A PLURALIST RENTAL HOUSING MODEL

Beyond the Public-Private Divide

Michael TaftUnite the Union

LONG-TERM: Need for a New Model The current model of 100 percent local authority provision

of social housing is no longer capable of meeting the new challenges – not only because of the fiscal restraints and competing demands from other sectors

Future social housing provision will need to accommodate low and average income households – something which the private rental sector will struggle with, especially as transnational landlords and up-market accommodation is squeezing so many out.

This requires a new public sector-led model to adequately house a larger section of society and ensure that rents do not become a burden on the productive economy.

Main Principles for a New Model Three main principles for a new model:a) It is not-for-profit (cost rental)b) It blurs the distinction between the ‘social’

and the ‘private’ so that the not-for-profit housing leads and eventually dominates the entire rental sector (unitary market)

c) It reduces the impact on public finances (off-the-books)

This will, in the first instance, require new housing providers.

1. Public Housing Associations While the voluntary sector will play an important role, new

providers will be needed generate housing at scale. This calls for the creation of public housing associations (similar to municipal housing associations in European continental countries.).

These new associations would be part of the public sector but commercially independent – similar to public enterprise. Therefore, they would not be part of the General Government sector;, their activities would not impact on public finances or contribute to the deficit.

They would house people on the waiting list but would be commercially free to develop accommodation for people who now seek out accommodation in the private rental sector.

[A public enterprise company or housing trust could be set up to carry out a similar task but public housing associations are essentially the same thing] .

Extent of Social Housing

Social Housing as a % of Housing Stock: 2013

% of Total Stock % of Rental Stock

Netherlands 33 75Austria 22 56France 17 44England 17 49Finland 16 53Ireland 9 32Source: NESC

2. Cost Rental

These new housing providers would be based on a cost-rental basis.

The public housing association would only charges rents sufficient to cover:

Borrowing costs for land acquisition & construction management, maintenance & refurbishment taxes a sinking fund to cover future capital costs, long-term

debt repayments contingencies. This removes the profit/speculative element out of this

form of rental housing provision.

Example of Cost Rental

Rental Cost Model: Costs per month (30 year mortgage)

Expenditure Revenue 

Capital Grant (State): 20%

  Differential Rent (average)

€230

Finance (Borrowing): 80% at @ 3%

€603 Costs minus Differential Rent (State Payment)

€673

Management, Maintenance and Refurbishment

€300    

TOTAL €903 TOTAL €903 

Source: NESC (Sinking Fund Provision not included)

3. Funding Cost Rental

The state will still be a major funder under this model – between 20 and 30 percent of investment. However, to move social housing investment off-balance sheet, the remainder will come from non-state sources. To maximise investment at the lowest cost a Financial Aggregator (e.g. Housing Finance Agency) will be established

This agency would ‘aggregate’ finance from different sources and lend on to the housing associations. Technically in the public sector but commercially independent. The Aggregator would accumulate funding from a number of sources:

European Investment Bank and other EU funding institutions A new Irish Housing Bond (e.g. for long-term pension investment) Domestic and international financial agencies / Credit Unions Strategic Investment Fund (and an Infrastructural Bank as proposed

by NERI)

4. Unitary Market

The long-term goal is the creation of a unitary rental market: the provision of rental accommodation – whether non-profit or for-profit – in one market In this single market, public and private providers compete with one another.

This transforms social housing from a residual sector – social housing for the poor – into one where the distinction between ‘public’ and ‘private’ is blurred. In this market, social housing provides for those unable to afford market rents, but also for those on low to low/middle income households.

This would require three important and inter-related policy initiatives

Unitary Market: Tenant Subsidies First, regularising tenant subsidies or

allowances across sectors. The Housing Assistance Payment is a start whereby differential rent schemes operate in the social and private housing sectors.

Such subsidies would not be based on employment status but linked to income. Therefore, it is capable of being accessed by a wider section of the population.

The key point is that the same subsidy would be available to all tenants regardless of the sector.

Unitary Market: Private Providers Second, the establishment of a rent regulation

regime. In the first instance, this might take the form of a rent freeze, to halt spiralling rents. Once public housing associations expand throughout the sector, a new regime could be established: a sophisticated system of setting rents to local markets, quality and size, with a reliable formula for rent increases.

Third, the provision for private, for-profit providers to be integrated into the cost-rental sector – with a guarantee of an x percentage return (profit). This occurs in other countries where commercial developers can avail of public loans and subsidies; in exchange, they are subject to cost-rental control.

Example

Dublin City Council establishes a Public Housing Association DCC transfers land/stock (or leases at long-term discounted

rates) to the Association. A variety of stock transferred: vacant land, derelict buildings,

tenanted buildings. This would ensure a rent stream and an asset base from the outset while starting the process of creating new accommodation. Over time, more and more of the stock would be transferred.

The Aggregator would ‘lend-on’ to the Association for new construction and refurbishment.

The Public Housing Association charges rent at cost There may be a need for Exchequer to provide initial

capital/equity to the Association.

5. Further Issues

We will need a new institutional landscape capable of planning, driving, delivering, allocating, protecting and maintaining affordable rental housing. Fortunately, those skills are present in the Housing Agency, Housing Finance Agency, NTMA, the local authorities and other bodies.

We will need a new planning framework that emphasises higher density and integration with infrastructure provision (transport, education and health services, amenities, etc.)

We will need a new form of Housing Benefit to facilitate this unitary model that puts all tenants on an equal footing – in both the public and private sector.

We will need to discuss the role of tenant-purchases. We will need to find a mechanism to control the price of land with

possible provision for CPOs for development land / derelict buildings remaining idle.

SHORT-TERM: Direct State Provision The rolling out of public housing associations is a long-

term process. We still require substantial state investment and direct provision of social housing by local authorities given the 130,000 on the waiting list and the growing homelessness crisis.

The Government proposes to spend €4.2 billion over the next six years to provide 35,000 social housing units with 75,000 to be taken up by the voluntary and private rental sector. This seems excessively optimist, especially given the current shortage of private rental accommodation.

There are two sources that can help provide the financing needed.

(i) Special Investment Programme The Government will be receiving at least €2 billion (and

possibly up to €6 billion) in repaid bank bail-out money from AIB and PTSB. Currently, it intends to use this money to pay down debt. This is unnecessary and wasteful. (debt is already falling faster than required under EU fiscal rules).

This money should be used as a special once-off social housing programme. While this would have to be negotiated with the EU Commission there are strong arguments: it doesn’t impact on the structural deficit (just like the special payments made to banks); and it could constitute an ‘emergency’ which is exempted from the rules. In this respect, it would be helpful for the Oireachtas and Local Authorities to formally declare a ‘housing emergency’.

This could kick-start a substantial housing drive.

(ii) Abandon Tax Cut Agenda

If we are serious about treating housing as an emergency (along with other demands on public expenditure such as health, education, social protection and economic investment), the tax-cuts agenda is more than just a dangerous diversion.

The Government intends to cut taxes by €750 million in Budget 2016. If this were reduced to €250 million (a minimalist demand), this could free up over €3 billion over the next six years.

On the basis of the Housing Strategy’s costings, this could boost house building, acquiring, leasing by an additional 25,000.

Summary Whenever we hear that the ‘property’ market is

‘strengthening’ (house prices, rents, land prices) we should shudder. High rents and house prices are a drain on the productive economy.

A new model can open up public housing to a large swathe of the population now renting – estimated at 500,000.

This housing can be provided at cost – not for profit. To give this process a kick-start we can increase spending on

housing but only if we get our priorities right. The future of housing is rental. The future is non-profit. The

future is affordability. This is one of the best policies we can pursue to support a productive economy and a prosperous society.