Shrink the PRS: Part II

The Week in Housing 16/09/22

This week I had my first chance to take part in the Oireachtas Committee on Housing, looking at current trends in the PRS (watch the video here). The other speakers included Threshold and two organisations representing small-scale landlords, IPAV and the IPOA. It was a really interesting discussion. My statement, which you can read here, drew a lot on last week’s post, essentially arguing for a ‘managed decline’ of the PRS. Although it was a very useful discussion, I found that the tendency to frame the debate around the problems faced by small-scale landlords quite concerning, an issue I have written about here and here. On a separate note, Psychologists for Social Change have allowed me to post their submission to the Housing Commission on the housing referendum, which provides a really valuable examination of the relationship between housing, wellbeing and mental health.

This week I’m looking again at a recent paper from the Joseph Rowntree Foundation, Making a house a home: Why policy must focus on the ownership and distribution of housing. As we seen last week, the paper argued for a focus on redistributing residential property in order to tackle the major issues in England’s housing system. Today we’ll look at the four pillars of the policy framework it advocates to achieve this: (1) reducing the PRS; (2) guiding an equitable transition away from PRS; (3) creating opportunities for renters to build wealth; (4) managing the impact on vulnerable. The paper is linked to a research project which is just beginning, so the policy ideas here are merely indicative.

Reducing the PRS

The authors argue that we need to change the ‘rules of the game’ in order ‘to create a smaller, higher quality private rented sector’. The first step to achieving this is to widen access to homeownership. They suggest, for example, ‘a state-backed mortgage insurance system and encouraging the development of a private market, thereby supporting higher LTV lending, without the systemic risks created by stripping back current regulation and moving to an even more liberalised system’. The aim should be to re-focus lending towards first-time buyers rather than to increase credit per se, and more generally to be cognisant of the danger of inflating demand, and hence prices. In Ireland we obviously have a number of recently introduced measures that reflect this kind of thinking, such as the Rebuilding Ireland Home Loan and the new shared equity scheme (of course not without their critics), but the authors appear to be arguing for something more ambitious that would fundamentally redirect the flow of credit.

Another potential avenue is to limit speculation through taxation of investment property ownership and/or associated rental income, for example by bringing such taxation into line with taxation of earnings. Again it’s interesting to think about this point in the Irish context. There is a lot of talk in the media about reducing the taxation burden on small-scale landlords to increase (or maintain) supply. Indeed, it looks like that the Minister will introduce some kind of scheme in the budget that will reduce taxation for landlords in exchange for longer leases or something along those lines. The framework advocated in this paper suggests that taxation-induced landlord withdrawal is actually a positive, as it increase the supply of homes on the secondary market, potentially increases home ownership and reduces investor demand and (hopefully) house prices: ‘a sell-off presents an opportunity for proactive, market shaping policy to build a more equitable housing system’.

Guiding an equitable transition away from

Any shrinking of the PRS must be guided, through active policy intervention, to achieve policy objectives. This includes generally putting much greater focus on reducing the house price to earnings ratio to improve overall affordability. But it may also include more targeted measures, such as giving the ability of sitting tenants to purchase their property with some kind of discount, similar to Right to Buy in the UK or the tenant purchase scheme here. ‘Focusing on the secondary market’, they argue, ‘allows an opportunity to design schemes which offer a more effective rout to supporting homeownership, particularly given the lower average costs in the secondary market when compared to new-build homes’.

Moreover, the ‘socialisation’ of the existing stock should be explored to increase the availability of social and non-market housing. Specifically, councils and housing associations should be supported to purchase stock from the secondary market and bring it up to standard. This would also create the opportunity to retrofit current PRS stock.

Creating opportunities for renters to build wealth

The decline of homeownership has led to a large increase in wealth inequality. This is unsurprising as housing is the most widely owned from of wealth. Indeed, countries with large social housing sectors, such as the Nordics, typically have high levels of wealth inequality, despite being more equal in terms of income. To combat this, the paper argues for greater opportunities to acquire housing equity through a wider selection of ownership forms and Government supported schemes such as shared equity. Additionally, they argue that forms of wealth building outside of property ownership need to be explored.

Managing the impact on vulnerable

One of the most obvious weaknesses of the paper’s proposals is that an attempt to redistribute property ownership in the manner suggested involves a radical shrinking of the PRS, a tenure which currently houses many low-income households. I think it is not an exaggeration to say it could cause a homelessness crisis of unprecedented scale. Indeed, there are many who argue that something of this nature is already happening in Ireland.

On this point, the authors stick to their distributionalist guns:

“As landlords outside of the build-to-rent sector are typically not adding to supply, when they sell this should not have an impact on supply, with these homes bought by other landlords or owner occupiers. In a scenario where the number of landlords leaving the sector is larger than those entering, we would expect to see a decline in the proportion of rented homes, and a corresponding growth in owner occupiers.”

Nevertheless, they do note the potential for disruption to more vulnerable households, and point towards measures to protect or compensate tenants in cases where their home is sold, as well as strengthening the rental subsidy systems to work better for low-income households.

Nevertheless, it seems to me that this remains a considerable concern. The idea of explicitly targeting a reduction of the PRS has enormous attraction, and I say this as someone who has spent the best part of the last 8 years thinking about how to reform the PRS. The more I learn about the international evidence the more I am convinced that the PRS is best suited to providing flexibility to the minority of households that value flexibility over stability, including students, some categories of migrants (e.g. recent arrivals or temporary workers), and people who are undergoing some kind of transition such as family breakdown. I have no idea what proportion of households this would be, but I would guess it would be somewhere close to 10%. In the Irish case, this would mean halving the proportion of households renting privately.

However, for the Government to attempt to move the housing system in this direction, given the complexity of the housing system and the existing structural imbalance between supply and demand (in the Irish case), would be challenging. This is not to say it could not be achieved, but the danger of unintended consequences would certainly require serious thinking.

Having said, and as I mentioned at the beginning of last week’s post, this is one of the most thought provoking analyses of the issues in the PRS I have read in a long time.

Events

The Housing Agency in conjunction with the Geary Institute have a really interesting forthcoming series of seminars on the politics, economics and policy of land. This year’s HSA autumn lecture will be a virtual seminar on housing activism. Next week’s Simon Week conference includes presentations from ESRI researchers and others, and there’s also this Simon seminar looking at the issue of ‘hidden homelessness’. On October 11th View Magazine will launch its latest issue in Belfast, looking at home and housing, with contributions from myself, Daragh O ‘Brien and many others.

What I’m reading

The big publication this week was a new report analyzing Irish homelessness policy over the last decade or so, containing loads of useful data and analysis. A very useful discussion of property purchase patterns, using PPR data, was posted by Social Justice Ireland this week. An interesting short website article on mass squatting in Britain after WWII. This episode of Reboot Republic is well worth a listen, examining some of the pre-budget submissions around housing.