Rory Hearne: 'Homes are becoming safety deposit boxes for the rich - everyone else pays the price'
The pace of expansion of the investor "build to rent" phenomenon is frightening. Houses and apartments are being built or bought up by investor landlords, private equity funds and real estate investment trusts.
Since 2011, property prices have risen at seven times the rate of wages, and this "build to rent" model turns what are already severely unaffordable homes into safety deposit boxes - wealth-accumulating investment assets - for the wealthy. "Generation Rent" is being locked out of home-ownership and locked into an unaffordable and insecure private rental sector. Increasingly, professionals, the elderly, students and many others face insecurity, poverty, and stress.
This is no accident. It is a direct result of Government economic and housing policies that sought to attract investor funds via Nama and bank sales at discount, allowing rent and house price inflation, favourable tax laws, public-private partnerships, and the shift from State-built social housing to private rental schemes.
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A report I wrote in 2017 pointed to the dangers of the increased role of investors, noting that "from 2013, there was a significant increase in the purchase of housing in Ireland as an investment, and that these purchases add a significant demand for housing and thus are inflating house prices and making them less affordable for those seeking housing as a home".
The ministers for finance and housing have downplayed concerns, but the Central Statistics Office states "the non-household sector is a significant actor in the Irish residential property market". Within this sector, "banks, holding companies, trusts, funds, and real estate management companies" were the largest purchaser of residential property in 2017, spending €1bn. That is a 43-fold rise on investor spending in 2011. Central bank data shows investor flows into real estate in Ireland have quadrupled from €6.9bn in 2014 to €27bn by Q3 of 2018.
Ministers cannot spin this away. Kennedy Wilson proudly announced that the Finance Minister joined it and Nama in the penthouse to launch its new 22-storey tower in Dublin. This close relationship between ministers and investment funds is worryingly similar to mistakes of the past. Policy is still heavily influenced by those with wealth.
Even the Department of Finance accepts the "significant role of institutional investors in certain segments of the residential property market", stating "some would-be purchasers have undoubtedly been displaced". Corporate landlords can effectively set higher market rents in an area. This risks embedding unaffordability into the housing market. Monopolistic pricing power will grow as they scale up over time. These investors also further expose the Irish housing market to global risks. We do need supply, but not unaffordable supply that drags rents upwards.
Government policy, along with tax and fund firms, ensure these funds and investors pay minimal, if any, tax on profits.
In 2013, a tax break for real estate investment trusts (REITs) exempted rental profits from corporation tax. One tax firm explains that despite recent changes, Ireland still provides "a favourable tax regime and combined with a high demand and continuing high yields, Irish real estate remains an attractive investment for international private equity".
This low-tax "Bermuda triangle" regime costs the taxpayer twice - through unaffordable housing and as tax forgone. Ireland has also become a "hub for the financing and management of tax- efficient cross-border investment in rental property assets", enabling the conversion of homes into a financialised asset.
The UN Rapporteur stated Ireland is acting "contrary" to its international human rights obligations, as it "has disconnected housing from its core social purpose of providing people with a place to live in with security and dignity".
Yet there has been political resistance to freeze rents and enact stronger tenants' protections in order to ensure Irish housing is attractive to investors. Policy is responsive to the investor lobby, but "Generation Rent" and homeless families and children pay the price.
This is a manufactured scarcity of supply of homes with private sector hoarding and Government refusing to build social and affordable housing on scale. State housing policy adds to demand when a third of private tenancies are taken up by housing schemes like Housing Assistance Payment and 94pc of additional state social housing in 2018 came from the private sector. Meanwhile, Nama is selling to investors at unaffordable prices. Its strategy goes against the interest of the taxpayer. Why isn't it selling at affordable rates and to housing associations?
There are many solutions. Curtailing how funds facilitate speculative investment, implementing taxes to cool off speculative equity, abolishing the REIT tax incentive, and implementing laws to protect tenants and provide lifetime leases, a temporary freeze of all rents and a legal right to housing implemented in law would encourage investment that provides affordability and security, stabilise the sector and reduce "boom-bust" cycles.
The Government needs to cast aside its ideological aversion and build 20,000 affordable housing units per year. This should include a mix of cost rental, social and cooperative ownership that is available to all income levels like the successful housing systems in Europe.
A referendum is needed to put the right to housing in the Constitution to provide a guiding principle for policy and ensure the primary purpose of the Irish housing system is to ensure everyone has access to an affordable and secure home.
Social inequality will worsen as an elite amass wealth while making our cities unaffordable for the average worker, with devastating consequences for families, community, society and the environment.
- Rory Hearne is lecturer in social policy at Maynooth University