The housing crisis is spiralling out of control. Despite the slight drop in January, residential prices increased countrywide by a staggering 15% over the last year, while in Dublin they rose by 20%. But the real pain in the housing crisis is being felt by private tenants, those on the social housing waiting lists, and homeowners in long-term arrears.
The inflated rents in Dublin City have now spread to the commuter belt and regional cities. Rents in Wicklow and Kildare, for example, rose 14%in the last year to reach almost €1,000 per month. Cork and Galway experienced rises of 7% last year. Rising demand in these areas is resulting from new household formation, a cut in supply, and the inability to access mortgages.
The simple fact is that rents are rising dramatically because landlords are increasing rents. Rent controls could help reduce this. It is economically illogical and morally questionable to allow private rents to remain unregulated. Rising rents take income from lower-income households who tend to spend their income locally and transfers it to landlords, who as higher income earners, tend to invest it in property or financial wealth. Rising rents also require higher wages.
Increasingly private tenants are presenting to local authorities in need of emergency accommodation as landlords refuse to renew leases in order to get in new tenants on higher rents or to sell the property. Tenants’ rights are clearly insufficient in these situations.
However, local authorities do not have sufficient emergency housing due to the long-term trend of reduced state investment in social housing as a result of budget cuts and the privatisation of social housing.
Austerity budgets led to a drop in funding for local authority housing from €1.3bn in 2007 to just €83m in 2013. As a result, only 8,200 units were delivered in these years. Had spending being maintained at the 2008 level, an additional 25,000 social housing units would have been provided. This shows the legacy impact of austerity on the current housing crisis.
The Government’s Social Housing 2020 Strategy includes a welcome return to direct provision of local authority housing . However, funding remains inadequate and policy is overly reliant on private sector provision.
Only a fifth of the planned 110,000 social housing units to be delivered by 2020 will be direct local authority build or purchase. At that rate, it will take 23 years (i.e. by 2038) to house the current housing waiting list.
The majority are planned to be taken off the housing waiting lists by being transferred from the rent supplement scheme to the Housing Assistance Payment (HAP) and the Rental Accommodation Scheme (RAS) that involve longer term arrangements with landlords.
However, there are difficulties with these due to the lack of capacity in the private rented sector as landlords have demonstrated a reduced interest in such schemes as they seek higher-paying tenants or sell in a rising market.
These schemes are also poor value for money for the taxpayer as they privatise social housing provision. Between rent supplement, RAS and leasing, the State is paying €524m per annum to private landlords. This now covers almost a third of tenancies in the private rented sector. If that funding was used to build permanent local authority housing it would provide 4,350 social housing units annually. Between now and 2020, that would mean an additional 20,000 local authority homes.
The Central Bank’s Credit Market Report emphasised the drop in mortgage arrears for homeowners. However, buried in its report is the fact that one fifth of all residential mortgages remain in arrears, including 117,000 on their primary home.
Furthermore, the number of buy-to-let mortgages has remained static and homeowners in long-term arrears (over 720 days) has actually increased to 37,000. Furthermore, central bank rules have allowed banks reclassify mortgages as ‘restructured’ if they have issued a legal notice for repossession. This been done to 50,000 homeowners with a potential flood of repossessions and evictions coming if trends in the courts continue.
A significant contributor to the current crisis is the centrality of a rising property market to the strategy for economic recovery. Take Nama, for example. In order for it to be wound up early, provide a return to the taxpayer and pay off its debts, property and rental prices must continue to rise so that international financial investors will buy up the office and apartment developments. Nama is also likely to maximise the sale price of the 22,000 housing units planned for construction with developers in the next five years.
Banks are also dependent on rising prices to improve the asset values on their balance sheets. The scale of potential losses from the arrears crisis is also lowered as projected income from sale or renting of future repossessions increases. In this scenario the sale of AIB also becomes more viable.
The new Central Bank rules on lending might temporarily slow the rise in house price rises, but without other interventions such as rent control, mortgage debt writedown, a moratorium on repossessions of primary homes, and a serious expansion of direct local authority provision, the crisis will escalate.
It appears policy makers are ruling out such interventions on the basis they might slow down or, God forbid, halt rising rent and house prices. Policy is still wedded to the belief that a rising property market will lead to private developers building housing again. Potential policies that would address housing needs are still by and large ignored.
There needs to be a public debate about how the crisis should be resolved. It requires a clear decision about what role we want to give housing in the Irish economy. Should policy allow an unregulated private property market where housing is primarily a private commodity and an investment for speculation and accumulation of private wealth? Or should the State intervene and ensure, through regulation and direct funding, that housing is provided as a social service, a need and a right such as health and education?