No ordinary housing crisis

Part 1

Rory Hearne14/06/2018

This is no ordinary crisis. The Irish housing system is in a state of ‘structural ‘shock’. Home-ownership rates have collapsed to levels not seen since the 1970s. Homelessness is at record levels. But there are real solutions that could be implemented if the political, societal and institutional will existed. This two-part article explains some of the root causes of this crisis and offers a suggestion for the government for the coming Budget – to postpone proposed tax cuts and its rainy day fund, and to invest this funding instead into local authorities and the setting up of a new public housing company to build social and affordable housing on a major scale.

In Ireland today there is a generation that is ‘locked out’ from affordable housing. Our friends and family are stuck living with parents until their 40s, putting off having children, unable to move to cities to get work or return from living abroad because of unaffordable housing costs in Dublin and increasingly in cities and towns across the country. Home-ownership has dropped from 80% in 1991 to 67% today (see graph below). Not one affordable home has been built in the last decade while very little social housing has been built.

 

 1971198119912002200620112016
Owner-occupied68.874.479.377.474.769.767.6
Private rented13.310.18.011.09.918.518.2
Social rented15.512.59.76.910.78.79.4
Other2.43.03.04.64.73.04.7
Free of rent2.42.62.11.71.51.51.6
Not stated-0.40.92.93.21.53.1

Source: Burns et al. (2017) based on CSO, Census of Population

 

At the root cause of our crisis is the fundamental mistake made by policy makers, economists, politicians and wider society over the last three decades in treating housing as a wealth-accumulating asset rather than what it was, and should be - a home and a human right. By turning housing into a global commodity it has contributed to inequality. It has led to the situation where our young people can’t afford to buy a home and thousands are homeless, yet wealthy investors buy housing just to leave it vacant and get future gain from asset value appreciation. This is illogical.

Unfortunately, as I outlined in my report for TASC last year (‘Home or wealth generator? Inequality, financialisation and the Irish Housing crisis,’), current government policies continue to significantly worsen the crisis. Their approach suggests that the Irish state still has an incorrect understanding of the scale and causes of the housing crisis and is implementing the wrong policies.

The policies that lead to this latest crisis are being continued–the marketisation and privatisation of social housing delivery and public land, the facilitation and encouragement of speculative global property investment in Irish housing (through NAMA and the Real Estate Investment Trust tax relief), and the over-focus on incentivising the private market to solve the supply crisis. This approach, has not, and will not, deliver real social and genuinely affordable housing on the scale required.

The government’s flagship housing policy Rebuilding Ireland has a flawed approach from the outset (Burns et al., 2017). An overwhelming majority of housing to be provided in the plan is to come from private sector supply. 85% of the 134,000 new social housing’ to be provided in Rebuilding Ireland until 2021 is to be supplied from the private rental sector (e.g. 83,000 from the Housing Assistance Payment, HAP), Part V or leasing new builds from the private sector. Just 15%, or 20,580 are new builds by Local Authorities and Housing Associations. Disappointingly, the Department of Housing has been using PR spin to hide this this reality. For example, it claimed 25,000 social housing ‘solutions’ were provided in 2017. Yet only 7000 new homes were added to social housing stock. And of that 7000, less than 400 were built by local authorities. So a tiny proportion of ‘social housing solutions’ in 2017 was actual new house building by local authorities.

Furthermore, the Housing Assistance Payment (HAP), as I outline in the current edition of the academic journal Administration, should not be considered a form of social housing as it relies on the insecure private rental sector, and thus places social housing tenants at on-going risk of homelessness.

Furthermore, as with other landlord subsidies being used to provide social housing it does not make economic sense. HAP is actually a much more expensive form of social housing provision than direct build social housing. The financing of a direct build social housing unit in Dublin through state borrowing would cost approximately €800 per month. In contrast, the monthly payment for a HAP unit in Dublin is €1,244. This means financing a HAP unit in Dublin is €5,328 more expensive to the state per annum than a new build unit. Over a thirty year period this equates to a HAP unit being €159,840 more expensive. Furthermore, if private market rents increase (as they have done in recent years), then the cost of HAP necessarily has to increase in time. In addition, at the end of a typical thirty year borrowing period, the private landlord has accumulated an asset via HAP state payments. In contrast, in direct social housing build it is the state which has invested in, and accumulated an asset. This asset can then either provide a further social housing home, where the state is then gaining an income in rent on the asset and it can be used as collateral to draw down further borrowing for investment in social housing. 

Rebuilding Ireland projects in excess of 120,000 households in receipt of various private rental sector state subsidies by 2021. This will require state expenditure of approximately €1bn per annum to private landlords. In contrast, an equivalent investment in direct building by local authorities and housing associations would provide approximately 55,000 social housing units over a ten year period and 165,000 units over a thirty year period.

The latest social housing initiative, the Social Housing Leasing Scheme (the leasing of social housing units from the private sector are planned to provide 10,000 units under Rebuilding Ireland) is a similar approach. The purpose of the scheme according to the Department of Housing “is to facilitate larger levels of private investment in social housing”. Property owners are going to be paid up to 95% of the market rent for 25 year lease agreements with the state (up from 80% in the last scheme) and the asset (property) is retained by the private sector with the state left with no asset at the end of the lease.

Private investors have heavily influenced the nature of these social housing schemes which are being shaped, not in the long term interest of the Irish state and taxpayers, but the profitability requirements of private global investors and landlords. An alternative approach is clearly required, which I will outline in Part 2.

 

References

Burns, M, Drudy, PJ, Hearne, R. & McVerry PJ, Rebuilding Ireland: A Flawed Philosophy? Analysis of the Action Plan on Housing and Homelessness, in Working Notes, Issue 80, October 2017, Centre for Faith and Justice

Hearne, R. (2017) ‘Home or wealth generator? Inequality, financialisation and the Irish Housing crisis,’ in TASC (2017) Cherishing All Equally 2017: Economic Inequality in Ireland, TASC

Hearne, R. & Murphy, M. (2018) An absence of rights: homeless families and social housing marketisation in Ireland, Administration, Vol. 66, No. 2, pp. 7–29

Posted in: Housing

Tagged with: housingcrisissocial housing

Dr Rory Hearne     @RoryHearne

Rory Hearne

Rory Hearne is a postdoctoral researcher in the Maynooth University Social Sciences Institute (MUSSI), working on the Re-Invest Participatory Action Human Rights and Capability project in relation to social investment with a particular focus on homelessness and water infrastructure.

He has a PhD in political and economic geography from Trinity College Dublin. He is also a former policy analyst with TASC and has worked as a policy researcher and community development worker with Barnardos on social housing regeneration and human rights in Dublin's inner city. He was lecturer in human geography in the Department of Geography, Maynooth University and has researched and published extensively in the areas of housing and social housing, political economy, human rights, social movements, and politics.

He is author of Public Private Partnerships in Ireland (2011) and co-author of Cherishing All Equally (2016). He is also a regular economic and social analyst on various national media.


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