Housing Affordability and Differential Rents

Affordability and Differential Rents

CSO figures released this week show that property prices rose nationally by 5.6 per cent in the year to January 2019. This represents an 82.1 per cent increase from the cyclical trough in early 2013.  The ESRI state that while “housing affordability challenges are not universal, certain groups do face acute affordability challenges”.

NERI asserted in 2017 that residential property had become less affordable for some groups from the late 1980s onwards.

The Housing Agency report on housing supply states that the shortage of affordable housing in recent years has manifested into pressure on other sectors, including the private and social rented sectors.

Housing affordability can be defined in a few ways. Most commonly, the numerical rule used to determine household affordability is whether the household spends more than 30 per cent of the income on housing.

This simple income to cost ratio does not allow for any distinction between higher income households that may choose to allocate a higher portion of income to housing costs and lower income households that may be forced to spend a higher portion of income on housing.  The ESRI highlighted this as a significant weakness.  The alternative “30/40 measure” classifies housing as unaffordable if both 30 per cent of the household income goes on housing payments and that household income falls in the bottom 40 per cent of the income distribution.

Affordability in terms of central government and Local Authority (LA) provision of direct-build social housing must be called into question.  The reality is that differential rents charged to tenants are far too low and far from cover a LA's costs.

According to the Housing Agency, LA rents are based on  ‘differential rents’, meaning the amount of rent paid by tenants depends on their total household income. Each LA operates its own rent scheme, the particulars of which always vary depending on the LA.

Social policy authors point to differential rents being problematic when it comes to the efficiency of the housing service provided by the LAs. This is because there is no guarantee that the differential rents charged will generate sufficient revenue to manage and maintain the stock of LA dwellings over the medium to long term.

Ultimately, there is no relationship between rents charged and the cost of providing social housing.  This means there are financial deficits for LAs without even considering arrears in rental payments due.

Rent arrears at the end of 2016 across the 31 LA's amounted to almost €73m. In 2010, the Local Government Efficiency Review Group recommended that social housing rents should be deducted directly from social welfare payments “to reduce the overheads associated with revenue collection, to reduce arrears and to prevent an accumulation of arrears.  Section 53 of the Housing (Miscellaneous Provisions) Act 2014 provides for this deduction but this section of the Act has yet to be applied.

Despite inefficiencies in the State and LAs' provision of social housing to low-income households, it is considered to be an important element of housing policy.

Since the late 19th Century, LAs have been the main providers of social housing and they have provided 365,350 council housing units since then with those dwellings accounting for 22.2 per cent of Ireland’s total housing stock in 2016, according to a recent report.  While council housing tenants accounted for 73.2 per cent of low-income renting households receiving government housing supports in 1994, that rate fell to 53 per cent by 2016.

In 2017, RIA noted there had been a shift in global housing policies in recent decades whereby direct state involvement in housing provision has broadly been replaced by private-sector provision.  This has resulted in more market-dominated systems of housing provision.  As a result of policy shifts and the emergence of the new market-dominant model, RIA noted that central government developed new housing allowances for poorer households to obtain private rented accommodation. In Ireland, these allowances included Rent Supplement, the Rental Accommodation Scheme (RAS) and the Housing Assistance Payment (HAP), introduced in 2016 intended to replace Rent Supplement.

As part of a recent IBEC campaign, a report on ‘better housing’ emphasised that “failure to provide adequate social housing into the future will lead to a build-up of social and economic problems including competitiveness pressures and urban sprawl”.

Despite the obvious need for adequacy of dwelling accommodation, the Department of Housing permits several exemptions from the Minimum Standards for Rented Accommodation Regulations. Exempted properties include accommodation provided by the HSE or an Approved Housing Body (AHB) which includes communal sanitary, cooking and dining facilities as well as all accommodation provided by a housing authority or an AHB being exempt from the requirements for food preparation, storage and laundry standards.

Regardless of the policy decisions that are made going forward by central government , the minimum standard of accommodation should be verifiable for all. The regulations can only have a positive, far-reaching sectoral impact if they are enforced across all areas of the private rented sector (PRS).

With Inspex offering a consistent, streamlined inspection service solution which can be applied to any rented dwelling, the opportunity is there to identify any gaps that exist in the quality of the national housing stock.

Regular, standardised inspections of rented dwellings is an important feature of a well-functioning housing sector. This is particularly important in the current framework where the traditional lines between social and private rented stock are blurred and tenants are being accommodated by multiple types of landlords.