ESRI/IHREC on affordability & inequality

The Week in Housing 24/09/21

The housing crisis seemed to be everywhere this week. An episode of Liveline (listen back here) gave great insight into the way the housing crisis is impacting on many areas of life, and especially the frustrations this is generating for long term renters. There was also despair at the difficulties students are facing finding accommodation (covered on Reboot Republic). On a more upbeat note, we also had some positive proposals this week, with Labour putting forward their renters' rights Bill and Threshold publishing its pre-budget statement. But today I want to look at ESRI/IHREC report lunched last week, Monitoring Adequate Housing in Ireland, and especially what the report tells about the issue of affordability. Taking a look at this aspect of the report provides an interesting window into questions around how housing affordability is measured. What is perhaps most interesting about the report is that it is one of the first to take group differences seriously, particularly in terms of migration and family composition. It thus gives us a much better sense of inequality within housing affordability.

Interestingly, housing affordability as a human right is provided for in a number of international treaties. The State has an obligation under Article 11(1) of the International Covenant on Economic, Social and Cultural Rights 'to ensure the right to housing is fulfilled' as well as ensuring ‘the attainment and satisfaction of other basic needs’ is not undermined by housing costs. Affordability also features in Article 31(3) of the European Social Charter, which states that 'states should ensure that the cost of housing is affordable for those without adequate resources'.

The ESRI/IHREC report looks at three 'context indicators' for affordability: rental costs, ratio of average rent to average earnings, and receipt of housing supplements. The most interesting of these, in my view, is the second. Rents are rising significantly faster than average earnings, and as such the average rent/earnings ratio has been growing (since 2014, specifically). Average earnings in Dublin for 2018 were €4,233, while average rents in Dublin in the same year stood at €1,543 (a ratio of 0.36). This means that someone on average earnings renting the average house/apartment would be spending around 36% of their income on housing costs, which would be considered unaffordable by most measures.

In addition to 'context indicators', the report also looks at 'individual and group level indicators’. Three indicators are used: the proportion of household spending more than 30% of their income on housing and who are in the bottom 40% of the income distribution; the poverty rate after housing costs; and the rate of mortgage/rent arrears.

To my mind the most useful of these is the first one. This measure looks at the bottom 40% of households in terms of income. The reason for focusing on this cohort is that better off households may be spending a lot of their income out of choice, i.e. they may simply want to consume more housing and be willing to spend a large portion of their income in the process. By focusing on the bottom 40%, we get a better picture of those who are forced into unaffordable housing and who are experiencing housing stress.

Using this 30/40 measurer, the report finds that 5% of households spend more than 30% of their income on housing. This is a surprisingly small number. To make sense of this, it is useful to note that many households in the bottom 40% by income are pensioners and many pensioners have no housing costs (as they are outright owner occupiers). This is somewhat borne out by the fact that tenants in the PRS are much more likely to encounter unaffordability issues (12%).

The report also looks at affordability issues among different groups. Just 3% of Irish born households experience unaffordable housing, while 13% of non-EU migrants do. For non-EU migrants in private rental, the figure is 20%. Lone-parent families have a similarly high rate, at 19%.

These figures are somewhat different from those reported in this earlier ESRI report. That report found that on average PRS and mortgaged households in the lowest 25% of the income distribution spend 40% of their incomes on housing costs.

There are two things to learn here. First, different ways of measuring affordability can lead to quite different results. As such, we need to be careful when using any measure of affordability and assuming it gives us the whole picture. Second, these data suggest that affordability is far from a universal issue. Instead, affordability issues effect specific groups. 40% of households in Ireland own their home outright (i.e. no mortgage). Almost 70% are homeowners (including mortgaged and non-mortgaged). As such, this cohort benefits from decreasing affordability (by which I mean rising prices make them richer, not poorer).

Moreover, there are three big inequalities that have a huge impact: class, migration and family composition. Even within these categories there can be important differences; the IHREC/ESRI report distinguishes between West-EU, East-EU, and non-EU migrants and finds very significant differences. Cutting across these issues is a distinction between homeowners and renters. This is sometimes seen as a generational divide (and to some extent it is, as I argued here), but it is most of all an 'insider/outsider' difference.

Events

Myself and co-author Juliana Sassi gave a paper last week as part of the Focus Ireland lunchtime seminar series. You can watch that here. I will circulate details in a later issue of their fantastic line up of forthcoming seminars. The Policy Forum for Ireland have a one day event on housing policy and the Affordable Housing Act coming up in October. The Housing Studies Association autumn lecture will look at housing in Northern Ireland, you can register here (there is a fee for non-HSA members).

What I'm reading

The seemingly inexplicable rise of house prices during Covid-19 has gotten a lot of people thinking about the complexities of house prices. This short blog post is well worth a read for the US context (a lot of it applies here too). The European Commission have a new report on Euro area housing/mortgage markets. And finally, an interesting article documenting empirically that private renting instability is bad for mental health (but sure Joe Duffy could have told us that!): https://academic.oup.com/ije/article/50/Supplement_1/dyab168.377/6361274?login=true