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Think first, then act

Eddie Lewis

Do we have a solution to the housing crisis? The short answer is no. The housing market in Ireland at present is not able to manage the level and volatility of the demand for housing. Figures show net migration of about 34,000, an estimated population increase of about 65,000 and 50,000 extra jobs being created in 2018. To this can be added a latent demand for housing running into the hundred thousands. Against this the current level of output of between 18,000 (new units built in the last twelve months) and 21,500 (units added to housing stock including vacancies and the finishing out of so-called ghost estates) does not suggest that the pressure on housing is going to lessen any time in the near future.

But this is not a counsel of despair, nor is policy inertia an option. While it is unlikely that we will find any single solution to the housing crisis, there are a great many things that the government can do to improve the current situation, including better regulation of the housing market, strengthening the capacity of the construction sector and increasing investment in social housing. The aim of the decision-makers should be to do what they can to manage the current crisis while at the same time preparing a way for a longer-term reform of the housing system.

The first step is to temper expectations. It is an unfortunate reality of the current political environment, with all the uncertainties associated with Brexit and a minority government, that there is little prospect of agreement on any significant reform of the housing system. Review the debates in the Dáil on housing matters and one quickly sees how housing has become politically super-charged. It is (according to a recent opinion poll (Red C for the Sunday Business Post March 2019) the area of public policy on which the government is most vulnerable. The political saliency of housing can be seen in the direct action taking place on the streets, the repeat threats of motions of no confidence in the Minister for Housing and the regular media coverage of highly distressing stories about the personal circumstances of individuals and families that have been failed by the housing system. The disputation extends to disagreements about the numbers ‑ what is the level of output, how many households receive social housing support, the numbers successfully transitioning out of homelessness. If we cannot agree on what count as facts then there is little chance that the political system can coalesce around difficult choices on the direction of housing policy.

But there are three things that we can do now. First, we can continue to expand output. It is not contested that following nearly a decade of extremely low output (see Figure below) we are short of housing. But expansion has to be planned taking account of the existing capacity constraints in the construction sector. Increased levels of investment may be wasted if the result is simply to inflate building costs. Second, we should focus on housing reforms that are broadly uncontroversial and which will strengthen the support infrastructure whatever approach to housing policy we take. And finally, we need to reignite the debate about the sort of housing system that this country wants and needs as a small open economy at the periphery of Europe.

ESB Connections. CSO Revised Figures from 2011.

Our starting point is the demand for housing. Where does the heightened pressure on housing come from? Let us circle around the subject for a moment. Students, especially those coming from abroad, self-catering short-stay city tourists and highly mobile foreign workers moving to Ireland all put pressure on the housing market. These are mentioned separately as they represent areas where specific solutions can be considered that are part of but also crucially distinct from the main approach to the provision of affordable housing.

Between 2016 and the end of 2019 new purpose-built accommodation for about 10,000 students will come on stream – pretty much in line with the targets set in the National Student Accommodation Strategy of 2017. There is also planning permission for another 8,000 bed-spaces. Measures to increase the accommodation available for students to the end of 2024 could reduce net demand by as much as 5,000. But this still leaves upwards of 20,000 students to be accommodated, some of whom at least will find their way to the private rented market and will compete for affordable housing. NESC in 2014 estimated that around 3 per cent of the private rented sector was let to students. With the expansion in student numbers since then the proportion may be even higher today. Reducing demand from this segment of the population through purpose-built accommodation close to or, where possible, on campus should be a priority.

Another part of the private rented market has moved to cater for short-term, mainly tourist, lets. The numbers are not large but impact supply in some high-demand areas. According to the property website Daft.ie, the amount of private rented accommodation available for letting at the end of 2018 is at its second lowest level since 2006. At the same time an increasing number of properties are being made available for short-term lets on Airbnb. There is some disagreement about the figures, but media reports last summer suggested that there were more than twice the number of single properties being offered on Airbnb than were being listed for rent. New planning rules will make it more difficult for owners to assign properties to short-term lets (as opposed to persons sharing rooms in their homes), but as long as tourist numbers are growing it is likely that there will be a continued seepage of units (new and existing) into this specialist segment of the market. Effective enforcement of the new provisions will be important.

Finally, and of greatest importance in terms of the overall impact on the rental market, are workers coming from outside Ireland each year. More people are moving to the county than are leaving it – and the difference is enough to take up the total output of new residential units. Two further factors compound the problem. Although the latest annual net migration figure is about 34,000, it is reasonable to assume that the higher figure of 90,000 returning or new immigrants will have a higher demand for accommodation than an equivalent number of emigrants, some of whom at least will be leaving directly from the family home. The second factor is the volatility of the figures. With no clear pattern over the past decade it is very difficult for government or developers to make plans based on what are very uncertain estimates of long term demand.

Central Statistics Office: Annual Population Change by Year

The movement of mobile households to take up work are mainly seeking accommodation within the private rented sector and have added to the upward pressure on rents. Already Dublin is finding itself in an uncomfortable position towards the top end of city comparisons tables when it comes to the cost of housing. Even returning immigrants with savings and good jobs may spend time in rented accommodation before deciding when and where they want to purchase a home. Providing centrally located and good quality accommodation for persons who may not be intending to stay long-term in the country, or who simply need time to find a home to buy or rent, would lessen the pressure on the main rental market, where leases with proper security of tenure is a necessity. Short-term accommodation that provides a wide range of shared services and an environment where one can meet others in similar circumstances may prove economically and environmentally sustainable (with a smaller physical footprint required) and socially attractive as people find their way in a new city.

All of the above have the potential to reduce the demand for rented accommodation. But they deal only with the outer layers of the problem. Ireland still needs to find ways to increase output for the main cohort of the population who are seeking to establish independent households and require affordable housing.

State intervention in support of the housing market has been long accepted as settled policy by all political parties in Ireland. In the early years of the state very few houses were built without some level of financial input from the state. In the 1950s over 95 per cent of houses received some level of state support. Since then different combinations of grants, tax relief and state loans have supported households becoming home owners. State subsidies were also available from time to time for those willing to invest in rented accommodation and, less often, for private renters themselves. And, finally, the state funded an investment programme in social and affordable housing for low income households unable to meet the cost of housing on the private market.

The principle of investment by the state in housing, either directly or indirectly, is not a matter of public debate. It is broadly accepted that the government has a responsibility to ensure that there is sufficient affordable housing available for those in need. But the extent and the nature of state support, especially in a period where the cost of housing is rising, raises major issues for the state. In an industry that is prone to cycles of boom and bust and where investment decisions are of necessity medium- to long-term in nature, it can be very difficult to ensure the right type, level or duration of any economic intervention.

The most direct way for the state to increase residential output is to invest in social and affordable housing. The main social housing investment programme for 2019 provides funding of €2.3 billion, an increase of €350 million on 2018. It is estimated that this level of investment will provide for an additional 27,400 households. To achieve this, 10,000 new homes will be provided by means of new build, acquisitions and long-term leasing. Some of the public investment will also be used to facilitate the delivery of affordable housing for purchase. It is expected that €43 million allocated to the serviced sites fund, for instance, will enable the delivery of 1,400 homes on local authority lands in Dublin and Cork.

But a steady increase in the volume of social and affordable housing over the next five years, which should certainly be supported and allowed for in Exchequer budgets, will barely cover the increased demand from new households, whether arising domestically or as a result of inward migration, and will do little to address the legacy of reduced output amidst demand pressures that has been the experience of the post-crash years. It is difficult to determine exactly how many households are currently in need of affordable housing. The Housing Needs Assessment 2018 has identified over 70,000 households that qualify for social housing support. An indicator, no more than that, of the volume of new households that might have been expected to have formed were it not for the inadequate supply of housing can be gauged from the trends in household formation. Ireland, in a manner similar to that in other advanced economies, saw a decline in household size from 4.2 persons in 1946 to 2.7 today. But this steady fall came to an abrupt halt from 2011, just as the housing crisis was beginning to bite. It is not unreasonable to surmise that a primary cause of the suspension of the downward trend is adult children staying longer in the family home, either because they simply cannot afford market rents or because they are saving to purchase. An indicator of housing demand based on household size of 2.5 (the European average is 2.3) would require an increase in supply of the order of 140,000 units. While we should not read too much into these figures, household size is only a broad indicator and there may be factors other than lack of affordable supply involved, but it does support the contention that there are high levels of latent housing demand in the system.

The overall levels of housing output are rising year on year and it is reasonable to expect that within a couple of years the supply will have passed the historically resonant threshold of 25,000 per annum and may even exceed 30,000. Going much beyond this will require a further boost to the construction sector and most likely a shift in resources from other forms of building work. This of course brings back memories of what happened in the closing years of the Celtic Tiger as the economy binged on housing investment. How to ensure that there is a reasonable balance between different types of infrastructural development, including housing, is one of the biggest economic policy challenges facing government.

In the current political environment it will prove difficult for any government to secure agreement to any major reforms to housing policy. There is little appetite, and even less capacity given the current Dáil arithmetic, for making difficult choices. It is easier for all concerned to pursue the option of expanding supply, as far as Exchequer resources permit, but leave the main structures of the housing system intact. This is not to say that change is not occurring. Given the volatile nature of the housing market even were the government to do nothing beyond gradually expanding the supply of social and affordable housing, the underlying economic reality is being transformed as house purchase becomes increasing unaffordable for most younger households and renting a heavier burden. Policy drift is far from optimal and is certainly a wasted opportunity.

So is progress possible in the short term around which a broad political consensus could be built? Three things stand out, the strengthening of the regulatory environment, the removal of capacity constraints in the building sector, especially through better training and career development, and improvement in the way housing statistics are collected and reported on.

The regulatory environment for rented housing in Ireland, which is the main focus of interest, is divided into three overlapping segments. Local authority housing is governed by statute and regulations under the Housing Acts 1966-2015. It is a broadly permissive regime. The housing authority is given power to build, acquire and manage social housing, issue grants and loans and provide a wide range of ancillary services. Only in a few instances is the housing authority obliged to act. There is limited independent regulatory oversight of the housing activities of local authorities and limited accountability for poor performance. Improving the governance and regulatory controls over housing authorities is something that should be largely uncontroversial.

Perhaps of more immediate benefit is the regulation of the voluntary housing sector. As housing associations take on a larger role in terms of the provision of social and affordable housing there are heightened concerns about how they operate. A voluntary code of behaviour has been in operation since 2013. It has worked well, with around 90 per cent of the sector signing up to a code that embraces governance, financial and performance standards. But the legislation to underpin these standards through an independent regulator, which was given the go-ahead to proceed in the Dáil in February 2016, has not yet been published. With all political parties and the sector itself supportive of the principle of statutory regulation this is an area where progress can be made.

The third regulatory area covers the private rented sector. This has been the subject of many changes over the past decade with near annual legislative amendments. The Oireachtas is currently debating the latest iteration, the Residential Tenancies [Amendment] Bill 2018, which will strengthen the regulatory powers of the Residential Tenancy Board, provide for longer notice periods for termination of tenancies and move to the annual registration of tenancies. There is political wind behind tightening the regulatory controls governing the sector.

Another area that the government might focus on is training and career development. The financial and property collapse at the beginning of the decade devastated the construction sector in Ireland, with the number of jobs declining by 180,000 (a third of the number at peak employment in 2007). The sector has never really recovered from this and economists and developers have regularly pointed to the limits this imposes on the ability to expand output. The most immediate requirement, and one that the government has a major role in, is to expand the number of apprenticeships in the industry.

But the need for better training extends to the management of supported housing and the delivery of homeless services. Within the public sector the regular movement of staff in local and central government results in a loss of knowledge and expertise. A way to encourage staff to build a career around housing, planning and community development, with transfers between the public and voluntary sectors, needs to be explored. The final area where actions taken now would improve the platform from which any future reform agenda must be built is to improve the collection and reporting on housing statistics. There are two issues – key gaps in the data and a lack of trust in figures published by government. It is nearly twenty years since a comprehensive national house condition survey was last carried out. In 2017 the EU (European Committee of Social Rights), in dealing with a case brought by tenants of a local authority concerning the poor quality of some accommodation, noted the absence of an up-to-date survey of housing conditions. The government committed to carrying out such surveys in 2018 and local authorities were charged with responsibility for carrying out the work. It is not yet complete.

But even with improvements in data collection the lack of trust around the published statistics remains a matter of concern. Considerable effort is expended arguing about the veracity of housing figures. A reliable and trusted evidence base is an essential part of any policy programme. An independent validation of published figures, with explanations as to the underlying status and relevance of any statistics produced, is badly needed.

None of the above reforms will solve the housing crisis. But they will help create a better platform from which to take the next steps forward and address the longer term issues facing the sector.

This brings us back to the main subject of this essay, the future direction of social housing policy. Let us start with the statistics. Less than 10 per cent of households in Ireland live in permanent social housing units. That is about 170,000 units, made up of about 140,000 local authority dwellings and 30,000 owned by housing associations. In addition, about 85,000 tenants of private landlords receive rental assistance from the state under a range of schemes paying a financial contribution to the local authority similar to that of local authority tenants. The number of social tenancies has been steadily rising [see Figure below] even as units are lost to obsolescence, regeneration schemes and sales to local authority tenants.

With over 70,000 households on local authority waiting lists and many more either requiring financial support from the state to meet rental costs or living in the family home because they cannot find suitable affordable accommodation in the private rented sector, the pressure to expand the supply of social housing is immense. Additional supply is certainly needed, but on its own it will not resolve the housing crisis. For that more radical solutions are required that seek to address key structural issues facing the social housing sector.

The basic model of social housing in Ireland is built around the provision of Exchequer funding to directly finance the construction and renovation of social housing, which in turn is predominantly organised in mono-tenure estates of varying sizes. Housing authorities and, in more recent years, housing associations act as social landlords and are responsible for managing and maintaining the social housing stock. Tenants are allocated tenancies based on an assessment of need on what are, in effect, life-long tenancies. Rents are heavily subsided and linked to ability to pay. Finally, tenant choice is mainly exercised through the action of exiting the social housing market by means of house purchase at discounted prices.

Ireland has traditionally espoused property ownership, with up to 80 per cent of households owning their own homes. Since 1990 there has been a steady decline in home ownership (it is now below 70 per cent) and a corresponding increase in the number of households renting. For many this represents an economic shift as housing has become relatively more expensive and affordability is the main driver of the change. For others it may be more a matter of choice, albeit reflecting changes in the nature of our economy and of employment. A more mobile workforce and less secure jobs reduce both the capacity to finance a mortgage and the attractiveness of home ownership. While most households continue to aspire to home ownership, for many it is simple unattainable and for others the choice of purchasing far from work and other services is unattractive.

The National Economic and Social Council in 2014 predicted that something of the order of a quarter to a third of households will need financial help from the state in meeting their housing costs. Since then house prices and rents have risen sharply and at a faster pace than disposable income. It has increased the demand for social and affordable housing and left governments with a difficult choice about how to balance support for renters and purchasers. Growing the stock of social housing will be a part of any solution – but the detail of how to do this in a fair, efficient and economically sustainable manner has so far eluded government.

There are three main routes that housing policy can take to address the need for social housing from a growing proportion of the population. These options overlap in certain regards and individual policies may be compatible with more than one pathway forward. But they still represent difficult choices that government at some point is going to have to address.

The first option would seek to minimise the changes to the traditional social housing system and introduce only those that are considered necessary to reflect new economic conditions. It would try to adapt the traditional approach and would embrace only a modest shift from capital to revenue funding, expand the channels of social supply to include “not for profit”, with private landlords providing a temporary safety net, and allow for technical and limited adjustments to the core functions of housing authorities (assessment of need, differential rents, allocation policy and tenant purchase). It would also be compatible with a basic understanding of “sustainable communities” and would promote the regeneration of local authority estates.

What the approach would not envisage is any fundamental change in social tenure, including any restrictions on the right to purchase. Housing authorities would remain the primary supplier of social housing support and investment programmes would continue to be dependent on the availability of capital funding from the state. The fundamental dualism in the housing market in Ireland would not be challenged and the primary lever of control exercised by policy-makers would be through the investment programme, with the main objective being to avoid the periodic shortages in supply (including in the provision of homeless services) or failings in the management and maintenance of public housing estates.

The strengths of the model are that it has wide political and public recognition, would be relatively easy to implement and could allow for the exercise of financial control through the primacy of a supply-based investment programme. The downsides of adopting this approach are the lack of ambition, the high cost to the Exchequer and the continuation of inconsistencies in the treatment of households across the country. The level of investment required from the state would be considerable but also subject to the vagaries and uncertainties that come with that funding being reliant on the health of the public finances. It is difficult to see how it would do other than perpetuate a pro-cyclical investment model, with expenditure on social housing increasing as the housing market expands.

NESC in its post-crash (2014) report on housing proposed a radical overhaul of social housing policy with a view to gradually moving towards a more economically sustainable unitary rental market. The essence of the approach is to introduce a new funding model based around the adoption of “cost rental” principles, the use of EU and private monies (off balance sheet) to underpin investment by the “not for profit” sector in social and affordable housing, and the use of housing allowances to address issues of affordability for households on low incomes.

Central to the model is the idea that over time the cost of providing social housing would drop as, through the “maturation process” housing associations cross-subsidise the provision of newer dwellings as the original investment on older properties is paid off. Costs are kept in check by linking repayments to the cost of construction, interest payments and whole-life maintenance costs rather than by reference to market rents. Subsidisation of poorer tenants is provided through some form of housing benefit. Affordable rental schemes would allow for a tapering of rental assistance for those who are on the margin of needing social housing.

NESC, in a series of reports in 2014/2015, identified a series of related changes in social housing policy that are variously essential to or supportive of the cost rental model. A shift from capital to “off balance sheet” investment funded out of revenue, the termination of tenant purchase and differential rents schemes and the regulation of private sector rents would seem to be integral to the model as proposed. The key levers around which policy change takes place are the shift to the cost rental model and the introduction of a housing benefit system.

The pathway towards a unitary rental market based around housing associations operating in the private rental market with limited state subsidy linked to cost-rental calculations is an attractive one. The challenge would be how to get it implemented. It is a programme with the potential for long-term gain. But the signature policies that would be needed to make it work within any reasonable time frame would probably prove unpopular, for example ending of tenant purchase, sal/ transfer of local authority properties to housing associations and the replacement of differential rents by fixed rents supported by a housing benefit system. Although the goal of economic sustainability is a worthy objective, it is by no means clear how policy-makers can craft a pathway from where we are today to the desired destination.

An approach to social housing based around expanding the sources of supply is a third way forward. The essence of the approach is the focus on individual choice and the idea that housing needs are contingent on the socio-economic position that the household finds itself in at different points in its life-cycle.

The key change that such an approach would bring about would be to end the “tenure for life” principle that is central to the traditional social housing model. The approach to the allocation of support, whereby housing authorities make all key decisions about how housing need is met, would be replaced by a shared process involving the household. The environment created and supported is one in which there is greater residential mobility, options to change tenure and regular reviews of housing need (including for those currently in receipt of social housing support). The lever for change is the introduction of new procedures for the assessment of need and enhanced choice available to tenants and applicants for social housing support.

In many ways this approach might be considered the natural successor to the NESC reports of the early 2000s. Investment in social infrastructure, in this case social housing, is needed to align social and economic objectives. It is an approach designed to provide more options for tenants, high quality public services and opportunities for meeting personal developmental goals. It is a less demanding option in terms of economic sustainability than that required in moving to full cost-rental, though it does rely on expanding the revenue model. It departs from the traditional approach to social housing in limiting the opportunities for “tenure for life” both on cost and equity grounds. It seeks to address directly the problem of welfare dependency and the high replacement rate associated with rental assistance that can prove a barrier to individuals entering employment. Increases in differential rents for higher income earners would be available to improve maintenance of the social housing stock. It would convert the right of tenant purchase to an option for social landlords to sell properties (vacant or new) in the interests of good estate management and to provide additional tenure options for tenants.

There is no obvious single way forward. A recalibration of the traditional model probably comes closest to current housing policy, though even here there are inconsistencies in the management of social housing that need to be addressed. It remains, however, a high risk and high cost solution that could quickly become unsustainable unless there is a narrowing of the eligibility bandwidth that currently applies. Recreating the permanent safety net means weakening the chance of providing a broad platform of affordable rental housing for all.

Significant implementation challenges face efforts to use the cost-rental model to support housing associations, which would in any event have to be reconstituted to become much closer to private property companies, with the long-term aim of creating a unitary rental market. The goal is worthy, but a simple formula of short-term pain for long-term gain is not one that has ever found much favour within Irish politics.

A reform programme based around enhanced choice and social investment would not fundamentally disrupt the main structures of social housing that exist at present and would help align housing policy more closely with wider socio-economic objectives. With many of the specific reforms compatible with the more radical cost-rental model, under certain circumstances it could be seen as a pathway (albeit by a somewhat circuitous route) to the longer-term goal of a more sustainable unitary rental model and a wider affordable housing base. Although the reform agenda as set out above will still have to balance community and individualist goals it perhaps represents the most promising way forward.

There is an understandable nostalgia for a past, whether imagined or real, where housing was more affordable, the safety net of social housing more secure and the purchase of a house was a realistic objective for families in their twenties and early thirties. But there are major and probably unsurmountable challenges in trying to recreate this world in Ireland today. It is also not at all clear that, even were it possible, that such a vision aligns with the social and economic objectives that we have set ourselves as a nation.

There is no simple solution to the housing crisis in Ireland at the moment. It is also doubtful if there is the political capacity to do more than attempt to better manage the crisis by gradually expanding the supply of social and affordable housing and variously encouraging and facilitating the expansion of output, including for students, tourists and mobile workers moving to the country. A broad political consensus on actions, based around improving the regulatory environment across the rental sector, expanding the capacity of the construction sector and improving the collection and reporting of housing statistics, might also be possible. But perhaps, most important of all, the enforced opportunity of not being able to agree on any radical overhaul of the housing structures should be used to undertake a fresh look at the types of housing system that might be possible and compatible with the social and economic objectives of modern open economy like Ireland.

1/7/2019

Eddie Lewis is an Associate Lecturer at the Institute of Public Administration. Most of his career has been spent working in the Department of Housing, Planning and Local Government, where he was closely involved in the formulation and implementation of housing policy. He is the author of a recent book entitled Social Housing Policy in Ireland: New Directions, published by the IPA. 

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