Special post: statement to the Oireachtas housing committee

Current trends in the PRS 20/09/22

What follows is my statement to the Oireachtas Committee on Housing, Local Government and Heritage in September 2022.

In the decade following 2010, Ireland experienced a catastrophic collapse in housing supply as well as a rapid expansion of the PRS, and related decline in homeownership. These two processes have interacted to exert enormous pressure on tenants.

It is important to appreciate that it is the interaction of these two processes which explains the chronic nature of the issues in the PRS. In other words, an expansion of the PRS in the absence of a collapse in housing supply would not necessarily have created such acute problems (or, indeed, vice versa).

This initial observation draws our attention to the fact that the PRS cannot be considered in isolation from the wider housing system. The interaction between the PRS and the wider housing system, as well as each of the other tenures, must be at the centre of our analysis.

In what follows, I begin by assessing the impact of the expansion of the PRS in the context of collapsing housing supply, i.e. the current issues in the sector. I then discuss the future of the PRS.

Analysis of current trends in the PRS

The major trends within the PRS can be addressed under three headings: residential instability, affordability, and wealth inequality.

Residential instability

In relation to residential instability, data collected by Focus Ireland indicates that almost 70% of families presenting as homeless are coming from the PRS, and the majority of these have been evicted. RTB data indicates that notices of termination issued by landlords have increased by 58% in the first half of this year, compared with the previous six months, with over half of these terminations linked to sale of property.

Beyond this, we do not have robust evidence that measures the prevalence of residential instability, i.e. evictions and involuntary moves. For this reason, the qualitative research we have on this issue is of particular importance. I have conducted two qualitative studies over the last number of years examining the experiences of tenants in the PRS, both of which find that insecurity is a pervasive feature of the housing experience of many tenants[1].

Importantly, the international qualitative evidence[2] is extremely clear on this point: evictions, insecurity and instability are increasingly characteristic of the experiences of tenants in all those societies which have experienced a rapid increase in the PRS, e.g. the UK, the US, Spain, New Zealand and Australia.

Based on the evidence from Ireland and internationally, we can conclude that the expansion of the PRS is associated with the growth of residential instability as a significant feature of our housing system.

Affordability

Rental inflation appears to have  become a structural feature of our housing system. With regard to affordability, ESRI research indicates that 16% of households had housing payment-to-income ratios greater than 30 per cent in 2015-2016, but that this figure was double for PRS households[3].

Rent regulation has been introduced since 2016 to address this issue. It is too early to assess the impact of the current iteration of the RPZ measures, but an ESRI study[4] earlier this year found that the introduction of RPZ legislation was associated with a moderation of annual rent increases. However, it is also the case that rental inflation for new tenancies, reflected in the RTB rent index, continues to be very high[5].

The expansion of rent subsidies, particularly HAP, is the other major policy tool targeting rental affordability. HAP provides a crucial support for renters and for those exiting homelessness, with as many as one third of tenants now in receipt of HAP or another rent subsidy[6]. Nevertheless, in common with other jurisdictions which rely on rent subsidies, the cost to the exchequer has accelerated very quickly. Moreover, rental subsidies risk inflating rents further, and do very little to address the issue of residential instability outlined above.

Wealth inequality

The decline of homeownership is also associated with a growth of wealth inequality, as housing is the most widely held asset. ESRI research published last year[7], shows that the share of aggregate net wealth in the bottom 50 per cent of households fell from 12.2% in 1987 to 6.8% in 2018. The decline of homeownership is identified by the research as one of the main drivers of wealth inequality.

International research also identifies a strong relationship between the decline of homeownership and increasing wealth inequality[8].

Summary

When we consider the major issues in the PRS together, a strong case can be made that the expansion of the PRS over the last two decades has made housing inequality a key political and policy challenge. The faultline between the ‘housing haves’ and the ‘housing have nots’ is increasingly decisive in terms of experiences of inequality today. Moreover, housing inequality generated by the PRS interacts with other forms of inequality, specifically those related to class and migration status[9].

The future of the PRS

I will now turn to the issue of how we should think about the future of the PRS. My over-arching view is that rather than focusing on fixing the issues in the PRS, our focus should be on fixing the housing system as a whole, and re-positioning the role of the PRS within the housing system.

Building on this, I advocate three guiding principles for how we think about the future of the PRS: support tenants; protect tenants; and protect the stock of PRS dwellings.

Support tenants

All of the available research[10] demonstrates that a large majority of tenants do not wish to remain in the PRS. For the majority, homeownership is their preferred tenure. For a smaller, group, social housing is their preferred tenure. Policy needs to support households to move on from a PRS which is failing them. Further research is required here, but there are a number of avenues through which this might be pursued:

·         Stabilising house prices in general will widen access to homeownership;

·         Supporting households in accessing mortgages (while being wary of unduly stimulating demand or creating financial risk for households/the financial system);

·         Expanding social housing and cost rental housing. In relation to the latter, tenants currently in receipt of HAP are not eligible to apply for cost rental housing, this obstacle should be removed.

These measures will all reduce the concentration of ownership of residential property, which has potential to create a more equitable and stable housing system, produce better outcomes in terms of affordability and security, and reduce the extent to which housing operates as an investment asset.

Protect tenants

It is vital that as much as possible is done to protect tenants who remain within the PRS. There are two fundamental points that are paramount here. On the one hand, the Irish and international literature consistently shows that security of tenure is the bedrock for everything else in the PRS[11]. Without security, tenants cannot advocate for themselves, thus facilitating a culture of non-compliance in the sector. Without security, tenants cannot create a stable home and cannot plan for the future. Without security, tenants will be at risk of homelessness and the homeless crisis will persist.

As a result of recent reforms, we now have indefinite insecure tenancies. It is unclear how this responds to the well-known challenges in the sector. Instead, it is my view that tenancies covering a defined time period but offering complete security are preferable, i.e. a 6-year tenancy which can only be terminated due to rent non-payment, anti-social behaviours, etc. This may result in landlords who are not in a position to provide stable accommodation leaving the sector. This is unfortunate, but in my view the negative impact of this is far outweighed by the advantages of reducing the chaotic nature of the PRS and the chronic levels of residential instability which have become the norm.

The other major reason we need to protect tenants in the PRS is that the structural imbalance between supply and demand at the level of the overall housing system is unlikely to significantly change in the medium term. Even if the ongoing attempts to increase housing supply are successful, by the time they impact on households most of the children currently growing up in the PRS will be adults. It is simply not possible to protect tenants today, this year, or indeed within the next few years via the mechanism of supply.

Protect the stock of PRS dwellings

The third guiding principal I advocate is the need to protect the stock of PRS dwellings, but to be cautious of trying to expand the PRS and be cognisant of how the stock of PRS properties impacts on other tenures.

Here I distinguish between the stock of PRS properties and the supply of housing. As is well known, when a landlord leaves the sector it does not reduce the supply of housing. If that house is purchased by an owner occupier, it reduces the stock of PRS properties, increases the stock of owner occupied properties and has a neutral impact on the supply of housing. Similarly, if we incentivise small-scale landlords to enter the sector, we may simply enhance their ability to out-bid first time buyers, thus simply transferring stock from one tenure to another, without actually increasing the supply of housing as such.

Nevertheless, there is strong demand for the PRS and that will continue to be the case. Therefore, we must consider measures that protect the stock within the sector, particularly given concerns with small-scale landlords leaving the sector. Such measures, however, should take care not to hamper the above objectives of expanding access to homeownership and social/cost rental housing and without producing a further concentration of the ownership of rental property. Moreover, the objective of protecting the stock of PRS dwellings should not be pursued in a manner which undermines the objective of protecting tenants who remain in the PRS.

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[1] Byrne, M., & McArdle, R. 2020. Security and agency in the Irish private rental sector. Threshold; Byrne, M., Sassi, J. 2021. Experiences of ‘home ’in the Irish private rental sector: a qualitative research study of the experiences of tenants during the COVID-19 pandemic. Geary Institute for Public Policy.

[2] McKee, K., Soaita, A. M., & Munro, M. (2020). Private renters’ housing experiences in lightly regulated markets: review of qualitative research. UK Centre for Collaborative Housing Evidence.

[3] Corrigan, E. et al. (2019). Exploring affordability in the Irish housing market. The Economic and Social Review, 50(1, Spring), 119-157. This research also notes that ‘throughout the period under evaluation (2006-2016), low income households who are in the private rental sector have always faced high housing payments. While rental price inflation has been high in the very recent period, the fact that low income households in the private rental market always faced high average rental costs suggests affordability challenges are structural rather than cyclical in nature’.

[4] Coffey et al. 2020. Rental inflation and stabilisation policies: international evidence and the Irish experience. ESRI.

[5] New rents nationally increased by 9.2% in Q1 2022.

[6] Doolan et al. 2022. Low income renters and housing supports. ESRI.

[7] Horan, D., Lydon, R., & McIndoe-Calder, T. (2021). Household Wealth Inequality and Resilience: Evidence from the Household Finance and Consumption Survey. Economic & Social Review, 52(1).

[8] Smith, S. J., Clark, W. A., Ong ViforJ, R., Wood, G. A., Lisowski, W., & Truong, N. K. (2022). Housing and economic inequality in the long run: The retreat of owner occupation. Economy and Society, 51(2), 161-186.

[9] Grotti, R., Russell, H., Fahey, É., & Maître, B. (2018). Discrimination and inequality in housing in Ireland. Irish Human Rights and Equality Commission.

[10] Corrigan et al. 2019. The Housing Aspirations and Preferences of Renters. IGEES Research Paper. This research found that 86.5% of respondents expressed a preference for owner occupation. They key motivations include ‘household sovereignty, stability and planning for life-cycle events such as the raising of children and retirement..’

[11] Byrne, M., & McArdle, R. 2020. Security and agency in the Irish private rental sector. Threshold