The state and housing

The Week in Housing 22/04/22

A central question of housing policy and politics is the relationship between the state and the housing system, or the state’s role in the housing system. There are two common and somewhat simplistic views. The first says the state should withdraw from intervention in the housing market. There is, however, increasing recognition that this view is nonsensical because without the state there would be no housing market. In everything from the provision of infrastructure, the existence of a planning system and the enforcement of contracts, the state constitutes the housing market. On the other side, there is the view that the state’s role in housing should consist primarily in the direct construction and rent/sale of public housing. This view is of course much more sensible, but it too misses out on the many ways in which the state is implicated in the housing system at a very wide variety of levels, from regulating tenancies to the structure of the financial system.

The relationship between the state and the Irish housing system has been addressed in two recent publications which we look at today. These two reports look at state intervention at both ends of the process of housing provision, so to speak. The first, Tenant State of Mind, argues that the Irish state has adopted the role of the ‘tenant’ within the housing system. The second Trading Places, looks at the potential for the state to play a greater role in the land market, and thus in shaping the housing system from its foundations. Let’s look at each report in turn.

Tenant State of Mind, by Keith Adams of the Jesuit Centre for Faith and Justice, is a highly original examination of the politics of housing in Ireland. It starts from the Bordieuan insight that the state is implicated in all aspects of the constitution of the housing market. But it goes on to document the ways in which the state has, seemingly by choice, subordinated itself to market actors, adopting the position of end consumer and merely propping up demand for the consumption of housing.

The ‘state as tenant’, as the report conceptualizes it, developed from the introduction of rental subsidy schemes, which took place back in the 1970s (Rent Supplement), but which became increasingly prominent from the 2000s. This has, of course, been accelerated in recent years with the roll out of HAP as a major plank of the Rebuilding Ireland strategy and as a form of ‘social housing’. In relation to the various rental subsidization schemes currently in operation, the report argues that ‘what initially began as a short-term cash allowance has morphed into a formal scheme based on lease agreements with the state as a tenant of a private landlord who, in turn, sub-lets the home to a household with housing needs’. The report notes that by end of Q3 2021, two out of every three new ‘social housing units’ reported under the official Rebuilding Ireland delivery figures were in fact HAP or RAS units. Moreover, the budget allocation for rent subsidies (across the various schemes) exceeded €1 billion in 2021, and yet the state obtained ‘no permeant state asset in return’.

HAP, the report goes on to argue, is also a ‘gateway drug’ which has led to the state subsidization of institutional landlords. It claims, for example, that in 2019 40% of the HAP budget was paid out to institutional landlords. This tendency has been further accelerated by the Enhanced Long Term Social Housing Leasing Scheme, through which the state enters into long-term leasing arrangements with institutional landlords for the provision of social housing. This involves 25 year leases with rents set at 95% of market rents. Under this scheme, the state ‘removes risk while insuring shareholder dividend performance can be maintained or increased…’ Although this scheme is to be phased out by 2025, over 1,000 units are currently being leased under it in the four Dublin Local Authority areas and new leases are in the pipeline.

Crucially, Tenant State of Mind argues that ‘[t]he ability of for-profit entities to enter the Irish social rental sector is only possible when the Government has demarcated the pitch and established the game with appropriate legislation and financial incentives.’ The state played a crucial role in the emergence of the institutional landlord sector (see research by myself and Richard Waldron on the post-GFC period), for example via legislating for REITs, supporting BTR development, and the mass-sale of distressed real estate assets to international financial institutions. The key insight of this report is that, despite its foundational role in the constitution of the contemporary rental market, the state has adopted the position of tenant:

“From one perspective, the State may be understood as the most influential protagonist in housing policy as it passes legislation, owns significant land banks, develops regulations, and can shape the environment for access to credit for developers and individuals. With this level of influence, the State could be perceived as being above housing policy, making decisions which shape the actions of others but is unaffected by its own decisions. Instead… it chose to occupy the position of the lowliest and most vulnerable; the tenant. By embracing the role of a tenant, the Irish State has discovered an efficient means of transferring public wealth to private entities along with a philosophical justification to avoid developing a growing state asset of publicly owned homes”

In other words, the politics of contemporary housing in Ireland is defined by the state’s increasing focus on intervening in the housing system as a renter of residential property, rather than as a provider and owner. This is a position of weakness which supports the market, props up demand, and crowds out would be homeowners, the report argues.

TASC’s new report, Trading Places authored by Robert Sweeney, looks at the opposite end of the spectrum: i.e. what is the potential of the state to structure the housing system at its foundation, i.e. land markets. The report is a very welcome addition, and not just because it shares its name with the much loved Eddie Murphy comedy of 1983. Land markets are often not sufficiently addressed in discussions of housing, partially because land markets are opaque and data is scarce.

The report argues that speculation in land markets, at least as it is traditionally conceived, is not currently a major issue (i.e. speculative purchase of land in the hope of rezoning and windfall gains). This is largely to do with changes in zoning and spatial development policies in recent decades. Nevertheless, issues within land markets have played an important role in key issues such as housing supply. One issue which receives a lot of focus in the report is NAMA’s role in the resolution of distressed assets in the wake of the financial crisis. NAMA obtained more than €70bn in distressed real estate assets from Ireland’s ailing banking sector in the wake of the GFC, and land was one of the largest asset classes in NAMA’s portfolio:

“As of mid-2017, NAMA had disposed of land with the capacity for 50,000 housing units, more than half of which was commercially viable to build on. 10,000 of the potential units had planning permission on them, but only 3,700 had been built on or were under construction as of July 2017.”

While eventually NAMA-owned land found its way back in to the market, ‘[t]he process of land acquisition, building, and selling – the development supply chain – was stalled for several years’. A related problem was that often the initial purchasers of NAMA assets (and those of IBRC and the private banks, for that matter) were often not interested in development, but rather in flipping distressed assets: ‘some or much of the NAMA disposals of distressed assets put land into the hands of those who did not necessarily want to use it for development’.

Today, issues continue and some of the stakeholders interviewed for the report point to ongoing issues with speculation and land hoarding, as well as the fragmented nature of land ownership in many locations. To address these issues, the report advocates an active land management approach in which state intervention can play a leading role in assembling land and otherwise making it available for the provision of housing, with a strategic and national focus. The LDA is the most appropriate vehicle to achieve this due to its national scope. At a more concrete level the report supports the Acquisition and Development Land Bill 2021, which allows Local Authorities to compulsorily acquire land at no greater than 125% of current use value. However, it also notes that CPO may not be as useful as some commentators think, and therefor also recommends Compulsory Sales Orders, which involve an auction process releasing land from an owner and thus making it available for development. The report also suggests that the LDA’s ability to purchase private land, including CPO of private land, should be enhanced.

This level of state intervention is at the other end of the spectrum to ‘the state as tenant’. Here, the state’s role in shaping land and housing markets is acknowledged, as its capacity to overcome some of the limitations of land markets, and in so doing influence the supply of housing, including important issues like viability.

Reading the two reports together gives an insight into the complexity of the state’s role in housing, a role which encompasses different dimensions of housing and different scales of intervention. In a sense, the way we think about the relationship between the state and housing is the defining issue of housing politics.

What I’m reading

A very important report has been published this week on the financialization of the PRS in the USA. The US has a long history of institutional investment in the PRS, but since the crash of 2008, corporate landlords have expanded radically into the ‘single family dwelling’ segment, an issue which has become a political hot topic at a national level. As some of you know, I organised a seminar with North American researchers on these issues back in December (watch it here), but this new report looking specifically at Corporate Landlords and the Single Family Dwelling market represents a really important contribution to the literature (it is co-authored by Desiree Fields, one of the leading scholars on this area internationally).

Events

The #SimonTalks seminar Insights into the Rental Sector is now available to attach online.