Saturday 22 October 2016

Home truths: High rents have a ripple effect

Katy McGuinness

Published 29/04/2016 | 02:30

High rents impact on individuals.
High rents impact on individuals.

The rental crisis is never out of the headlines these days, with its most catastrophic and heart-breaking consequence being the rising incidence of homelessness in Ireland, particularly in Dublin and our other major cities. The failure on the part of successive governments to build enough social and affordable housing for the people who need it, and the consequence of ever-increasing rents in the private sector, has a ripple effect that is felt in every aspect of society and the economy.

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Most obviously, high rents impact upon individuals. If you are from Dublin and your family is from Dublin, what do you do when it is time for you to leave the home in which you have grown up and get somewhere of your own? What if you grew up in a community such as Ringsend/Irishtown - now seen as uber-desirable because of its proximity to Silicon Docks, but where you want to live because it's where your parents live and they help out with the childcare?

The general rule of thumb - the one that you probably learned in your Junior Cert business classes, or that your parents drummed into you when you first moved out - is that you should spend no more than 30pc of your income on rent. But it's one of those economic truisms that goes out of the window when it comes to the hard reality of finding somewhere to live.

If you work in Dublin and need to live in Dublin, because commuting is either unfeasible or unpalatable, then you are going to be forced to spend a greater portion of your income on rent. The 30pc rule is arbitrary anyway, in that it doesn't take account of individual circumstances - a single person on a salary of €100,000 is in a very different situation to a couple with two children on a combined salary of the same amount - and it doesn't make sense at a time when incomes are largely static and housing costs are rising because of a shortage of supply.

And for emotional as well as aesthetic reasons, most of us, if we have the option, would prefer to pay a bit more in rent to be able to live somewhere half-decent rather than somewhere grotty.

It's our home, and the notion of home as a place of comfort and refuge from the vicissitudes of life out there in the big bad world is deep-rooted.

But if you are spending more than the magic 30pc on rent, if you are spending 40pc or even 50pc of your income on rent, then something's got to give. For every extra euro that you are spending on rent, that's a euro that you are not spending elsewhere. Once you have paid your bills and your transport costs, once you have bought your food for the week (probably in a discount supermarket rather than in the farmers' market or from a local artisan producer) then you probably don't have a whole lot left. God help you if you have to pay for childcare on top.

That extra euro that you are spending on rent is a euro that you are not spending in the pub, or on eating out, or on going to the cinema or theatre. You're not spending it going clothes shopping at the weekend. Hell, you're probably not even spending it on health insurance, and you've definitely put that pension contribution on the long finger again.

And as for saving for a deposit to get you on the property ladder and into a home of your own? That's definitely not happening.

The phenomenon is what Michael Stone, a professor at the University of Massachusetts at Boston, who has been studying the subject since the 1970s, terms 'shelter poverty'.

So high rents don't just impact upon individuals, they also impact on all those businesses where you are not spending that extra euro that's been diverted to cover your rent.

High rents also have an effect on labour markets.

They have a negative impact on Ireland's competitiveness, in that they restrict labour market mobility, raise business costs and exacerbate inequality, factors which in turn hamper economic growth.

When we hear about companies deciding whether or not to locate in Dublin, competitiveness is a key factor. Never mind the top executives parachuted in from abroad who can afford to rent a penthouse apartment in Grand Canal Dock, or a D4 period mansion close to all the best fee-paying schools along the Dart line. They are not the people that we should be worried about.

In competitiveness terms, we need to think about the average workers, the employees on average salaries.

If our Irish cities become unaffordable for these people - and there are indications that this is already happening - then businesses that might otherwise locate here will consider other, more affordable, cities. They'll look to set up shop in cities in which their employees will be able to afford to rent a decent apartment and still manage to go out for dinner, buy clothes and enjoy discretionary spending. That's not good for any of us, whether we are employed by one of those companies or not.

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