Anne Marie McNally: An Unsustainable Mess

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From top: Housing Minister Eoghan Murphy this morning with. Dublin Simon Community CEO Sam McGuinness during the launch of Simon Community Annual Review; Anne Marie McNally

Today the Minister for Housing described the level of rent increases in Ireland as ‘unsustainable’. Yet in doing so he offered nothing to actually address the issue.

Unsustainable to him is a word in a press release. Unsustainable, to a family in rented accommodation means potential homelessness.

Yesterday’s ESRI report should be the impetus needed for this Government to call an urgent halt to the dangerous way in which the rental sector in Ireland is developing.

It is surely time for recognition that an immediate nationwide rent freeze is required and it must seriously begin the debate regarding whether or not the Central Bank mortgage rules are having the unintended consequence of driving the rental sector further and further out of control.

The Central Bank mortgage rules were implemented in order to stop people taking on mortgages they could not afford.

But as a result of spiraling house prices, the deposit amounts required get further and further from ordinary worker’s reach and therefore so too does home ownership, this despite the ability of many to comfortably sustain a mortgage repayment.

Instead people have been forced to turn to the private rented sector where they find little to no security of tenure and escalating rental costs which are more often than not significantly higher than the mortgage payment they would have to make if they could just get a deposit together.

Recent data from Daft.ie shows that most mortgages needed to buy one, two or three bedroom properties cost substantially less per month than average rents for similar properties. In some cases, a mortgage is half the cost of the rent.

Similar data was published by Cairn Homes showing that it’s 50% more expensive to rent a property in one of its developments than it is to buy – a situation which cause the Cairns CEO to comment:

“That’s an extraordinary number that people don’t seem to fully understand.”

In ‘helping’ people to avoid mortgages they cannot afford, the Central Bank rules have forced increasing numbers of people to take on rents they cannot afford.

This creates a precariousness in people’s personal lives but also in our wider economy and society which is, to borrow Minister Murphy’s word of the day, unsustainable.

Nobody is winning here – except maybe, in the short-term at least, some landlords.

The ESRI report says the average rent in Dublin is now around €1,700 – a quick check on Daft.ie shows that is very much on the lower end of the properties available.

If you’re a single income household earning in or around the average wage of €38,871 (CSO.ie) per year and renting in Dublin, then a significant percentage (52.5%) of your earnings are being spent just to keep a roof over your head.

(Many households find themselves with little choice but to be single-income because the cost of childcare often makes it impossible for both parents to work full-time).

How, in reality, can anyone be expected to fork out almost €2,000 per month a rent, pay bills, buy food etc., and at the same time save towards a deposit for a mortgage?

While the catchphrase about rent being dead money is common, so too is the more apt one in this situation: ‘you can’t get blood from a stone’.

So we find ourselves in what is essentially a vicious cycle of renters paying ever increasing rents whilst getting pushed further and further away from the prospect of home ownership.

All the while they continue to age and if they do somehow manage to save, by the time they’ve got the deposit together their age becomes an issue for potential mortgage lenders and impacts on the amount they can borrow.

The effect of trapping long-term renters in high rents is that the mortgage rules are actually inflating the rental market AND driving up housing costs for everyone.

While most of the Central Bank rules are very welcome and help prevent people from over-borrowing and taking on mortgages they can’t afford, it does not take account of the significant difficulties facing those forced to rent at all-time high rates.

While at the same time trying to save for a forever-home where according to the Banking and Payments Federation of Ireland, the average first-time buyer’s deposit in Dublin is around the €55,000 mark.

There are already a number of exemptions and lee-ways built into the Central Bank rules for other groups including those in negative equity and for buy-to lets.

The Social Democrats very much support the Central Bank rules but with an addition of common sense when it comes to adapting to changing economic circumstances. We know the Central Bank has not to date been a very customer focused organisation but it is time for that to change.

The very real danger in continuing to ignore the effect these rules are having on the overall economy is that house prices AND rents will rise as the rules will continue to make it more lucrative to put a property up for rent than to sell it.

We can already see this happening with REITs and Cuckoo funds pre-buying units thereby denying first-time buyers the chance to even bid on traditional ‘starter’ homes.

If a renter can prove, over a sustained period that they are capable of meeting high rental payments, are not over-stretching themselves, and are moving to a much more sustainable and affordable arrangement; that should be factored into how much of a mortgage can be accessed by way of reduced up-front deposit requirements.

That’s not risky, that’s just sound economic sense.

Anne Marie McNally is Political Director of the Social Democrats

Rollingnews

27 thoughts on “Anne Marie McNally: An Unsustainable Mess

  1. Qwerty123

    Wrong, complete twoddle. When I read stuff like this from wannabe politicians I can see why central bank independence is so important.

    Increasing supply is the answer, it is already working in Dublin with house prices falling due to less demand.

    1. Donal

      Increasing supply is part of the answer, but a reduction in house prices by 5 or 10% does little to help the person paying a high rent to save the large deposit necessary to get a mortgage

      1. Rob_G

        What effect do you think that loosening of lending rules would have, other than increasing the amount of money chasing the same properties?

        1. Donal

          What effect will lowered house prices have on the ability of a couple paying 1700eur for an apartment to save 30k before they are too old to be considered for a mortgage?

          I take your point re prices and demand, but if a couple can pay 1700eur in rent, and thus could comfortably pay 1500 in mortgage payments, and 1500 would pay for a house that is in the 350k region, then there is surely scope for some house price increases to be factored in and them still be able to afford the house (apols if worded badly)

          1. Qwerty123

            Donal, if the couple wanted to buy a 350k house and needed to save for a 10% deposit – if the price dropped to 300k, they would only need 30k, saving 5k, and would need to borrow 45k less. (saving 90k over life of mortgage)

            Supply is a big part of the answer. Allowing them to borrow more, would just inflate the price further. trust me, apart from the socdems only builders and Tom Parlon want the CB rules changed.

          2. Donal

            Qwerty, again I accept your point, but if their ability to save is limited then 30k may seem as distant to them as 35k. A couple earning 100k between them paying creche fees for a child would be severely hampered in ability to save anything close to a figure that would leave them with a deposit in less than 5 years.
            How much they save over the life of the mortgage is the least of their worries, better they spend the money over 30 years and own the house than rent for all that time and never own anything
            Supply is increasing in large amounts, look at all the applications to abp under the strategic housing initiative. They are almost all for build to rents. A huge portion of each of these complexes when completed will be lived in by people who are eligible for hap, the state will pay the rent and the tenant will pay a greatly reduced amount. This will keep rents up as no one can get a mortgage and more build to rents will be built as that’s where the return on investment will be.
            I don’t think it’s wrong of the soc dems to be asking if there is a way that the CB rules can be amended to improve some opportunities for some people

          3. Qwerty123

            I agree that the majority of new build to rent blocks will be paid by council through the HAP scheme and I agree with your earlier point on the council not doing their job and building council houses on council land. they are washing their hands of it and passing their responsibilities to the private sector via HAP. A huge policy error for many reasons.

            There is the help to buy scheme on the deposit side for people who pay their way in life, maybe this should extended to first time buyers on all houses, but these exceptions are creating a front loading of the housing market, where all these exceptions are being granted in Jan creating a housing market similar to the car market, most sales are agreed in first quarter.

            Quietening down now due to increased supply.

    2. Joe Small

      The central bank rules are primarily what stand between us and another unsustainable property boom. The rules ensure people don’t take on debt they may not be able to repay. Changing them is a wrong-headed quick fix solution to a longer term problem. Why punish the Central Bank for the failings of decades of failed Government housing policies?

  2. Sarah

    Why did the Social Democrats vote to hand over the landbank beside the George Bernard Shaw to private developers? Extremely disappointed that they’d rather see a hotel there than social housing.

    1. Rob_G

      Several councillors changed their initial vote when they were assured that the land wasn’t suitable for social housing – there you go, now.

      1. Sarah

        But the land is clearly suitable for social housing. Just visit the site. The advice the DCC got that it wasn’t suitable came from people who wanted the land privatized. Same with O’Deveney Gardens.

        1. Rob_G

          “Many of the councillors who switched their votes [on the site] between May and September said at Monday’ meeting that they did so after assurances from the council manager that the site wasn’t suitable for social housing.”

          https://dublininquirer.com/2019/09/04/councillors-overturn-earlier-vote-not-to-sell-off-patch-of-land

          Between the opinion of some engineer who has surveyed the site, and some internet randos who have seen it from the bus, I think I will go with the former.

          1. Sarah

            But many people involved in housing (engineers, planners, etc.) have said that the site is suitable for public housing. And behind that site there was public housing for years, before it was knocked down and turned into a disastrous public-private partnership fiasco (with hotel beside it). The City Manager consistently says that sites aren’t suitable for public housing. He’s got an ideological slant against public housing.

        2. Donal

          The suitability or not of the site for social housing is a moot point in my opinion.
          The council are building very few council houses in the traditional sense, largely because they are constrained by the department of housing (looking at you, murphy) from doing so. Look at the O’Devaney gardens site. The council own the land but have to do a deal with a private developer in order to get anything built on it, and then they get access to some of the houses on the site. In the past the council would have hired a builder to build the lot and the council would have reatined ownership. That the council cannot do this anymore (with some exceptions) is due to the control the department have on the purse strings. Selling parcels of land like that close to the Bernard Shaw is a way for the council to gain funds which they can then spend on capital projects elsewhere, funds they wouldn’t have otherwise

          1. V

            well yeah

            but the reason they might have given the Councillors
            For the minutes and for the records etc

            was that the area had a high concentration of social housing already
            and that is something they are actively seeking to avoid
            they’ve demolished part of Dolphin House and ‘ Teresa’s Gardens to reduce the densities

          2. Bodger

            It was a small bit of the jigsaw that was holding up things. Tell the councillors anything but just get it done.

          3. V

            But that’s what they do

            Give the Councillors a good enough reason that can explain their vote
            In this case they probably quoted an extraction from the Council’s own Housing Plan or Planning Regs

          4. some old queen

            If it was density they perhaps the respective Councillors should take the time to explain actions- otherwise- like some other areas: read immigrants- agenda driven conjecture fills the void.

            Either way- Murphy annoys me because as soon as he opens his mouth- I am on the other side.

  3. Barry the Hatchet

    Is this really the best the Social Democrats can come up with, Anne Marie? Making it easier for people to take on massive debts? How depressingly unimaginative.

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