to overcome housing market constraints. The reasons for this correlation, is that older individuals are more likely to have (had) advanced employment careers and therefore receive higher incomes (Kendig, 1984). The households facing negative equity in the research of Forrest & Kennett (1996, p. 378) were mostly in their growth stage of the family life cycle.
Dorling & Cornford (1995) investigate how price falls in the United Kingdom have hit different groups of home buyers. In their research they inquire the distribution of negative equity between different categories of borrowers in the United Kingdom by the third quarter of 1993. The authors conclude in their research that negative equity is disproportionately held by younger homeowners: “In every region it is borrowers who were under 25 at the time of purchase who held the largest proportions of negative equity in 1993” (Dorling & Cornford, 1995).
Research by Schilder & Conijn (2012) showed that age is a very important predictor for households in facing negative equity (2012, p. 15). They state that younger Dutch households have a much higher risk in facing negative equity than older households (Ibid.). However, the authors could not measure a correlation between the composition of the household and the height of the negative equity they faced (2012, p. 17).
Of nearly 60% private homes that faced negative equity in the Netherlands, the owner is younger than 40 years. This group generally purchased their home in the period just before the housing prices were falling and has only repaid a (small) part of the mortgage debt (Centraal Bureau voor de Statistiek, 2014). Of homeowners under the age of 40, approximately 60% faced negative equity.
26 Approximately 75% of the homeowners between the age of 25 and 30 face negative equity. Only 2% of the homeowners with an age of 65 or older, faced negative equity (Centraal Bureau voor de Statistiek, 2014).
Geographical factors
It is imaginable that the location of households has a correlation with the occurrence of households that (not) face negative equity. For example, research by Forrest & Kennett (1996) indicates that households that face negative equity in the United Kingdom are concentrated in the southern core regions of Great Britain. This probably has a high correlation with the types of houses situated in the area. For example: many households with negative equity reside in a neighbourhood that contain start-up dwellings, because younger households have a higher risk in facing negative equity.
In line with their previous publications, Schilder & Conijn found significant differences in the occurrence of negative equity per region. Both the amount of negative equity and the amount of households facing it is regionally differentiated. However, generally low amounts of negative equity are found in the periphery (Schilder & Conijn, 2012, p. 9).
Income of the household
The income of a household can have a correlation with negative equity. But this correlation differs between studies done in this field: The study by Forrest, Kennett, & Leather showed that households with higher incomes generally face more negative equity than households with low incomes (Forrest, Kennett, & Leather, 1999, p. 26). Dorling & Cornford examined the distribution of negative equity between different categories of borrowers and concluded that households with lower incomes generally face more negative equity than households with a higher income (Dorling & Cornford, 1995). The Dutch research of Schilder & Conijn indicated that households with a high income had a higher chance to face negative equity (Schilder & Conijn, 2012, p. 15). As the findings between different studies are contradictive, it is possible that this characteristic differs over time and location.
This paragraph has shown that multiple general characteristics exist between households facing negative equity: the type of mortgage, the current step in housing career, the moment of buying the current dwelling, the stage in life cycle and the age of the homeowner, and the location of the dwelling. The usage of income as characteristic of identifying households facing negative equity is not recommended as findings between different studies contradict each other.
27 Consequences of negative equity
Now that a better insight is achieved on the general characteristics of households facing negative equity, it is important to look at what consequences negative equity can have before focusing on the coping strategies that households can deploy, as coping strategies are a way of reducing or removing those negative consequences. As stated earlier in this research, negative equity can have multiple consequences, for example: (impending) foreclosure, not being able to move, and stress. Colic‐ Peisker & Johnson (2010) inquired the feelings of security and anxiety of homeowners that face negative equity in which they describe different types of risks perception. These risk perceptions can be subdivided into potential risks or actual risks (i.e. a risk which a future possibility or a risk which is concretized) (Colic‐Peisker & Johnson, 2010, p. 743). Risks can be seen as a process (Ibid.) in which three stages can be divided:
› Contingency: Risks are latent and covered in potentiality and uncertainty. Therefore these risks have no impact yet, but can be identified as possible problems in the future.
› Crystallisation: In this stage, an event causes concretization of the latent risk. This will affect individuals.
› Consequence: In this stage, the consequences of the crystallisation of risk appear. This situation may be subject to strategic response from individuals or groups.
(Colic‐Peisker & Johnson, 2010, p. 743)
The subsequent subparagraphs will elaborate on the consequences of negative equity on households as identified by literature.
Stress
In addition to the research by Colic-Peisker & Johnson (2010), there are other studies in the field of negative equity that focus on risk perceptions and feelings of homeowners: The study of Smith, Searle, & Cook (2009) focuses on the risk perception of homeowners. The study of Croft (2010) also describes these risks and argues for a reconceptualization of housing debt. Members of a households can have a feeling of anxiety when confronted with negative equity because their feeling of ontological security can have been affected (Colic‐Peisker & Johnson, 2010, p. 353). Housing can be seen as an ontological security: By buying a house, money is considered to be stored safely, which could be used in long-term (e.g. for retirement). As housing prices were generally stable and increasing previous decades, buying a house in a housing career could be considered as a form of banking. Now that this security is (partly) eliminated for some households, members of these households can encounter stress. This stress is in particular related to financial security: When households face negative equity they can perceive it as indebtedness as households can face (a high amount of) debt if the dwelling has to be sold.
28
Constraints in housing career aspirations
A more concrete consequence of negative equity, is that it can lead to constraints in the fulfilment of housing career aspirations. As stated before, these constraints can create a discrepancy between housing career aspirations and actual housing career behaviour. Macro studies have been done on the mobility of households on the housing market which can give understanding on the mechanisms and magnitude of these constraints. The text below will first focus on these macro studies, subsequently it will focus on studies that inquire the household-level.
Macro studies
Macro studies have been done in the field of household mobility and negative equity. Research by Ferreira et al. (2010) focussed on the impact of negative equity and rising interest rates on the mobility of homeowners. The authors state in their article ‘Housing busts and household mobility’ that homeowners suffering from negative equity are one-third less mobile. Schulhofer-Wohl (2010) argues the research by Ferreira et al. by stating in his paper that negative equity does not reduce mobility based on the data used by the research of Ferreira et al (2010). He states that “… negative equity may be socially harmful if it reduces homeowners’ incentives to invest in their homes and communities” (Schulhofer-Wohl, 2010, p. 12). In the study ‘Residential Mobility, Housing Equity and the Labour Market’ (Henley, 2008), the author states that there is strong evidence that negative equity has a negative impact on residential mobility in the United Kingdom. In this research, the author declares that homeowners do not move in response to changing labour market conditions when facing negative equity (Henley, 2008, p. 426). Based on these macro studies, the causal relation of negative equity and the effect on housing mobility remains unclear.
Studies on the household-level
On the level of households, it is more important to get insight on the aspirations of households to move and if they are able to fulfil their housing career aspirations, as negative equity can impede these aspirations. A household can have different short-term mobility aspirations, such as: staying in short-term or moving in short-term. These aspirations are formed by different push and pull factors: › Push factors generally consist of: dissatisfaction with neighbourhood and the dwelling and looking for another job. Other factors that can contribute to the will to move are cohabitation and family expansion (Forrest, Kennett, & Leather, 1999, p. 42). However, households can encounter unforeseen circumstances which can lead to problems in keeping up monthly mortgage-payments which can ultimately result in mortgage default. Generally four important unforeseen circumstances are known to cause problems when households face negative equity: dismissal, work disability, death of a partner or divorce (Stichting Waarborgfonds Eigen Woningen, 2014). These factors can be called risk events of negative equity (Colic‐Peisker & Johnson, 2010, p. 743).
› Pull factors generally consist of: satisfaction with neighbourhood and the dwelling (Musterd & Kempen, 2007, p. 316).
29 An example of negative equity impeding the aspirations of housing careers is a situation where households are forced to move to a cheaper dwelling because of financial indebtedness, while they prefer to stay. This means that households cannot follow their intended behaviour on the housing market as defined by their short-term movement plans. Those short-term movement plans are a derivative of their prospective housing career. This creates a discrepancy between actual housing market behaviour and the housing career aspirations of the households on the housing market. Different short-term housing career scenarios can therefore be subdivided. These scenarios can generally be divided in four categories as visualised in Figure V. The scenarios are adapted from (Musterd & Kempen, 2007) where the authors summarise four different types of household intentions on their housing career (and therefore the housing market), coupled with their eventual behavioural constraints:
› The unsatisfied trapped:
Residents who express substantial discontent, but are not able (or willing) to move; › The unsatisfied springboard category:
Those who are discontent, but who have serious plans to move; › The satisfied springboard category:
The satisfied who intend to move; › The satisfied stayers:
Those who are content, and are planning to stay; › The grey middle:
A category comprising those who did not express either clear satisfaction or dissatisfaction. (Musterd & Kempen, 2007, p. 312)
These scenarios are adapted to match the situation in which coping strategies occur: between housing career aspirations and realised housing market behaviour. The last category ‘the grey middle’, is not used in order to diminish opaque results in this research. The other four scenarios, in which the term housing career aspirations are used as a starting point and the ability to fulfil the short-term housing career aspirations are used as a short-terminus, give a good structure in which the coping strategies of households can be structured. Households can fulfil their short-term housing career aspirations in third and fourth category. The first and the second situations lead to behavioural constraints: households are obliged to stay in the current home, or households are forced to move because of mortgage default. These scenarios can be defined as stringent factors of household mobility:
30
Figure V Overall mobility scenarios of households facing negative equity
Adapted from (Musterd & Kempen, 2007, p. 312)
Aspiration: stay on short-term. Constraints: mandatory move
A situation is possible in which a household does not aspire to move, but is forced to move because of a mortgage default. This situation can occur because of a decline in income, which occurs by for example: a divorce, job loss or death of a partner. This creates stress because the potential residual debt will now turn into a residual debt, and households now have to move while they prefer to stay.
Aspiration: move on short-term. Constraints: obligatory stay
Another situation is possible in which households want to move, but cannot move. For example: In the Netherlands, there is a ‘double lock’ on the housing market: if mortgages are higher than 106% of the house value, households cannot move, even if there is enough income to pay the mortgage interest (Schilder & Conijn, 2012). See Figure VI for an elaboration of this concept. The text in this figure shows that the ‘double lock’ on the housing market is a serious problem for households that aspire to move while they are facing negative equity.
Two other situations are also possible, in which households can fulfil their short-term housing career aspirations:
Aspiration: move on short-term. Mobility constraints: none
A situation in which households have a desire to move and are able to move. In this situation, households can fulfil their short-term housing career aspirations, however, they still can apply coping strategies in order to mitigate other negative consequences of negative equity, for example: stress that occurs because the household is aware of the fact that it has a high virtual debt.
