Saturday 10 December 2016

Our Proclamation? A right to housing for all

Ronan Lyons

Published 20/03/2016 | 02:30

‘A ban on evictions or an end to rent increases is akin to a ban on
people falling ill’. Photo: PA
‘A ban on evictions or an end to rent increases is akin to a ban on people falling ill’. Photo: PA

This week saw Proclamation Day, where schoolchildren - and many adults - all around the country were acquainted with the text of the 1916 Proclamation. One of the famous passages in the Proclamation asserts that the new Republic guarantees "equal rights and equal opportunities to all its citizens". One hundred years on, it is a fair question as to whether the same rights and opportunities are available to all.

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One of the major challenges facing the next government, whenever it takes office, is to deal with an acute lack of housing in Ireland - in particular close to the major urban centres. This is a problem that is getting worse. Currently, Ireland needs between 25,000 and 40,000 new homes each year just to meet new demand, while replacing buildings that go obsolete. But over the past five years, barely 10,000 new homes have been built each year.

Those feeling the effects of this are littered across all sectors of Irish societies. Wealthy elderly households looking to downsize have nowhere to move. First-time buyers similarly complain of too little choice in the market. They and an increasing number of students are having to endure ever longer commutes as renters.

But those who bear the brunt of the lack of housing are not those who have to stay in an empty nest longer or those who stay at home with the parents longer. The victims of Ireland's chronic and worsening lack of housing are those on low incomes.

Rising rents on their own are not a problem for those on low incomes, provided there is somewhere for them to move to. But currently, there is nowhere to move to for someone who can no longer afford to stay in their current home.

Many people have sought comfort-blanket solutions which typically involve banning the symptom, rather than treating the underlying cause. That is why you hear politicians and some lobby groups call for a ban on evictions or an end to rent increases. Such simplistic reasoning is akin to a patients' group calling on the Minister for Health to ban people falling ill. It does nothing to address the underlying problem of too few homes being built for our growing population.

What is the correct solution? How can we guarantee an equal right to housing for all? Last week, I outlined the importance of construction costs as the most important barrier to new housing supply. Put simply, given that the Central Bank has effectively put a cap on house prices, we need another part of government to do the same for construction costs - otherwise we will keep building too few homes.

Mortgage caps and construction costs are two of the four pieces of the puzzle in creating a healthy housing sector in Ireland. The third element is how we subsidise those with inadequate incomes.

Mortgage caps mean that house prices do not go so high relative to average incomes that the sector becomes a danger to the Irish economy, while sensible construction costs mean that those on average incomes can afford a new home. But what about those on below-average incomes?

A single person earning €18,000 a year can afford to spend no more than €500 a month on accommodation - one third of their disposable income. However, the maths of construction in Ireland currently means that a 50sqm one-bedroom apartment costs roughly €160,000 to build - a monthly break-even rent of €800.

This €300 gap between what they can afford and what is needed to see a home for them built is currently an insurmountable obstacle. What for-profit or not-for-profit housing developer would in their right mind commit to build one-bedroom apartments where they would lose €300 a month per unit?

While it is currently insurmountable, it need not be. All we need to do is change how we fund social housing, in particular to reflect the gap between what someone with a low income can afford to spend on rent and what the cost of their accommodation is. In the example above, a person on €18,000 has €500 a month to spend on rent but their newly built one-bedroom apartment costs €800 a month. The clear and obvious answer is that this person needs a subsidy of €300 a month.

And note that under this system, the lower your income, the bigger the subsidy. Those in most need get most help. If your income goes up, you need less of a subsidy and if your income continues to rise, there is a point at which you transition - without any huge change in your circumstances - from receiving a housing subsidy to not receiving one. Clearly, there are questions about how this might work, such as its calculation and whether it discourages work, which I'll tackle next week.

What we have currently, though, is a mishmash of legacy systems and short-term measures that have become mainstays of social housing. One example is rent supplement, which does not vary with your circumstances and just pits welfare tenants and working tenants against each other. A more farcical example is the tragic situation of families living in hotels for more than the cost of their previous rent.

To guarantee a right to housing for all, we need minimum standards that reflect average incomes - and then subsidies for those can't afford the socially agreed "minimum acceptable home". What this means for whether and how the State and local authorities build is for next week's column.

Ronan Lyons is assistant professor of economics at Trinity College Dublin and author of the Daft.ie Reports

Sunday Independent

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