Hi everyone,
Long post warning. Below is essentially a political letter to be sent to local councillors, TD's etc. especially ahead of the upcoming elections. I do think this topic should be open to a nuanced, balanced discussion and I am curious as to what others thoughts are.
Edit: I am aware of the sheer length of this letter and have removed two paragraphs so far. Unfortunately due to the complexity of this issue it is difficult to effectively shorten it without leaving out factors and context. Reading only the first paragraph should give an overview of the heart of the issue.
To whom it may concern,
The Irish approach to housing has had mixed results to put it mildly. While there are a plethora of factors at play behind the current situation, issues in respect of Ireland's split provision of housing are worth considering. Issues in relation to the cost of homes, rate of rents and current social housing policy might lead someone to claim that in many instances a lot of people are actually better off aiming to get a social house than gain incomes that would exclude them from this form of tenure. However, this is the case in many situations. It must be said that nobody should view the following commentary as an attack on the provision of housing to individuals in difficult circumstances, far from it. Simply put, the past several years have seen various commentators express wonder at why so many young people are simply locked out of the housing market even though Ireland has a highly educated population with an economy operating at full employment. This should be an impetus for policy makers to examine deeper issues at play which is why issues surrounding the split provision of housing warrant examination.
Mixed tenure developments are not a new idea and in theory appears ideal. However, its execution determines its success. From a comparative perspective, other countries approach this concept by focusing on mixed income communities by widening the availability of public housing. In other words, public housing is available to a large range of income levels in society. The provision of good quality housing at an affordable percentage of income means many people willingly choose these developments. For example, 75% of the population of Vienna earn less than their social housing income limits.(1) In the case of Ireland, until recently, your choice of housing options were social housing, private rent or private purchase, usually against a mortgage. Social housing income limits were set very low for a long time, essentially excluding many working income levels. This leaves many citizens at the mercy of the private market. Following the financial crisis, this wasn’t as much of an issue as it was still fairly affordable. However the recent investment, employment and population boom has led to an extremely tight and dysfunctional private market with ever rising rates. This is an ongoing issue creating a massive divide where only the top income earners and bottom income earners can afford to live in vast parts of Dublin and indeed other cities and towns in the country.
Some might scoff at the label of the ‘squeezed middle’, however, with this ongoing issue, the label is becoming more true for many people, with many of them seeing emigration as a crutch solution. The government has been somewhat aware of this problem. However rather than make social housing available to much higher incomes, they have recently been trying to patch it up with the use of cost rental and affordable housing schemes. However these are starting to fail as they are linked to ever increasing private market rates. This approach will only exacerbate the current crisis, what is needed is reform of the current approach to split housing provision.
What could be classed as ‘the inequity’ in these housing schemes, comes from how they decide what is “affordable” and the rules of the scheme. There are many different examples that demonstrate this ‘inequity’. For example, let’s take a single income household in Dublin with two adults and one child. I’m not counting married or home carer tax credits which may increase take home pay, or often mandatory pension contributions which would reduce it. First is the option of social housing. The income limits have recently been raised. The income limits for this family would be €43000 net of tax. This is roughly €58000 gross, or €3583 a month net. The first issue we come across is the differential rents. These are not standardised and each local authority can set what they wish. It can range from as low as 10% in South Dublin County Council to as much as 16%. An average value is 15%. In certain local authorities there can be maximum rents. In others there can be extra rent charges if your income goes above the social housing income limits in the future. Taking 10% the family above pay €358.30 a month. At 15% it's €537.45. After rent in the worst case they have €3045 income left.
Let us now consider the same family but they are now above the social housing income limit. Let's take the recently new mixed tenure development of The Quarter in Citywest. The same 2 bed home adjacent to the social home is on the market at a private rent starting at €2000. The couple above, if earning only €1000 a year above the social income limit, will be faced with paying over 55% of their income on rent. Clearly a bad deal compared to social housing, an unjust and unsustainable situation.
This is were cost rental is supposed to step in. In this case "affordable" is deemed up to 35% of income, as compared to 10-15% in social housing. The two bed cost rental property in The Quarter Citywest is €1580 a month. If the couple above were earning €65000 gross, or €3886 a money net, they wouldn't be eligible for cost rental housing as 35% of €3886 is €1360. It would be deemed unaffordable. In fact the minimum net income to avail of cost rental in this case would be €4514 a month net or €80000 gross a year. This means if the family earns between €58000 and €80000 gross they are ineligible for the very scheme that is supposed to be filling this gap. The only income range eligible for this family is €80000 to €104900 gross to be able get this "affordable" cost rent. To make matters worse, even if they earn €80k and make €4502 net a month, after the cost rental of €1580 their net income is €2922 a month. They are worse off earning €80K in cost rental than earning 58K in social housing. This could be taken as a poor incentive to earn more at work.
Now let's take a look at the private purchase example. As far as I am aware, after any approved housing body schemes and local authorities Part V, the remaining homes were bulk purchased by a private investment firm for private rental. They sold 282 properties in The Quarter off plan for a guide price of €90 million in 2019. I would say it's fair to assume the two bed would come onto market today for at least €450000, if it were even possible to purchase one. Availing of help to buy to place a deposit of 10% with an interest rate of 4% over 35 years the repayments would be €1794 a month. Taking the government’s idea of a max of 35% of net income being affordable the family would have to earn €5125 net a month or €95500 gross a year. After paying their mortgage they would be left with €3331 a month net. €290 a month more than if they took the social house at a lower income. However, after paying additional mandatory costs such as mortgage protection insurance, management fees or home insurance and local property taxes they are likely to be in a worse off position regarding net income than in social housing.
Now in the mortgage case you could argue that they will own their asset after 35 years, whereas in the rental cases they will not. They may get to pass on their home to their children, however this is only the case If the property is valued below inheritance tax limits. Today these limits are often below house values and therefore the children must sell the family home to cover their immediate tax burden. In social housing if their children are living primarily in the property when they pass away and the property size is of a correct size for their needs they may get to continue the tenure of social housing under their name.
Social housing benefits from the most protections in general. These homes are often considered for life in Ireland. In other words they have completely secure long term tenures. If their family size increases they can apply to go on the transfer list to possibly await a larger property after some time. A similar mechanism exists for downsizing but there is no requirement to downsize. In the private market, unless you get an even higher paying job to afford a more expensive rent or mortgage, you are potentially stuck in the property size you are in. Negative equity can also prevent you from moving. Unlike the private market if a social housing tenant’s income drops or they become unemployed the rent drops with it. If they go into arrears, as long as they cooperate, they will not be evicted or have their home repossessed. A certain portion of repairs and maintenance will be covered by the local authority or approved housing body. If the home is owned by a local authority they may be able to buy it at a large discount in the future.
Perhaps, the most inequitable element from a policy approach, and which supports the need to re-evaluate and perhaps reform the provision of social housing, is that in the case of current social housing residents, if their income increases well above the social income limits, they will still only pay the 10% or 15% of net income on housing. In some local authorities there is a maximum rent charge so it’s even lower than this.
Due to Part V of the Planning and Development Acts 2000 and the bulk purchase of properties by private investors for immediate leaseback to either approved housing bodies or local authorities, often these homes are all identical no matter which option you choose. To cater for larger families there are now many three and four bed apartments, townhouses, semi detached, detached social housing etc. in housing estates beside private housing and cost rental. This in itself is not the main issue, the main issue is disparity in cost of housing between tenant types. Essentially this issue gets worse the greater the difference between the price of social housing rents and the price of cost rental, private rents or mortgages. This divide could be widened through the desire for a larger family for example. This would necessitate a bigger home, which would greatly increase the income needed to break even with a social housing tenure alternative. Or it could be due to the cost of an area. There are many Dublin apartment developments that cost in the range of 600k to 800k for a two bedroom. In this example the breakeven wage required to compete against the subsidized social housing apartment in these developments is even greater.
Some of the anomalies in the system listed above do provide an “ideal” path to get the most from the system. It seems that the current system is ideally incentivised to keep your income within the social housing limits until you get a home. Then you are free to increase your income as you see fit and have very favourable low rents for life. Earning €90000 and paying social housing rents you’ll have a significantly higher disposable income then earning that same wage in a cost rental or a mortgaged property.
There are a few potential solutions to the above issues. One is to consider making the price of private housing and rents drop drastically so that they become affordable and actually more beneficial than social housing once again. There appears to be very little push for this from policy makers. Another option is to follow in the footsteps of other countries and drastically widen the eligibility for social housing to higher incomes. This could create fairer mixed income communities. It could also be possible to agree nationally on what percentage of your net income is considered affordable. It is clearly unjust for 10% to be considered affordable in one case and 35% to be considered so in another case, for identical properties in the same location .
1.https://socialhousing.wien/tools/flat-allocation-criteria
Long post warning. Below is essentially a political letter to be sent to local councillors, TD's etc. especially ahead of the upcoming elections. I do think this topic should be open to a nuanced, balanced discussion and I am curious as to what others thoughts are.
Edit: I am aware of the sheer length of this letter and have removed two paragraphs so far. Unfortunately due to the complexity of this issue it is difficult to effectively shorten it without leaving out factors and context. Reading only the first paragraph should give an overview of the heart of the issue.
To whom it may concern,
The Irish approach to housing has had mixed results to put it mildly. While there are a plethora of factors at play behind the current situation, issues in respect of Ireland's split provision of housing are worth considering. Issues in relation to the cost of homes, rate of rents and current social housing policy might lead someone to claim that in many instances a lot of people are actually better off aiming to get a social house than gain incomes that would exclude them from this form of tenure. However, this is the case in many situations. It must be said that nobody should view the following commentary as an attack on the provision of housing to individuals in difficult circumstances, far from it. Simply put, the past several years have seen various commentators express wonder at why so many young people are simply locked out of the housing market even though Ireland has a highly educated population with an economy operating at full employment. This should be an impetus for policy makers to examine deeper issues at play which is why issues surrounding the split provision of housing warrant examination.
Mixed tenure developments are not a new idea and in theory appears ideal. However, its execution determines its success. From a comparative perspective, other countries approach this concept by focusing on mixed income communities by widening the availability of public housing. In other words, public housing is available to a large range of income levels in society. The provision of good quality housing at an affordable percentage of income means many people willingly choose these developments. For example, 75% of the population of Vienna earn less than their social housing income limits.(1) In the case of Ireland, until recently, your choice of housing options were social housing, private rent or private purchase, usually against a mortgage. Social housing income limits were set very low for a long time, essentially excluding many working income levels. This leaves many citizens at the mercy of the private market. Following the financial crisis, this wasn’t as much of an issue as it was still fairly affordable. However the recent investment, employment and population boom has led to an extremely tight and dysfunctional private market with ever rising rates. This is an ongoing issue creating a massive divide where only the top income earners and bottom income earners can afford to live in vast parts of Dublin and indeed other cities and towns in the country.
Some might scoff at the label of the ‘squeezed middle’, however, with this ongoing issue, the label is becoming more true for many people, with many of them seeing emigration as a crutch solution. The government has been somewhat aware of this problem. However rather than make social housing available to much higher incomes, they have recently been trying to patch it up with the use of cost rental and affordable housing schemes. However these are starting to fail as they are linked to ever increasing private market rates. This approach will only exacerbate the current crisis, what is needed is reform of the current approach to split housing provision.
What could be classed as ‘the inequity’ in these housing schemes, comes from how they decide what is “affordable” and the rules of the scheme. There are many different examples that demonstrate this ‘inequity’. For example, let’s take a single income household in Dublin with two adults and one child. I’m not counting married or home carer tax credits which may increase take home pay, or often mandatory pension contributions which would reduce it. First is the option of social housing. The income limits have recently been raised. The income limits for this family would be €43000 net of tax. This is roughly €58000 gross, or €3583 a month net. The first issue we come across is the differential rents. These are not standardised and each local authority can set what they wish. It can range from as low as 10% in South Dublin County Council to as much as 16%. An average value is 15%. In certain local authorities there can be maximum rents. In others there can be extra rent charges if your income goes above the social housing income limits in the future. Taking 10% the family above pay €358.30 a month. At 15% it's €537.45. After rent in the worst case they have €3045 income left.
Let us now consider the same family but they are now above the social housing income limit. Let's take the recently new mixed tenure development of The Quarter in Citywest. The same 2 bed home adjacent to the social home is on the market at a private rent starting at €2000. The couple above, if earning only €1000 a year above the social income limit, will be faced with paying over 55% of their income on rent. Clearly a bad deal compared to social housing, an unjust and unsustainable situation.
This is were cost rental is supposed to step in. In this case "affordable" is deemed up to 35% of income, as compared to 10-15% in social housing. The two bed cost rental property in The Quarter Citywest is €1580 a month. If the couple above were earning €65000 gross, or €3886 a money net, they wouldn't be eligible for cost rental housing as 35% of €3886 is €1360. It would be deemed unaffordable. In fact the minimum net income to avail of cost rental in this case would be €4514 a month net or €80000 gross a year. This means if the family earns between €58000 and €80000 gross they are ineligible for the very scheme that is supposed to be filling this gap. The only income range eligible for this family is €80000 to €104900 gross to be able get this "affordable" cost rent. To make matters worse, even if they earn €80k and make €4502 net a month, after the cost rental of €1580 their net income is €2922 a month. They are worse off earning €80K in cost rental than earning 58K in social housing. This could be taken as a poor incentive to earn more at work.
Now let's take a look at the private purchase example. As far as I am aware, after any approved housing body schemes and local authorities Part V, the remaining homes were bulk purchased by a private investment firm for private rental. They sold 282 properties in The Quarter off plan for a guide price of €90 million in 2019. I would say it's fair to assume the two bed would come onto market today for at least €450000, if it were even possible to purchase one. Availing of help to buy to place a deposit of 10% with an interest rate of 4% over 35 years the repayments would be €1794 a month. Taking the government’s idea of a max of 35% of net income being affordable the family would have to earn €5125 net a month or €95500 gross a year. After paying their mortgage they would be left with €3331 a month net. €290 a month more than if they took the social house at a lower income. However, after paying additional mandatory costs such as mortgage protection insurance, management fees or home insurance and local property taxes they are likely to be in a worse off position regarding net income than in social housing.
Now in the mortgage case you could argue that they will own their asset after 35 years, whereas in the rental cases they will not. They may get to pass on their home to their children, however this is only the case If the property is valued below inheritance tax limits. Today these limits are often below house values and therefore the children must sell the family home to cover their immediate tax burden. In social housing if their children are living primarily in the property when they pass away and the property size is of a correct size for their needs they may get to continue the tenure of social housing under their name.
Social housing benefits from the most protections in general. These homes are often considered for life in Ireland. In other words they have completely secure long term tenures. If their family size increases they can apply to go on the transfer list to possibly await a larger property after some time. A similar mechanism exists for downsizing but there is no requirement to downsize. In the private market, unless you get an even higher paying job to afford a more expensive rent or mortgage, you are potentially stuck in the property size you are in. Negative equity can also prevent you from moving. Unlike the private market if a social housing tenant’s income drops or they become unemployed the rent drops with it. If they go into arrears, as long as they cooperate, they will not be evicted or have their home repossessed. A certain portion of repairs and maintenance will be covered by the local authority or approved housing body. If the home is owned by a local authority they may be able to buy it at a large discount in the future.
Perhaps, the most inequitable element from a policy approach, and which supports the need to re-evaluate and perhaps reform the provision of social housing, is that in the case of current social housing residents, if their income increases well above the social income limits, they will still only pay the 10% or 15% of net income on housing. In some local authorities there is a maximum rent charge so it’s even lower than this.
Due to Part V of the Planning and Development Acts 2000 and the bulk purchase of properties by private investors for immediate leaseback to either approved housing bodies or local authorities, often these homes are all identical no matter which option you choose. To cater for larger families there are now many three and four bed apartments, townhouses, semi detached, detached social housing etc. in housing estates beside private housing and cost rental. This in itself is not the main issue, the main issue is disparity in cost of housing between tenant types. Essentially this issue gets worse the greater the difference between the price of social housing rents and the price of cost rental, private rents or mortgages. This divide could be widened through the desire for a larger family for example. This would necessitate a bigger home, which would greatly increase the income needed to break even with a social housing tenure alternative. Or it could be due to the cost of an area. There are many Dublin apartment developments that cost in the range of 600k to 800k for a two bedroom. In this example the breakeven wage required to compete against the subsidized social housing apartment in these developments is even greater.
Some of the anomalies in the system listed above do provide an “ideal” path to get the most from the system. It seems that the current system is ideally incentivised to keep your income within the social housing limits until you get a home. Then you are free to increase your income as you see fit and have very favourable low rents for life. Earning €90000 and paying social housing rents you’ll have a significantly higher disposable income then earning that same wage in a cost rental or a mortgaged property.
There are a few potential solutions to the above issues. One is to consider making the price of private housing and rents drop drastically so that they become affordable and actually more beneficial than social housing once again. There appears to be very little push for this from policy makers. Another option is to follow in the footsteps of other countries and drastically widen the eligibility for social housing to higher incomes. This could create fairer mixed income communities. It could also be possible to agree nationally on what percentage of your net income is considered affordable. It is clearly unjust for 10% to be considered affordable in one case and 35% to be considered so in another case, for identical properties in the same location .
1.https://socialhousing.wien/tools/flat-allocation-criteria