Irish cost rental at the International Social Housing Festival

The Week in Housing 17/06/22

Regular readers of this newsletter will know that I am an ardent supporter of the cost rental model, which I’ve written about here before. So it was with great interest I attended (online) yesterday’s session at the International Social Housing Festival on ‘Cost rental: a new approach from Ireland’. There were a number of Irish and international speakers looking at how the model works in Ireland, how it has drawn on international lessons and what the challenges are. Many of you will know more about the ins and outs of cost rental in Ireland than I do, but here I want to briefly touch on some of the aspects I found interesting and helpful in understanding how the sector is developing.

In his presentation Alan Smyth (Dept. of Housing) made clear that the main objective of the sector is to provide security of tenure and predictability of rent to an ‘affordability constrained cohort’ or ‘squeezed middle’. This means households earning less than €52K per annum (net) and also not in receipt of a housing support, such as HAP. There are currently 234 cost rental dwellings in Ireland, almost all of them already tenanted, and there are 911 units approved. This is obviously a very small number, but in my view it is very impressive given the sector is only around one year old. In terms of the short-term targets, the aim is to deliver between 1,500 and around 2,600 units per year every year between now and 2026, and a total of 10,840 over that period. It’s a decent number, and you could certainly argue it’s ambitious, but for cost rental fans it is somewhat disappointing that the targets for the sector are significantly below those for affordable purchase homes, at 18,250 over the 2022-2026 period.

With regard to delivery, Alan Smyth pointed out that there are three different avenues for delivery. AHBs, who have dominated supply thus far, can deliver via the Cost Rental Equity Loan scheme (which provides 30% of financing, the remainder coming from the HFA). Local Authorities can deliver directly (e.g. the Emmet Road development) via the Affordable Housing Grant (I hadn’t heard of this grant and don't know much about it, if any of you know the details please give a quick description in the comments below). Local Authorities can also deliver via partnership with either AHBs (e.g. the Enniskerry Road development) or the LDA (e.g. the Shanganagh development). Finally, the LDA is a particularly important avenue for supply, partially because the AHBs have already expanded so rapidly in terms of their overall housing provision that it is unclear how much additional capacity they have. This was alluded to by James O'Halloran of Clúid Housing, who pointed out that Clúid have almost doubled the number of units they provide over the last five years or so. Over this period, they have not only entered the cost rental sector, which is entirely debt finance, but also transitioned to the CALF (Capital Advanced Leasing Facility) model for providing social housing, thus taking on debt in that sector too.

This brings us to the challenges facing the sector, which were highlighted by Gwen Perry of the Housing Agency, as interest rates are one of the most significant concerns. As recent news from both the Federal Reserve and the ECB indicates, we appear to be moving out of the era of ultra-low interest rates, quantitative easing and ECB bond-buying initiatives, and are therefore likely to see higher interest rates over the next period. Managing the impact of interest rate changes on housing provision is something of a new challenge for the AHB sector.

It is also interesting to reflect here that one of the strengths of cost rental is that it has the potential to be ‘counter-cyclical’, i.e. not as strongly tied to economic and fiscal cycles as our traditional social housing model, which was entirely reliant on capital grants from the Dept. of Housing. However, there is a possibility that we are heading into a period which will be both recessionary (and thus with greater demand for affordable housing) and high interest rate (and thus with greater difficulty in accessing finance for cost rental). So we may well see the sector’s counter-cyclical credentials put to the test.

Other challenges include construction costs (construction inflation is running at 13% per annum), general inflation and of course the related issue of affordability. Indeed, containing costs and thus ensuring affordable rents is of course one of the biggest challenges facing the sector. Alan Smyth made the point that cost rental is very much on a ‘journey’ and I think we may well see changes to the financing arrangements over the course of that journey to keep costs under control as the sector matures.

Although these challenges are important, Fiona Dunkin gave plenty of grounds for optimism based on Clúid Housing’s experience so far. Research the AHB conducted looking at the experiences of their existing cost rental tenants found that the vast majority of tenants were very satisfied with their housing and viewed cost rental as a long-term housing option. Importantly, a large majority reported that they are not experiencing difficulties paying their rent, despite claims from some quarters that cost rents are ‘completely unaffordable’. Relatedly, in his presentation O’Halloran said that they could have tenanted their existing cost rental schemes ‘twenty times over’ and that the demand was ‘mind-boggling’. Fiona Dunkin also provided some qualitative data with regard to tenants’ experiences. A lot of the quotes she shared emphasised that cost rental makes possible things like ‘stability’, ‘security’, ‘being able to plan for the future’, and ‘feeling it’s my home’.

There is no doubt that cost rental will face a rocky road as it is established in Ireland. But, despite the challenges, there was a lot of positives to take away from yesterday’s session.

Events

The next #SimonTalks seminar is with the ESRI’s Conor O’Toole and looks at rent inflation and rent regulation. If you are anywhere near Sligo this weekend there’s a great event taking place at The Model. Artists against Homelessness features a variety of artists and kicks off tonight at 7pm. Finally, next Thursday Threshold will launch their annual tenant sentiment survey. Register here to attend IRL or online.

What I’m reading

Across the water in England a new Government White paper, published yesterday, sets out plans to ‘fundamentally reform’ the private rental sector and ‘level up’ housing.