Thursday 23 November 2017

Sky-high rents and failure to tackle crisis will come at a heavy price for the economy

Finding a suitable home to rent is increasingly turning into a lottery for many people. Stock image
Finding a suitable home to rent is increasingly turning into a lottery for many people. Stock image
Richard Curran

Richard Curran

The rental crisis has developed right under the noses of the current and last governments. Political energy and focus during the crisis years was spent on picking up the pieces of the crash.

This meant ensuring the banks didn't need any more money and could get back to making a profit. It meant rebuilding confidence in the property market to encourage investors to invest in the country.

It also meant putting measures in place to help lift house prices, so builders might build again and the 300,000 people in negative equity in 2012 would have a chance of getting out of it.

So, politically, very little thought was given to the fallout from these policies and the implications they might all have on people who rent their home.

When it comes to renters, they have never been high on the list of political priorities. It's a cultural thing. Irish politicians never really "got" renting. Traditionally people who rented were well down the pecking order of priorities, behind publicans, farmers, landlords, developers and teachers.

They rarely featured on the radar of the two big political parties. They were traditionally seen by politicians as students who only went home to the country to vote - if at all.

They were also seen as poorer or single parent families who might not vote or if they did would cast in favour of left wingers like Sinn Féin.

In our dominant culture of home ownership, renting was seen as a temporary thing that people did for a while until they took the step forward of buying their own home. For many politicians, you weren't going to be renting for long, so it wasn't a big deal. So, during the harshest years of the crash, the political emphasis was on property owners and investors rather than renters.

But many politicians missed something very important that was happening in Irish society. The crash had decimated many people's chances of owning a home. Increasingly, others were happy not to own a home at all.

Not only were the numbers of people living in rented accommodation growing, the cross section of society they represented was also changing. The last census showed that among the under 35s, a majority live in rented accommodation.

In total, around 33pc of people rent. The 66pc in home ownership is the lowest level in Ireland since 1971, when I presume it was lower because so many people lived in social houses, they didn't own.

The latest figures from Daft.ie show a rental crisis that is already an emergency for those on the brink of homelessness. But it represents an emergency for a wider group of society too, because the implications of paying so much of their disposable income on rent will hold them back in many other ways.

It will demoralise people and hold back their full potential, whether economically, creatively or socially. People will miss out on quality of life stuff that makes working seem worthwhile.

It will deter emigrants from returning home and attracting inward foreign direct investment. It will prevent thousands of people from rural areas from going to university.

There was a chance to do something about rising rents back in 2014 shortly after they really began going up. That opportunity was missed because it wasn't seen as a sufficient problem and in a way higher rents enabled other government priorities to be achieved. Higher rents would make property investment more attractive. This could encourage investors from abroad to buy properties. This in turn would help raise house prices which would lift hundreds of thousands out of negative equity.

It would bolster the balance sheets of the State-owned banks, enabling them to boost profits through write-backs. This ensured could be sold back to the private sector at a better price for the state. It would ensure Nama got a better price for selling its assets, so it could make a profit for the exchequer.

These were laudable policy objectives in so far as they represented a better outcome for the Exchequer, which represents all of us. However, they failed to take account of the wider human and social cost of those caught in the cross fire of that post-crash vortex. And they are not some bunch of partying students in flats in Phibsboro. They are one-third of the population.

House prices have gone up. This has boosted the bank's balance sheets, making the State's shareholdings worth more. Nama is set to make a profit of over €2bn. Ireland is seen as a very attractive place for property investment. That has all been achieved.

But people in rented properties are being fleeced. The cost of renting a home is at an all-time high. Rents shot up by over 13pc in the 12 months to March 2017. The average monthly rent nationwide is now €1,131. In Dublin it is €1,668.

For some people, their salaries have gone up in recent years but in terms of real after tax incomes, I doubt there are that many people earning more than they did in the boom.

Yet, they are paying higher rents than were paid at the peak of the boom. In the case of Dublin, rents are on average 13pc higher than the boom-time peak, while the price of houses is around 30pc lower.

If you are looking at this market from abroad, it is a no-brainer. I know of one couple from North America, whose son is coming to Dublin for post-graduate study for three years.

They are a wealthy family and decided it would be a waste of money to pay three years of apartment rent, so they simply bought an apartment for their son. It will cost them less per month, and if house prices are higher in three years' time they will sell it at a profit. If not, perhaps rents will still remain very high and they can just rent it out themselves to someone else.

They have the money and in this market, it appears to make lots of sense. This market is of no use to people who are not in that situation.

The Daft report highlighted a very important distinction in the market, which reflects the impact of rental increase caps. For those remaining in rented accommodation in recent years, rental increases have been milder at about 27pc. For those coming to the rental market, with new lets, rents have shot up by closer to 50pc in Dublin.

This shows the rental caps are helping some people but are of no use to others. The Government has shied away from full rent controls. When they were first mooted by former Environment Minister Alan Kelly, he was shot down by Finance Minister Michael Noonan. There were legal concerns about interfering with people's property rights as well as the big picture economy stuff I mentioned earlier about bank balance sheets, foreign investors, Nama and negative equity.

Just look at the flak the Central Bank took for simply introducing some sensible mortgage lending caps. Politicians and vested interests hated them.

Yet, as soon as Central Bank eased up on them, house prices starting shooting up again.

Our obsession with home ownership has blinded the political classes to the very real needs of a growing section of the population. The rental mess doesn't look like being fixed any time soon.

It won't just carry social and financial costs for people, there will be a big economic cost to carry if something isn't done to fix it.

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