How to deliver affordable rental?

Access to affordable housing is an issue that continues to dominate news headlines as the crisis worsens. Aside from the challenges faced with the current housing shortage, Project Ireland 2040 anticipates that the population will reach six million by 2040, resulting in an estimated requirement for a further 550,000 homes. But how will these homes be delivered?

Aside from traditional models of social housing delivery such as direct build by local authorities and Approved Housing Bodies (AHBs) and Part V acquisitions, a number of new initiatives are being taken to bring additional social housing units to the market, such as joint venture projects with stakeholders, stage payment and other structures to forward fund delivery of housing by developers. In addition, a new mortgage scheme has been introduced by the Government for households on incomes of not more than €50,000 per annum for single people, and not more than €75,000 per annum for a couple.

However, there is still no clear indication from any government initiative as to how to provide affordable housing for those who do not qualify for social housing or mortgage approval, and are facing the spiralling cost of rental in the private rental market. With continuing rises in rent levels and reports of private landlords leaving the rental market, where does this leave private renters?

Affordable rent

On 22 January 2018 Housing Minister Eoghan Murphy made a statement on the Affordable Homes Initiative, which included reference to an Affordable Rental Scheme. Minister Murphy stated that this scheme would use a cost rental model, where “rent paid covers the cost of building the property, together with ongoing management and maintenance charges, but with a minimal profit margin included [and] this provides greater certainty around the rent, regardless of what is happening in the market”.

However, if the rent is calculated on this basis, it will not reflect on the ability of the renter to pay. In addition, no indications have been provided by the Government as to the eligibility criteria for this model, and there is no definitive understanding of what exactly is “affordable rent”.

Pilot scheme

An affordable rental pilot scheme has been announced using publicly owned land at Enniskerry Road, Dun Laoghaire in conjunction with Dun Laoghaire-Rathdown County Council and two AHBs. Given that (at the time of writing) building work has not commenced on this site and the build time is estimated at two years, it remains to be seen how this scheme will be implemented in practice. Indications thus far are that the rental amount will be based on the cost rental model, however with build costs not yet ascertained it may be that this calculation of the rental payment will be out of the reach of those who do not qualify for traditional social housing assistance. Furthermore, it is unclear as to whether these rental units will be made available to those on the social housing list (with the potential for existing rent subsidy programmes to supplement the rent if necessary), and/or those on higher incomes (i.e. private renters).

Other jurisdictions

Similar difficulties are faced by governments worldwide, who have come up with different solutions.

In Berlin, affordable rent is linked to income and is no more than one third of the income, and is furthermore limited to maximum apartment size. However, similar to Ireland, there is a heavy reliance on private landlords with rent being subsidised by the State and it is difficult to see how this would be a long-term solution in Ireland.

In London, a recent initiative called ‘London Living Rent’ was introduced for middle income households. Among other criteria, the tenancy must be for at least three years, income cannot be above £60,000 and rent is calculated based on location and tends to equate to approximately two-thirds of market rent. Other schemes in the UK provide for rent of 80 per cent of market rent and tenancies at a fixed rent of five years.

In Denmark, rent is tied to cost of property, but the housing agencies can obtain loans to build/purchase at lower rates than those currently available in Ireland. In addition, these housing agencies are heavily regulated by government, and do not make a profit.

Can Ireland learn from these other jurisdictions, taking on the positives of what has worked elsewhere and ensure that a real long term solution for affordable rental is delivered here?

Options for Irish housing market

It is clear that significant steps need to be taken to ensure that the housing crisis does not worsen and to prevent a situation where those on middle incomes are at greater risk of homelessness.

The general, internationally accepted aim, is that no more than 30 per cent of disposable income should be spent on housing. If this is to be achieved, then affordable rent should not be linked to build cost of properties unless that cost can be reduced and managed in a fashion that allows the rent achieved to be affordable.

Minister Murphy has recently indicated that new planning guidelines will be introduced in July, allowing for higher apartment blocks with fewer windows, and removing the requirement for car parking spaces. Whilst this is a welcome move and should contribute to reducing the cost of building, when considering planning applications local authorities must consider the needs of all of society and all the amenities required for harmonious living.

A number of commentators claim that the State owns enough zoned land to deliver significant numbers of social housing units, without taking into account additional state land which could be rezoned and unlocked for housing. Perhaps some of this land should also be made available for affordable rental by means of a cost rental scheme to deliver a better mix and meet this requirement? The proposed units could be rented on a long-term basis, at a cost that is weighted according to people’s ability to pay. Apart from the obvious benefits of land remaining in state ownership, this obviates the necessary profit element involved when such land is developed privately. As well as the state availing of public finance at low interest rates, it can also recover the cost for building and maintaining these homes over a period of years.

Accordingly, it seems that for the proposed cost rental model to work, it should be confined to state owned land as well as linking the calculation of affordable rent to income, taking into account the needs of the individual/family to ensure that rental payments can continue to be made in conjunction with an appropriate minimum standard of living.

Above all, it is imperative that the mistakes of the past are not repeated, and the focus should be on developing communities for long-term living, not just housing as a short-term solution.

Fidelma McManus
Partner and Head of Housing team
Beauchamps

Email: f.mcmanus@beauchamps.ie
Tel: +353 1 4180 600
Website: www.beauchamps.ie