The Committee on Housing and Homelessness have produced their report. It is a credible piece of work, especially given the short-time frame and the challenge of agreeing recommendations on an issue with numerous complexities. This is not to endorse every recommendation or agree that the report has addressed every issue. But for future purposes, the Committee has shown that, with motivation and a sense of urgency, parliament can respond in a timely fashion rather than the usual ‘bury-the-issue-in-committee-and-hope-it-goes-away’ approach that has marked past practice.
Much of the media coverage has, understandably, focused on the social housing target of 50,000 but there is a larger narrative which Eoin O’Broin, TD refers to:
‘There is little doubt that the final report represents a real step change in the direction of housing policy. It recognises the failure of the market to meet the housing needs of huge sections of society. It advocates a significant level of state intervention –homes, finance & regulation- in the housing system. It is based on principles of social justice and fair access to housing.’
In this post I want to focus on two inter-related issues: financing the social housing programme and the private rented sector.
How Will We Fund It
The Committee’s social housing target will involve a substantial increase in state spending. How do we pay for this?
The Committee has few concrete suggestions on this score though it calls for exploration of various ‘off-balance sheet’ financing vehicles (i.e. it won’t count on the Government’s books, it won’t add to the deficit or debt). It further calls for engagement with the EU Commission in order to seek ‘flexibility’ in the application of the fiscal rules – that is, please don’t apply the rules as they are supposed to be supplied (I will forego the opportunity to point out that the majority of TDs on the Committee actually campaigned in the Fiscal Treaty referendum for those same rules). If flexibility were achieved, funds from NAMA and the credit unions could be tapped.
‘The committee’s call for the Government to urgently seek “flexibility” from the commission on the fiscal rules so the State can pay for desperately needed housing underscores just how unsure the stakeholders are about whether and how the State can provide the housing for its people. In this, Coppinger is not alone in suggesting a conversation is needed on whether EU fiscal rules should be broken “to house our people”. . . Whether . . . (the Committee’s proposals) can all be adopted given EU fiscal rules, or whether those rules need to be broken given the scale of the crisis, remains to be seen.’
That would be an interesting conversation. However, these are not just EU Fiscal Rules. These are Irish rules, written into the constitution as per a democratic vote by the Irish people. To break the rule – by borrowing above what is allowed by the rules – would mean defying the constitution. This would not survive a court challenge.
Short of another referendum to repeal the Fiscal Treaty (hardly a likely option, especially in the short-term) the only option would be to negotiate a derogation; that is, ‘flexibility’. There are strong reasons to believe the Government could be successful.
- First, we have an emergency which is provided for in the fiscal rules, though a strict interpretation might limit the definition of emergency to natural disasters.
- Second, we have resources: cash held by NAMA and the Strategic Investment Fund; Unite the Union has called for using the proceeds from the repayment of the bank bail-out to be used to ‘kick-start’ a major social housing drive. Therefore, this expenditure would not add to the general debt (indeed, it would reduce it through the tax revenue generated by the increased activity).
- Third, this expenditure would be a once-off (you can only spend savings once) and, so, would not impact on the structural deficit which is the defining measurement in the fiscal rules.
However, the Government’s tax cutting programme could undermine this flexibility. If there truly is an emergency (and there is), then cutting taxes give all the wrong signals. This also goes for cutting property tax (postponement of the re-valuation, cuts enacted by local authorities) and the list of 15 property-related tax breaks ‘floated’ in the Report, as identified by Ruth Coppinger, TD. Why should the EU Commission grant flexibility if at the same time we are undermining our own flexibility to finance the resolution of this emergency.
An end to the tax-cutting programme would seem to be a prerequisite to negotiating flexibility over the rules.
The Private Rented Sector
The Committee produced many positive proposals for the private rented sector: rent certainty (indexed to the Consumer Price Index), increases in rent supplement and Housing Assistance Payments, and a strengthening of tenants’ rights and protection from eviction.
However, there is a major gap in the Report: the current high levels of rent. The Committee showed that rents in Dublin city range between €1,400 and €1,600 per month while the largest annual increases occurred outside Dublin, with Cork coming in at over €1,000 per month. This requires a policy of substantial rent reduction.
Some argue that increasing supply will resolve this issue but the market can work in strange ways, its wonders to behold. For instance, the current rent levels could be constrained through indexed rent certainty. But this will only benefit those who are already tenants (and still saddle them with ultra-high rents. You would still have a market for new entrants where supply and demand could remain out of balance; therefore, new accommodation coming on stream would still face upward price pressure.
Further, the constraints put on the rental market through the Committee’s sensible proposals may actually lead to insufficient supply because investors many not deem it profitable enough to enter or remain in the market. The state can’t force people and institutions to participate in a market; it can only ‘incentivise’ them through tax-breaks which can be economically inefficient.
This leads us to a simple proposition: the market rental sector is too important to be left to the market. The Committee goes some ways towards acknowledging this through discussion of cost-rental models:
‘In a cost rental model, a housing provider raises the finance to provide accommodation and charges rents that are sufficient to cover capital costs, as well as on-going maintenance and management costs.’
The Programme for Government is committed to rolling out this model, though the Committee also notes that there are no targets.
However, a cost-rental model could be undermined if the vehicle providing this model is profit-based – through public-private partnerships (PPPs). The Committee used the Society of Chartered Surveyors Ireland deconstruction of the cost of a private house and found that profits make up 25 percent of the cost of building the house (including site development) while financing, or borrowing, makes up 13 percent of construction cost. Nearly 40 percent is taken up with profits and borrowing.
If the cost-rental model were delivered through public housing associations as is done in many other European countries (and it is disappointing that the Committee didn’t investigate models used in Continental countries), the level of profit would fall dramatically; there would still be a need for a sinking fund. Further, the cost of borrowing would fall.
A more radical direction (radical for Ireland, mainstream for other countries) is to create a ‘unitary market’ in the rental sector. This would ‘unite’ the social and the market-rental sectors into one system, with no distinction between those on the waiting list and those in work but are finding it difficult to access affordable rental accommodation. I discuss this in detail here. The advantage is that it not only reduces rental costs for a large swathe of the population, it has the potential of being ‘off-balance’ sheet for both social and affordable housing – just as it is in other European countries.
This would require a new type of housing development and a new way doing rental business. In this regard, the Workers Party proposed Solidarity Housing model is one that could be developed as part of a public sector-led, unitary market.
The one thing that shouts out from the report is that the housing crisis cannot be solved by the private sector or market models. This is fertile ground for progressives to not only pursue alternative public market models such as public housing associations but alternative home-ownership models such as limited equity cooperatives.
It is unfortunate that the Committee is not continuing (am I right in this?). It could have developed many of the proposals in the report that are only sketched in outline and kept the debate alive through more submissions, interventions, hearings, international comparisons and alternative models.
Therefore, progressive parties and independents should take up this work – monitoring the Government’s compliance with the progressive aspects of the report and developing it further.
All in all, from a progressive perspective, the Committee’s report has been a decent day’s work. Now, let’s claim it as our own. This is the first step to extending and deepening the debate over housing.