A Rental Revolution

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nerimickbyrne

From top: The Nevin Institute paper on the housing emergency; Dr Michael Byrne

Further to calls yesterday by The Nevin Economic Research Institute (NERI) for the creation of a semi-State company to become the main supplier of rental housing

Dr Michael Byrne writes:

Sometimes as a tenant it can feel like the problems are coming from all angles. Rents have increased 60% since 2010 while wages have been more or less stagnant. Evictions – or ‘terminations of tenancy’ – are very common.

Landlords can boot tenants out if they decide to sell or if they would like the property for family use. But many landlords are also forced to sell by their bank, due to arrears, or have receivers firms appointed to their properties who invariably put them straight on the market.

In both cases tenants lose their home to facilitate the sale of the property.

Meanwhile when you do lose your rented home it is extremely difficult to find a new one. And finally, bad property management and low standards are the norm across the sector.

These are all issues which can and should be tackled. But in a path-breaking research paper published yesterday, the Nevin Institute have made a startling point; if there are so many problems in the system maybe it’s because the system itself is broken.

They argue that nothing short of a revolution in rental accommodation is required. T

Their proposal is radical, but simple. It works like this. The government should establish a new semi-state company (which the Nevin Institute have dubbed the Housing Company of Ireland).

This company would borrow from a variety of sources (everywhere from Credit Unions to pension funds) and use the money to build rental accommodation.

Crucially, rents for this accommodation would be based on a ‘cost rental’ model. This is the magic ingredient to all the best rental sectors in Europe; Denmark, Austria and the Netherlands have all used them for decades.

Cost rents are pretty much what they sound like. Rent is set at a level that covers the cost of providing the accommodation (usually calculated over a 30 year period). Essentially, you take the total costs (construction, design, land, property management) of a development divide by the number of houses and spread it out over 30 years.

This means that as a tenant you pay a rent which covers the cost of providing your home, but nobody makes a profit from you. Cost rents ensure that the Housing Company of Ireland would have plenty of revenue to pay back its loans.

To get this system set up would take a significant initial investment. But once it is up and running it will be virtually self-financing.

But the system has many more advantages. Firstly, by setting non-market rents it frees tenants from the blackmail we are currently subjected to.

Today we hear that if we want more supply of housing we need to accept sky rocketing rents (in reality rents go up but the supply never seems to quite materialise).

By taking control of the supply of rental accommodation out of the hands of landlords we would no longer face a trade-off between affordability and supply. Secondly, tenants would enjoy the efficiency and effectiveness of a large, professional landlord.

Many of us are familiar with landlords who treat fixing a washing machine like a major logistical operation. Imagine renting from a company which managed thousands of units and hired dedicated property managers and maintenance professionals.

Finally, and perhaps most importantly, this system can deliver something tenants can currently only dream of: full security of tenure. You pay your rent, you don’t get kicked out.

No moving every year or so; no rearranging your life every time your landlord feels like it; no constantly feeling that the place you live can never really be your home.

Luckily, we don’t have to speculate about whether such a system can work in practice. The evidence from European countries is overwhelming.

In Austria, for example, the cost rental system has delivered between 14,000 and 19,000 units every year since 1994, making up 1/3 of all housing output over the period. And this is high quality, energy efficient and environmentally sustainable housing.

This is a crucial part of the overall stability of the Austrian housing system and one of the reasons they saw neither out of control house prices during the boom nor a disastrous housing crisis afterwards.

percentchange

Check out this graph (above), which shows percentage changes in house prices in Ireland and Austria between 2000 and 2014. As you can see Irish house prices are all over the place while Austria’s are perfectly stable (for more on this have a look at this paper co-authored with Professor Michelle Norris).

The obstacles to the Nevin Institute’s model are political ignorance and political will.

Politicians, for the most part, are incapable of understanding what life is like for renters. They still live in a fantasy land where home ownership is the norm and all renters are students.

In terms of political will – and this is the big difficulty – our current government are opposed to any major intervention in the private housing market. They view the tiny minority of people who make money from property in this country as an important part of their political base.

To challenge both political ignorance and political will we need to build a tenants’ movement that can change the political climate.

The Nevin Institute’s proposal provides a powerful tool for that movement.

Dr. Michael Byrne is a lecturer in the School of Social Policy, Social Work and Social Justice and participates in the Dublin Tenants Association. Follow Michael on Twitter: @mickbyrne101

Ireland’s Housing Emergency – Time For A Game Changer? (NERI)

Meanwhile…

There you go now.

47 thoughts on “A Rental Revolution

  1. Cian

    You missed one other thing: the government makes a lot of money as income tax from the smaller landlords. If these go away, so will a chunk of the tax base.

      1. Andyourpointiswhatexactly?

        Boo hoo. He bought a small house for €610k and spent another €110k on it and can’t recoup it through rent? That’s not anyone’s fault but his own.
        I realise I don’t have all the facts, but that’s how it reads to me.

        1. Dong

          Yeah, his property wouldn’t be typical of that of a small time Irish landlord but the issues are the same.
          I work nearby two estate agents offices. One a large operator, one a small independent. Both of them tell me that a larger proportion than usual of the properties on their books are rental properties. Small landlords packing it in.

          1. Andyourpointiswhatexactly?

            Gotcha.
            I’m a long-time renter so not a great fan of landlords: however, recently I’ve fallen on my feet and have found a fantastic landlord. She’s MINTED though so I don’t think she really needs the cash, luckily for us. We’re paying around €500 under the market rate for the area. Long may it last.

          2. Dong

            Yeah, there’s no feeling of security, particularly at the moment. Keep her sweet and good luck!

      2. Kieran Nice Young Chap

        No, no. Please do keep up.

        Suits = bad
        Landlords = bad
        Things that look like Ireland = good

      3. MoyestWithExcitement

        Yeah, not enough is being done to highlight the plight of people who own more than one house. Forget the families sleeping in cars, people not getting enough returns from their 6 figure investments and the persecution they suffer are huge problems for society we should be doing more to fix.

          1. MoyestWithExcitement

            You’re the chap who said people in Newbridge shouldn’t complain about paying €15 to get the train to Dublin because it cost you €2 to get a luas to Ranelagh, right?

          2. Dong

            And I never said anything about €15 to newbridge. I suggested that €3.56 to Sallins was good value. This seemed to work you up

          3. MoyestWithExcitement

            Right, but you brought up the fact it cost €2 to get a luas to Ranelagh as a reason for the price of €15 for a train to Dublin, didn’t you? ‘If Ranelagh cost this much then…’ yeah?

          4. Dong

            My point was: harcourt to ranelagh 900 metres – €2.40 not great value

            Dublin City to Sallins 53 km – €3.56 good value
            Understand ???

          5. MoyestWithExcitement

            Your name gets me worked up, big boy. Anyways, I looked back. You literally told yer one to stop whining because of how much the Luas to Ranelagh cost. :D

          6. Dong

            I really don’t think you did.

            Anyway, have a good weekend. I’m off to the Aviva, €4.50 from Maynooth to Landsdowne on the train ;)

  2. Kolmo

    Total laissez-faire national land policies, shored-up by enthusiastic media compliance, until it eventually and predictably cannibalises itself due to insider greed and brainless incompetence- then it’s eventually nationalised – and then we are told that we all to blame.

  3. m.e.

    I’m not 100% convinced that another semi-state body is the right answer given the problems with them in the past, but it’s nice to see ideas like this out there to give people food for thought. If only our politicians would eat it and attempt digestion.

    1. Cian

      ESB, Bord na Mona, An Post, CIÉ, Coillte, Iarnród Éireann, RTÉ, VHI

      These were all set up as semi-state bodies and all were very good in their formative years. They only became bloated when they had achieved their primary aims (and/or abused their monopoly position).

      I’d suggest that there should be some plan to counter this – make HCI only do the overall management [procurement, overview and most importantly audit], but have lots of companies provide the various tasks – they can compete to keep each other honest.

      1. scottser

        why set up another body when the local authorities are already set up as the state’s primary landlord? it has a funding stream to buy and lease properties, a risk assessment policy underpinned by legislation to assess tenants, and a history and expertise in managing large housing stocks with service level agreements in place with voluntary providers to provide ancillary management and tenancy support.
        why reinvent the wheel?

        1. Fact Checker

          Maybe because many local authorities are not very good at it?

          They seem incapable of building more than the odd small development any more. Meanwhile the Dublin ones manage to spend about €50m pa on ’emergency’ accomodation.

          They have problems with rental and mortgage arrears. The smaller ones don’t have the capacity for borrowing long term (nor should they).

          Some of the housing lists are poorly managed with duplicates and people without a housing need still included.

          1. scottser

            building is an issue of central funding, and the government has an aversion to capital spends. reflecting the piece above, housing should be considered as social investment, not a for-profit enterprise. a more robust collection management together with a ring-fencing of that income stream to fund future builds is essential. and if a private landlord has a property to rent it should be done through the auspices of the local authority.
            as for some local authorities not being terribly good at allocation, you’ll find that interference from councillors and mollycoddling problem tenants will always be an issue that politically, local authorities won’t deal with. answer is a choice-based letting scheme already rolled out in south dublin cc.
            i appreciate your points fact checker, but most of the issues are internal management issues and not fundamental problems with local authorities as landlords.

          2. scottser

            not really. councillors who you vote for agree the scheme of letting priorities which is a good thing. theyre not supposed to interfere with allocations though and some councils reserve this function better than others. it would be best if councils were consistent nationally in this regard.

        1. Jake38

          Which is exactly why the taxpayer does not need another bloated, union run, jobs for life morass of incompetence. Think Irish Water. The beardies in the Nevin “Institute” would love it.

  4. Donal

    This idea should in theory be backed by every party on the left of the political spectrum (Labour/SF/SOC Dems/Green/Solidarity etc)
    They better make noise about it.
    The Dail can be swayed more easily now than in times of a stronger government, though I’d be fearful that all FF and FG will agree to will be a can-kicking study

  5. Cian

    A few comments:
    1. who actually builds the homes? are these directly employed by HCI? or are job-lots farmed out to, say, building companies.
    2. where will all the land come from? it needs to be bought
    3. interest will need to be paid.
    4. there will need to be something related to non-payment of rent and/or empty/refurbishing homes.
    5. and this is spread over 30 years. Does the ownership of the home pas to the renter after 30 years?

    Essentially, you take the total costs (construction [including profit for the builders], design [including profits for the architecture firms], land [including buying land at hugely inflated prices], property management [including profits for the property management firms, [plus the cost associated with HCI], [plus the interest repayments over 30 years], [plus some % overpayment to cover non-payers/empty property]) of a development divide by the number of houses and spread it out over 30 years.

  6. Jake38

    And we already have a wonderful example of a terrific state-sponsored landlord that did so much over the years to provide safe, high-quality, well maintained ever-improving accommodation for our people. It’s called Dublin Corporation.

  7. bisted

    …labour…shinners…greens…a party with a political director like AMMcN…left of the political spectrum?

  8. Fact Checker

    This is actually quite a good proposal.

    Currently responsibility on this is split awkwardly between:
    -The Department for Housing
    -The Housing Finance Agency
    -Local authorities
    -Approved housing bodies

    And quite often they blame each other when nothing gets done. A single, vertically-integrated body with a clear mandate to provide social housing units would be nice.

    They could also take a national perspective too. For example by using some of the tens of millions spent every year on emergency B&Bs in Dublin on actually building houses where land is very cheap west of the Shannon.

    1. Andy

      1. “This means that as a tenant you pay a rent which covers the cost of providing your home, but nobody makes a profit from you. Cost rents ensure that the Housing Company of Ireland would have plenty of revenue to pay back its loans.”

      Really? Table 16 page 76 shows the rent you pay is dependent on your disposable income.

      2. “Finally, and perhaps most importantly, this system can deliver something tenants can currently only dream of: full security of tenure. You pay your rent, you don’t get kicked out.”

      Do you get kicked out if you don’t pay your rent? Which is a problem for many local authorities.

      3. The €3bn in equity – this doesn’t appear to get any return in their analysis. Not exactly a great investment.

      Overall, a central body with a remit to build this amount of housing would be a positive however a number of things would have to happen – existing LA staff doing this would have to interview to work in the HCI or be sacked (no need for duplication), planning needs to be changes (remove ability for NIMBYISM, increase build heights), there’d need to be a focus on repercussions for rent arrears & anti-social behavior (without which they might struggle to get the 20% high rent payers in the 60th to 80th percentiles – like it or not, social housing is a stigma)

      1. Fact Checker

        Precisely.

        A lot of the silly restrictions on building height, location and density are administered by………local authorities!

  9. Kieran Nice Young Chap

    “Politicians, for the most part, are incapable of understanding what life is like for renters. They still live in a fantasy land where home ownership is the norm and all renters are students.”

    So true.

    Probably because the majority of TDs are middle aged+ and rural, and sure what would ya be wanting with one of them flat yokes at all. Sure there’s no place to hang out the washing!

    1. Fact Checker

      Indeed, most TDs are owner occupiers.

      However I suspect even fewer TDs are social housing tenants than are private rental tenants.

  10. Tony Phillips

    Looks like a decent idea but to maintain costs low and therefore will need to control the building costs (land + builders) — there is a lot of land in NAMA for this and it needs to be priced in a positive way as does the building costs, not positive for the banks but positive for the people (i.e. cheap)

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