The RTB survey and the future of the PRS
The Week in Housing 15/12/23
This will be the last issue of the Week in Housing in 2023. A sincere thanks to everyone who read and subscribed over the past year. I’ll be on sabbatical from January and working on a research project on cost rental housing in Ireland and a book on the Political Economy of the Private Rental Sector, so expect lots of focus on those issues next year. I’m also hoping to have more guest contributions, I’ll update readers on that in mid-January when the Week in Housing returns. Happy Christmas!
It feels like a while since I’ve checked in on what’s been going on in the Irish PRS, and as usual there’s plenty to talk about. First up, a few weeks ago I spoke at the launch of Threshold’s annual report (watch it here) alongside several party spokespeople on housing: Eoin O’Broin (SF), Mary Fitzpatrick (FF), Rebecca Moynihan (Lab) and Cian O’Callaghan (SD). I argued that there are fundamentally two approaches to policy making for the private rental sector.
The first, which I would argue has characterized policy in Ireland for the last couple of decades at least, is what we can call an ‘investment-led’ approach. This approach prioritizes the supply of PRS housing, and hence investment, first and foremost. Protections for tenants and landlords remain an important part of this approach, but they are developed within the ‘hard constraint’ of maintaining or enhancing investment in the sector.
The second approach is what I call a ‘housing-led’ approach. This approach starts by identifying the fundamental aspects of housing and home that private rental housing should deliver. Typically, these involve what I call the ‘big four’ features of ‘home’: security, autonomy, privacy and quality. This approach still sees investment as important, but measures to maintain or enhance investment are developed within the ‘hard constraint’ of ensuring the PRS delivers the above core aspects of housing and home.
The key point I made is that, to my mind, the investment-led approach in Ireland is unsustainable for the following three reasons:
1) There is no clear evidence, in Ireland or internationally, around the impact of PRS regulation on investment levels (check out this recent Australian research on this point). In other words, there is currently no evidence base for the view that a robust approach to regulation and the protection of tenants actually hampers investment or supply. Prioritizing investment over housing is therefore based on assumptions or even guesses. Given the impact things like insecurity have on tenants, there is therefor a strong moral case against prioritizing investment over tenant protections.
2) The PRS is now too big and too diverse now for it to be sub-par. 20% of households are renters, 25% of families with two children are renters. The new RTB survey, discussed in detail below, shows that the single largest category of households renting from small landlords is couples with children. Why should these children be deprived of the secure housing that their peers in owner occupier and social housing enjoy? In addition, 40% of the PRS are non-Irish born households and between a third and a half receive rent subsidy, so the sector houses many socio-economically disadvantaged households. There is a very strong case that housing policy should not compound existing disadvantage.
3) Finally, and perhaps most importantly, with such a large PRS, it is not politically sustainable for the sector to remain under-regulated. This fact is reflected in the constant stream of reforms over recent years. These reforms have tried to better protect tenants, while maintaining an overarching focus on investment levels. This has led to a confused, hodge-podge of policy and constant change that has served neither tenants nor investors. In my view, the investment-led approach is politically dead and this means we will move to a housing-led approach within the coming years. The only question is how much time waste before this penny finally drops.
As a consequence of the above, the two key challenges that policy makers should be focusing on are:
1. How can a housing-led approach best sustain investment in the sector?
2. How can we transition from the current approach to a housing-led one with minimum disruption, i.e. without generating further uncertainty in the sector?
The input from the speakers at the Threshold event was fascinating, and too much was covered to even attempt to summarize here. But what stood most to me is that, with the exception of Mary Fitzpatrick, all of the speakers expressed the explicit view that the PRS is too large and that shrinking the sector should be an aim of policy (a view I expressed in this piece from September of last year). This represents quite a significant change because in the wake of the GFC, the tendency was to view a large and well functioning rental sector as an important alternative to home ownership.
The other big news in the rental sector this week was the release of the latest round of the RTB’s rental sector survey. The RTB are to be commended for publishing a really in depth piece of research that goes a long way to addressing some of the evidence gaps that have hindered policy making, and indeed debate, around the PRS. The survey is huge, with five separate reports published. I had a piece in the Irish Examiner yesterday discussing, focusing on the ‘tenant survey’ component of the research. You can read the full piece here, but what follows is a shortened version of that piece.
The RTB Survey shows that the two big issues in the sector continue to affect tenants: affordability and insecurity. On average, tenants spend over 30% of their net monthly income on rent, and this is higher again for Dublin (30% is the threshold most experts use to classify unaffordable housing). More worryingly still, 18% of tenants state that they spend more than 40% of their income. The report also finds that there is a ‘strong sense of insecurity’ among tenants and that, for many, the private rental sector provides ‘a house not a home’. Moreover, the average number of years that tenants are renting is five, and the average number of properties rented is just over two. This suggests a significant level of churn and that long-term tenancies are certainly not the norm.
The RTB’s survey also sheds light on a growing divide between existing and new tenancies, with the former being significantly better for tenants than the latter. We see this most of all in terms of rents. Indeed previous RTB data showed on average new tenants pay 18% more on rents. Moreover, rents for existing tenancies are growing much more slowly (albeit still much too quickly). Rents for existing tenancies grew by 5.3% compared to the same quarter last year. Rents for new tenancies grew by 11.6% over the same period.
The survey tells us that tenants who have been renting for less than one year also pay a higher proportion of their income on rent and that, in contrast, many existing tenants have not received a rent increase in several years. This is likely a result of the RPZ legislation. The RPZ rent caps don’t apply to properties which have newly entered the sector, so rents can be much higher for these properties. Indeed, data on landlords presented in the survey suggests that for some landlords, the RPZ rent caps create an incentive to set this initial rent as high as possible. Moreover, under the RPZ legislation, when a tenant moves out of a property and then a new tenancy commences, the rent is supposed to remain capped. But in practice there have long been doubts about how many landlords comply with this, as it very difficult, if not impossible, for new tenants to know what the previous rent was.
Here, however, it is important to remember that today’s ‘existing tenant’ is tomorrow’s ‘new tenant’. This is where the affordability issues which are particularly pronounced among new tenancies dovetail with the general issue of insecurity in the sector. Due to this lack of security of tenure in the sector tenants can never be sure how long their tenancy will last. The high rents faced by new tenants – as well as the sheer absence of available properties – create a ‘chill factor’ for all tenants, as they dread being back in the market looking for a new property.
The RTB survey tells us that for tenants ‘the key fear is of not being able to find something similar for comparable rent and no one believes that the current situation is improving. Rather they feel that rental prices are becoming higher and supply tighter’. As one of the tenants interviewed for the research put it, ‘You have no security – especially with the way the market is. Everyone is just dreading getting a notice of termination’.
The process of finding a new property relates to another divide in the sector, this time in relation to those households who experience discrimination in the sector. We know from previous research that this includes ethnic minorities and recipients of HAP. This should be a cause for concern given that the report tells us that 40% of private renters are non-Irish born, and one in five are in receipt of a subsidy. Low income households in general will be at an acute disadvantage when rents in new tenancies are increasing so quickly. It is these, and other vulnerable cohorts, who are particularly vulnerable to homelessness.
All of this points to two things we need to focus on in order to make the private rental sector fit for purpose. First, we need to contain the growing gap between new and existing tenancies. The most obvious ways to do this are to tighten up compliance with the RPZ rules so that landlords cannot increase rents between tenancies, to increase supply of housing in general, and by making available affordable alternatives, such as cost rental or affordable homeownership. Second, we need to strengthen security of tenure so that tenants need to move less, which will mean we will have more long-standing existing tenancies (the ones the data suggests are working reasonable well), and fewer new tenancies (the ones that aren’t). More security equals fewer moves, and fewer moves also means less chances vulnerable cohorts will end up with nowhere to live at all.
The private rental sector is like a game of musical chairs. If the music has stopped and you have a chair you are doing just fine – for now. But the more frequently the music plays, i.e. the more frequently tenants need to move, and the fewer chairs there are, the more difficult things.
News & Events
TASC are hiring a Senior Economic Policy Analyst. The Social Democrats have published a Bill on closing some of the loopholes that allow mass evictions.
What I’m Reading
The SCSI have released the latest iteration of their report on construction costs. The last two issues of the Week in Housing have focused on financialization, however it came to my attention that I had somehow missed this fascinating report on financialization across a number of cities when it was first published. And finally, two new academic articles looking at the politics of housing movements: this one focused on ‘care’ in housing movements, while this one looks at an activist research project collaboration with CATU in Ireland. And finally, the Simon Community have a great new blog post on the impact of the winter eviction ban.