They Really Can’t Be Serious

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Michael Taft

From top: Apartments to let in Dublin; Michael Taft

The Irish rental sector is a minefield.

But expanding subsidies in a sector with a supply crisis doesn’t help us out of the field – it just plants more mines.

Michael Taft writes:

Fresh from making a mess of home-ownership policy – in particular, the mortgage subsidy scheme which will increase house prices and end up in the pockets of developers – the Government seems intent on doing the same thing in the private rental sector.

As even the dogs in the street know, we have a bit of a rent crisis. The Savills report suggested that rents could rise by over 20 percent over the next two years.

And if you thought that couldn’t possibly happen, Daft.ie showed that rents have risen by nearly 12 percent in the last year – the highest annual rise since they started collecting this data in 2002.

The Government intends to publish a policy document on rents in the next few weeks but already some details are starting to leak out.

First, the Government is not expected to bring in rent regulation which could tie annual rent increases to some inflation benchmark. It is not known whether they intend to temporarily roll-over the current freeze on rent increases for sitting tenants.

But I can’t say that any of this is too surprising. When you have been raised all your life on the unfettered operation of markets, it’s hard to convert to fettering, even in a crisis.

But the real chestnut is the suggestion to expand rent subsidies.

‘A new system of payments to middle-income families to subsidise the cost of high rents is being considered by the Government. The payments would be aimed at households with a combined income of up to €55,000 as a temporary measure to prevent more families entering social housing programmes. The aim of the proposed payment is to help those whose income places them above the threshold to avail of Housing Assistance Payment (HAP), in which councils make payments to landlords.’

Here’s a pop quiz: if there is a high demand for a good or service that is in short supply, what happens when you give the ‘purchasers’ more money? You’d be right to say that this will only drive up prices even further.

With rental inflation running in double-digits, this is a proposal that can only accelerate this trend and end up being a significant drain on the Exchequer.

To call it ‘temporary’ is only to create a potential income trap.

Let’s say that a household is given €2,000 a year in rental subsidy. In time rents hit an equilibrium (elevated because of the subsidy). Is it being suggested that the subsidy would be withdrawn? What would that do to living standards?

Readers would be right to point out that we already have a rent subsidy programme – Rent Supplement and its eventual successor, the Housing Assistance Payment which is being rolled out.

Wouldn’t increasing these payments, as many housing campaigners have argued, drive up rents? Yes, but these payments are limited to low income groups and currently rent can’t be increased for sitting tenants until 2019.

Campaigners who have made this demand are aware of this danger and have also called for increased supply. But there is no doubting that even socially essential measures can have, hopefully minor, impacts in a sector that is so imbalanced.

But the mantra ‘increase supply’ simplistically assumes a linear relationship between supply and demand in a market where credit, availability of land, planning permission and hoarding also feed into prices.

If the Savills model is correct, supply may well increase but this won’t take the heat out of the rental sector unless it (a) increases supply by substantially more than rising demand and (b) can lower the vacancy rate. Otherwise, we have a situation whereby units come on stream, rents rise, tenants pay higher rents in a circle without seeming end (sound familiar).

And if you want to increase supply you have to maintain a high investment yield or even increase it which only drives up rents even further.

In fact, when you hear ‘encourage supply’ watch out – this is about maintaining or even increasing high yields, usually through tax cuts for the providers (sound familiar).

And if the market signals are not working on all cylinders supply could overshoot demand and you end up with losses, bankruptcies and a slump (sound familiar).

In other words, it is a minefield. But expanding subsidies in a sector with a supply crisis doesn’t help us out of the field – it just plants more mines.

There is another starting point: create the institutions and agencies – public, non-profit, even commercial (particularly, long-term investors such as pension funds) – that can produce and rent out units at cost (for commercial investors, a guaranteed yield) and then link rent increases to inflation, interest rates, etc.

Then you can introduce widespread rent subsidies without fear of it being consumed in higher prices. That’s a better staring point.

Note: You can sign a petition to Minister Simon Coveney calling for rent regulation here at the Uplift/Secure Rents campaign site.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

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21 thoughts on “They Really Can’t Be Serious”

  3. SOMK

    “We declare the right of the landlords of Ireland to the ownership of Ireland, and to the unfettered control of rents, to be sovereign and indefeasible. The long usurpation of that right by a people not being as disgustingly rich as we are and NAMA has not extinguished the right, nor can it ever be extinguished except by the government pulling their finger out over building housing or sorting out vacant land which they will never do because half of them are landlords anyway and the other half drink with them. In every election the Irish people have asserted their right to be ruled by wankers; three time during the past nine years of economic purgatory they have asserted it in voting for the same bunch of useless self-serving clowns. Standing on that fundamental right and again asserting it in voting booths in the face of the world which can’t understand how we’re still elect these provincially-minded, backward, civil war parties, we hereby proclaim the Landlord Republic as a Sovereign Independent State. And we pledge the livelihoods and the wages of our tenants to the cause of our bank balance, of its welfare, and of its exaltation among our buddies at the golf club as we show off our 16 reg Beemer.

    The Landlord Republic is entitled to, and hereby claims, the income of every Irishman and Irish woman. The Republic guarantees religious and civil liberty, equal rights and equal opportunities and not a sniff of rent control of all its citizens, and declares its resolve to pursue the happiness and prosperity of the whole of D4 and of all its parts, cherishing all the children of the rugby schools equally, and oblivious of the differences carefully fostered by the media, which have kept the Irish distracted and divided as they rake it in from the property sections.

    Until our rental income has brought the opportune moment for the gathering of all of the money, representative of the whole Landlords of Ireland and elected by the stupidity of all her men and women, the Provision Government, hereby constituted, will administer the civil and military affairs of the Republic in trust for the banks

    We place the cause of the Irish Republic under the protection of the Most High Rents, Whose blessing we invoke upon our bank balance, and we pray that no one who serves that cause will dishonour it by cowardice, inhumanity, or rapine. In this supreme hour the Landlord nation must, by its valour and discipline and by the readiness of its children to sacrifice themselves for the a job with daddies company, prove itself worthy of the august destiny to which it is called.

    Signed on behalf of the Landlord Government,.

  4. Anomanomanom

    Just a quick example of the madness of rent increases at the moment. I know of someone renting out an apartment, getting 1150 a month, its only been rented for around 3 months now. Currently in daft the only available 1 bed in the same apartment block is €1500. In 3 months its gone from 1150, we checked at the time, being a high rent for that block to seeming cheap.

  5. nellyb

    Indefinite tax avoidance scheme is one of the elephants in our bedsit. FDI was supposed to create european ‘IP hub’ and boost high skilled, well paid (in relation to local local living standards) jobs.
    20+ years on – Ireland is flooded with call centres with low paid jobs and enormous amount of stress, where millennials with all kinds of degrees are deskilling themselves to survive. Our young baristas are also likely the most educated baristas in the world. If this is not waste of country’s potential, I don’t know what is.
    Fight, you, the millennials. You deserve better. My sympathies and support firmly with you.

  6. The Real Jane

    I know 55k is a lot of money to many workers, but if they only plan to deal with the shocking rises in rent, they’ll have to make the ceiling much, much higher because if you’re paying for childcare, the rent increases are too much to absorb under 150k.

    1. Woo

      Totally agree. 2 kids in full time childcare, combined income of approx 75-80k. If it wasn’t for our very understanding landlord (I’m even wary typing this incase I jinx it) I don’t know how we would survive. No way we’d still be renting the same (modest) place at current market value.

      1. Custo

        The government seems totally unaware of the scale of the problem or the people affected. You get the impression that they think only single parent families, low income earners or part time workers are renting. Couples / families on 80k + are struggling here. Can’t get a mortgage because they can’t save the deposit because 30 percent of their income is going on rent.

        1. Anomanomanom

          You guys must be joking. €80-150k and don’t call that well off. If your renting and have one child, while earning 80k+ and then have a second child and moan about the cost of two kids

  7. Owen C

    The conundrum here is how to encourage more investment in building (and therefore buying) more housing/apartments, while at the same time seeking to bring in measures which limit the investment return (ie rent) you can hope to earn from them.

    Demand outstripping supply -> rents increase at unhealthy rate -> rent control comes in -> expected yield on investment reduces -> price you are willing to pay/invest in the asset reduces -> price that developer can sell the asset reduces -> profit for that developer reduces -> attractiveness of developing property reduces -> supply of new housing reduces -> demographic demand outstrips supply.

    No point bringing in rent controls (ie eventually impact negatively on supply) unless you are simultaneously bringing in measures to make property development more attractive (ie increase supply). The government can try and build some of the property themselves, but they’ll struggle to hit 5k per annum in the medium term vs a requirement for 25-30k.

      1. Owen C

        Is anything above inaccurate?

        Strict rent controls will work short term, and be disastrous long term. So they buy you some time, but nothing else. Its possible some flexible rent controls might be a better fit, ie an independent agency dictates how much they should go up every year and this is set at a rate which balances renter and invester, but that still leaves a lot of uncertainty for all involved. A better policy would be the creation of longer term leases (ie 3-5 years) which have no rent adjustment on them until the end of the lease. Won’t suit everyone, but would offer some sort of certainty to long term renters (particularly people on fixed or very stable incomes like pensioners, public sector etc

  8. Punches Pilot

    Between earning considerably less than my counterparts would in the EU for doing the same work, paying as much tax, paying any number of insurance and bank bail out levies, by having to pay for everything twice i.e. health insurance, school fees etc, incurring some of the highest energy costs in Europe, highest motoring costs in Europe, highest accommodation costs (relatively) in Europe, I think I’m slowly working myself in to the grave and all for what seems to be endlessly someone else’s benefit. I’ll continue to so for the sake of my teenage sons college education, despite the fact that some of the burdens Irish life is putting on me is without doubt detrimental to my health, but it’ll surely leave him in a better place. My only advice to him when he’s out the other side? Get da f**p outta this greedy inward looking protectionist little hole.

  9. scottser

    Here’s a pop quiz: if there is a high demand for a good or service that is in short supply, what happens when you give the ‘purchasers’ more money?
    more tax gets paid – that’s the whole point of subsidies. it looks like the government is taking action but they know they’ll get it back in taxation. in this case the rental income to landlords is taxed as income tax at 40-odd percent. so the state pays your HAP to the landlord and then scoops back a chunk from income tax, vat etc.

  11. Michael Neville

    The government will never introduce any form of rent control as this would reduce the value of the banks loan books as the return on capital employed would be lower. It is all of course insane. Housing is not a commodity it is basic human need. The money going into housing has been mainly created by banks (fractional reserve banking)on top of the put in by government in the “bailout” program to “recapitalise” banks and this ends up in the housing market instead of the real economy. There is another crash coming as the property bubble cannot expand forever and at some stage it will burst. Zero percent interest rates and negative interest rates which are destroying pensions and making the stock markets stagnate, but the greatest affect of them is to push asset prices ever higher such as property and gold which removes money from workers wages because investing in the productive economy will not produce a return on investment. We as workers do not have access to loans at 0% and have to pay much higher interest rates. We have to purchase houses at inflated and pay exorbitant rents. At some stage debt will have to written down like they have done in Iceland but of course the bankers and bondholders will resist. Hopefully next time the bankers and bondholder will have to take the hit, the economy should then return to normal. But the bankers will probably demand more austerity “bailouts” “recapitalisation” etc and our politicians will probably oblige.

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