Soc Dems promise €1,000 cost rents

The Week in Housing 08/11/24

With the election approaching it’s no surprise parties have been coming out with housing proposals thick and fast. Sinn Féin’s mammoth 100 page plus document came out back in September (I wrote about it here), it seems the Government have agreed new housing targets, and it has also been reported that the Greens want to extend Help to Buy to tenants purchasing from their landlord. Two weeks ago, the Social Democrats published their Affordable Housing Plan. With two housing heavy-weights in the party, Cian O’Callaghan and Rory Hearne, it’ll be interesting to see how their housing policy develops. The Affordable Housing plan focuses solely on the schemes covered by the Affordable Housing Act 2021, affordable purchase and cost rental, and so doesn’t delve into social or private housing.

One interesting thing to note is that in the preamble to the plan they raise the issue of the relationship between the growth of the PRS and economic inequality (which I wrote about here):

More and more people being forced to stay in the private rental sector for life represents a huge transfer of wealth away from households towards landlords, property speculators, and investment funds. Every accommodation unit purchased by a REIT or other institutional investor, rather than by a young family, couple, or worker, is one more household that will retire with less wealth, less security, and more reliance on the State in their retirement.

This is, as far as I remember, the first time I have seen this issue of inequality feature so prominently in the framing of housing policy.

In terms of targets, they aim to deliver 50,000 Affordable Purchase and 25,000 Cost Rental over five years.  The key selling point of their proposal is that they will reduce the prices/rents delivered by these schemes so that they are genuinely, in the eyes of the Soc Dems, affordable. They claim that their proposals can bring Affordable Purchase prices down to €300,000 in Dublin and €260,000 elsewhere (they contrast this with prices of €475,000 currently mooted for 3-bed affordable purchase units on Oscar Traynor road). For Cost Rental, they aim to bring rents down to €1,200 in Dublin and €1,000 elsewhere. The dwelling type is not specified but I imagine it is a two-bed apartment. Currently, two-bed units are coming in at around €1,600 per month.

The most interesting part of the proposal relates to how they will get prices/rents down. Most of the debate so far has focused on reducing the cost of delivery and thereby reducing costs to the resident. Sinn Féin, for example, have promised to get cost rents down to €1,000 by reducing costs through three main avenues: moving from a developer to a contractors model of delivery, provide land on a free/leasehold basis, and extending the CREL loan term to 60 years. In contrast, the Soc Dems have gone for a simpler proposition: providing a grant.

Affordable purchase dwellings will benefit from a financial subsidy to a maximum of €95,000. Cost rental units will get a max of €150,000.

They estimate a cost to the exchequer of €1.7bn per annum. They also mention that €4.2bn in loans from the HFA. It is not entirely clear, at least to me, if this loan will cover part of the above mentioned grant, in which case it would presumably add to the financing costs for delivery.

Having said that, they do suggest that their policy will focus on public, unzoned land which will reduce land costs, but again it is not entirely clear if this means there will be no cost for land.

The detail of their Affordable Purchase model can be seen in this table, where they use SCSI construction cost estimates:

A further interesting feature of their approach is the inclusion of a mechanism to keep affordable purchase homes affordable in perpetuity. This will take the form of a planning intervention affordable housing zoning. This will cap the price at which dwellings can resold, allowing for inflation and accounting for any investment in the dwelling. SF’s plan also commits to this, but doesn’t specify the mechanism to keep Affordable Purchase homes affordable.

Unfortunately, they don’t include the same level of detail for Cost Rental dwellings. As mentioned, they promise what appears to be a grant (even this is not entirely clear) of up to €150,000 per dwelling. But it is not clear if this will be in addition to CREL and HFA loans (presumably it will), or what role land costs play in the calculations. To provide some context, take a look at Sinn Fein’s calculation of their Cost Rental model in the table below (from their Home of your Own plan). Their plan replaces CREL with a ‘Public Housing Fund’ loan, under new loan terms, with the remainder of finance provided by HFA (or similar). Development levies are also waived.

The Soc Dem’s approach of providing a grant has the benefit of being a mechanism which can directly reduce costs, and therefore rents, in the short term. This, in my view, is less risky than ideas around reducing costs, which are of course difficult to directly shape via policy. As regular readers may recall, I think both an interest rate subsidy and a rent subsidy to tenants are worth exploring, as these could reduce costs without further burdening capital spending (which is notoriously difficult to sustain during recessionary periods). They would also be reasonably easy to implement and would quickly and directly reduce rents (unlike attempting to move away from developer-led delivery model, which may take quite some time).

If you can fill in further details of the Soc Dems plan please comment below.

Events & news

A reminder that the Business Post Property Summit, at which I’ll be speaking, will take place at the end of the month. I’ll also be speaking at Housing Rights NI’s conference on the PRS this month, taking place in Belfast.

What I’m reading

The Department of Finance recently undertook an extensive review of the Funds sector. You can read the whole report or the section dealing directly with real estate here. This is an important report as likely to shape the thinking of policy makers going forward. In case you missed it, the Fiscal Advisory Council published a report on Ireland’s infrastructure demands.