Coveney’s good intentions bring little comfort to renters

For decades, governments have intervened in the market in an effort to address housing affordability. Many of these measures focused largely on promoting and supporting home ownership. It is a fallacy to argue that the State should not intervene in the housing market, as government intervention features throughout the housing sector, from home ownership and social housing to the private rented sector. Free markets in housing systems do not exist, and if they did, there can be no guarantee they would lead to positive outcomes for citizens.

This week, attention is focused on the actions Minister for Housing Simon Coveney has taken in the new strategy for the rental sector. As rents once again continue to rise nationally, according to the latest Residential Tenancies Board rent index, affordability in the private rental sector is still out of reach for many thousands of households. This represents a dysfunctional private rental sector that is not conducive to long-term renting as the norm. With changing patterns of employment, increased urbanisation, population growth and smaller households, a responsive rental sector with affordable rents will be central to successful labour mobility.

The contentious argument over introducing rent controls is unhelpful to the overall discussion. Rent certainty measures are, in the main, what most advocacy groups are calling for. The new plan does bring in “rent predictability” measures linked to increases of no more than 4 per cent a year over three years. Given that households remain in the private rented sector for much longer than this, many will face up to 12 per cent increases in the coming years.

Change behaviour

Despite the Minister’s good intentions, this will not bring much comfort to those who are already living in peak market rental homes. A forward-looking rental strategy needs to examine measures over the next two decades to fundamentally change the behaviour for all stakeholders in the private rented sector. That means tenants, landlord managers and investors alike.

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Measures widely introduced in other countries, that have enhanced the rental markets include affordable rental (often less than full market rents) and cost rental (reflecting the costs of building and managing new rental housing). With these models, there are generally two types of state-based support and subsidies. They can come in the form of personal subsidies, or bricks and mortar subsidies (including the use of land).

Personal subsides for rental housing provide choice and are demand-focused, but this can be difficult to target and administer for large numbers of households.

Bricks and mortar state support and subsidies in part supply of new rental housing can produce rents that are much more manageable for a larger part of the population, particularly where there are limited land costs. In such scenarios, rents can be even more affordable than traditional targeted social housing.

However, what is required in these affordable and cost-rental models is a rent structure that reflects the real economic costs of providing and managing rental housing. Denmark, a country similar in size to Ireland, has a successful cost-rental sector managed by non-profit housing associations developed over the last 30 years.

New model

Shifting to a cost-rental housing model in Ireland could be achieved if there was a re-examination of the income-based differential rent scheme that successive governments have been wedded to in the social housing sector. Differential rents, a rent system based on household income, has certainly progressive features for tenants. However, this model still fails to address the link between the cost of providing and managing rental housing, and the economic rents that are needed to meet these costs for those bodies managing such housing. There has never been a meaningful attempt by governments to address some of these contradictions.

If we are really looking to a new strategic direction for Ireland’s housing over the next 40 years, a re-examination of the cost of delivery and management of rental housing should be central to this. Otherwise, we will still have a partitioned rental sector of social not-for-profit, and private for-profit.

While housing affordability cannot ultimately be achieved by any one stakeholder, non-profit housing associations have a strong track record in the provision and management of housing and have the experience to assist the Government in the delivery of new rental schemes that produce affordable rents.

A viable, sustainable and affordable rental sector is the core objective of the Government’s Rebuilding Ireland rental reform strategy, but the development of mixed-tenure housing developments is also a critical component of the overall strategy. It’s a different approach, but very much something that we need, if we expect different outcomes for housing in the future.

Donal McManus is chief executive of the Irish Council for Social Housing