This Newsletter is mainly focused on Irish housing. But to understand that fully, we need to be able to put it in an international context. This week the IMF published a new report on Affordable Rental Housing which helps us to do just that. Read alongside recent reports from the ESRI (like this one on inequality and especially this one on affordability), it provides a very useful snapshot of the issues in the PRS across Europe. It also points out some extremely important trends that are not usually discussed in the Irish context, but should be.
First, let’s look at the headline findings from the report, which relate to affordability for renters. The report finds that housing affordability is a significant issue for renters across Europe. It measures affordability by considering ‘housing cost overburden’ to be paying more than 40% of your disposable income on rent. The median share of income spent on rent across Europe is around 25% and this is what the figure is for Ireland. But in many countries, including Ireland, that figure is 40% for those in the lowest quintile. So housing is unaffordable for many low-income renters. The report also finds that economic inequality is greater when we take into account housing costs.
(A quick note on their Irish data: they use EUSILC which annoyingly has two categories of renters ‘rent at market price’ and ‘rent at reduced rent’. My understanding is that this lumps HAP, RAS and Rent Supplement recipients in with social housing tenants in the ‘reduced rent’ category. So the Irish data is a bit skewed by this at some points).
But who is effected by this issue? The report supports existing research that tells us that ‘generation rent’ are mainly young, urban and migrant households:
“Across the selected countries, the average share of renters in urban areas is more than twice as high as that in rural areas, and more than half of foreigners (from both EU and non-EU countries) are renters, compared to about one-fifth for the case of nationals.”
Interestingly, in many countries the share of migrant tenants who are 'overburdened' is higher than 'locals' (the term used in the report), whereas in Ireland, the data suggests that Irish-born households are significantly more likely to be overburdened than EU-born tenants (see Figure 7, page 13). This may be related to the fact that a significant portion of migration into Ireland is of high skilled labour.
Another important finding of the report is that renters are especially effected by deteriorating housing affordability, when compared to homeowners:
“The median renter spends more than one and a half times what the median homeowner spends on housing when measured as the share of disposable income. The discrepancy has widened between 2011–13 and 2016–18.”
The above is important evidence, but it won’t come as too much of a surprise and is consistent with what we have been seeing in Ireland for some time. However, there are a few really interesting discussions in this report that should be a bigger part of the debate in Ireland.
First, affordability problems are not just a product of high rents, they are also related to stagnant incomes and precarity for some households. Renters are over-concentrated in low income service sector jobs, and they have not benefited from the economic growth of the last five years:
“Economic growth raises affordability issues for low-income renters if their incomes do not grow in line with rental costs. From this perspective, a decline in rental affordability is yet another manifestation of growing income inequality across households, on the back of unevenly distributed gains from economic growth, and not particularly a result of frictions or failures in rental markets.”
Although in the Irish context rising rents have been a particular problem, it is important to remember that not all issues in housing are produced by the housing system – housing affordability is after all about the relationship between incomes and rents, so we can solve this problem by increasing incomes, as well as by lowering rents. They also point to some wider trends that explain growing affordability problems: greater urbanization, economic shift towards high skilled services, and tourism.
Second, EU monetary policy is creating more inequality between renters and homeowners. The ECB has set very low interest rates for some time now (as have Central Banks around the world). Low interest rates have two key impacts on housing. First, it means buyers can afford to pay more because their monthly repayments will be lower if interest rates are low. Second, and for the same reason, it reduces the housing costs for homeowners. So the net effect is higher house prices (making it harder for renters to buy and pushing rents up) with lower housing costs for homeowners. This is what political economists refer to as a ‘distributional impact’ of monetary policy, i.e. monetary policy doesn’t impact everyone equally. The IMF analysis is interesting because it points to a distributional effect on tenure inequality, that means renters increasingly lose out.
Third, and finally, the authors look at the impact of Covid-19
“The COVID-19 pandemic has impacted disproportionally those professions that tend to have larger shares of renters, thereby hurting their affordability more…renters predominantly fall into categories of service workers and elementary occupations. These occupations already had lower median incomes compared to others before the pandemic and have faced greater employment destruction during the crisis. Thus, rental affordability pressures are set to rise for these groups due to the concentration of their income losses unless rents fall rapidly.”
In other words, the relationship between income/employment inequality and housing affordability, the major theme of the report, is set to worsen because the same low income renters who have been doing badly for years are going to be hit hardest by Covid.
My conclusion from reading this report is simple. If we are going to spend lots of money in order to ‘build back better’ (i.e. public spending to stimulate the economy), we need to focus on the twin evils of low pay and housing affordability to make sure that low income, renting households do not lose out yet again.
On another note, with this issue I have now completed two full months of The Week in Housing. If you have been finding it in anyway interesting or useful, I would be very grateful if you would consider sharing it with friends, colleagues or on social media.
Events
Last week's launch of Self-organised Architecture’s work on community-led housing is now available to watch, as is a Simon Community seminar on affordable housing and homelessness. And don't forget this seminar featuring an all-star international panel on ‘the global housing crisis and the home ownership myth’ on the 9th of June.
What I'm reading
Last week I discussed Threshold's recent policy submission. This week, the UK organisation Generation Rent published their proposals for the PRS in England and Wales (Scotland has its own housing policy). The main proposals are indefinite tenancies; rent controls (linking rent increases to wage inflation; and four month notice periods. And in case you missed it, the Dublin Inquirer has an interesting piece on with a new twist on the impact of investment funds on PRS housing.