The Housing Bill 2016: More than supply or the same old story?

There has been much discussion, and not a little disagreement, about the Housing Bill 2016 (Housing Miscellaneous Provisions Bill 2016) currently going through the Seanad.  In essence, it is the Government’s attempt to ‘fast track’ the delivery of new housing units.  And while there has been some debate about a small number of legislative changes that will, potentially, give tenants more rights, the bill offers an example of more of the same, rather than fundamental departure, in terms of the housing policy pursued by successive governments.

In this post, I want to do two things. Firstly, I want to look briefly at some core points of the bill with a view to identifying where they depart or continue existing policy.  Secondly, I want to place the state’s approach to focusing on stimulating supply through incentivizing the development sector in a historical context.

 

The Housing Bill 2016

The Housing Bill 2016 is generally a continuation of the kinds of housing policies successive governments have been pursuing for years now. Its basic premise is to remove (more) barriers to development in order to increase supply quickly. Most fundamentally, it assumes that supply is the single most important element of the housing problem and that remedying the issue of supply will have a ‘trickle down’ effect to subsequently alleviate the other crises of housing affordability, homelessness, and tenure insecurity.

As I want to argue below, this assumption is highly problematic, as borne out from historical evidence in the Irish context.  But before I get to this, I want to briefly focus on three key points from the bill that have gained media and activist attention.

Firstly, the bill includes a clause to curb wholesale evictions when a property is sold to a large investor. It builds on the so-called ‘Tyrllestown amendment’ by including a provision that landlords with 20 properties or more cannot evict tenants when selling to an investor.  This protects against a particularly high-profile form of eviction, but one which is perhaps very limited in the overall scheme of things.  Some estimates suggest that this will affect only 0.56% of landlords*.  Moreover, a new get-out clause was also included in the bill, which allows a landlord to pursue a vacant sale (i.e. evict existing tenants) if they can prove that the value of the sale is decreased by 20% as a result of occupancy.  Given the current market conditions it may not be difficult for landlords to ‘prove’ this.

Secondly, the bill makes provisions to amend Part 4 Tenancy by removing the six-month window at the beginning and end of a four-year lease agreement in which a landlord can terminate a tenancy.  This improves the rights of tenants but offers limited protections in a context where a number of other gaping loopholes exist that allow landlords to terminate tenancies. Moreover, in a context where rents have increased by 40 per cent since 2011 this will do little to combat the tsunami of economic evictions taking place.

Thirdly, the bill proposes to give increased powers to An Bord Pleanála by introducing new ‘fast-track planning permissions’ for ‘strategic housing development’.  This removes planning powers, in particular instances, from the local authorities.  The bill proposes that:

“Applications for permission for strategic housing developments shall be made direct to the Board (An Bórd Pleanála) and not to the local planning authorities.”

The rationale here is to reduce the time it takes developers to secure planning permission, and thus reduce the overall time it takes for new housing supply to come on stream.

In the Irish planning system, An Bord Pleanála operates as an adjudicator of last resort on planning decisions made by local authorities: “Anyone applying for planning permission and anyone who made written submissions or observations to the planning authority on a planning application, can appeal a subsequent planning decision to An Bord Pleanála”.

As such, the ‘fast track’ approach, while ensuring a quicker process for developers, potentially removes one more avenue for community opposition to new development. Given the less than exemplary recent history of sustainable development in Ireland, the removal of recourse to objection is potentially worrying.

It has been documented in academic work by Linda Fox-Rogers and Enda Murphy and Gavin Daly that during the boom local authority planning departments were put under pressure to deliver favourable planning outcomes.  One mechanism used was the incorporation of ‘pre-planning’ talks, whereby a developer submitting an application could avail of extensive meetings (even negotiations) with the planning authority to ensure that a planning application could fit the criteria to be granted permission.  Will An Bord Pleanála, which is an independent body, now also be expected to engage in pre-planning discussions with developers given the political pressure to quickly increase supply?  If the answer is yes, it could seriously undermine the independence of the authority.  If the answer is no, the new measures might well fail to deliver the fast-track supply of housing the bill promises.

Underpinning the bill as a whole is the assumption that the supply of housing is the biggest challenge to overcome.  This dogma, although increasingly challenged by various housing experts, is stubbornly trotted out in the media by politicians and vested interests.  This simple formula for solving periodic housing crises, namely increase supply through removing barriers to development and incentivizing the construction and investment sector, has had a long history in Ireland, with highly variable outcomes.

 

Build it and they will come

This approach has deep roots in the history of Irish Housing Policy. Indeed, the first Fine Gael government sought to deal with a crisis of tenement housing by offering grants to incentivise higher income families to take out mortgages to buy their own home, thus freeing up units in tenements for low income families.  When Fianna Fail came to power in 1932, they instead embarked on a programme of building social housing, in the process offering incentives for the construction sector during a period of relative economic stagnation.  These two moves set in place the conditions that have remained stable in Irish housing policy since – a focus on homeownership as the optimum model of housing tenure and a close relationship between the successive Governments and the construction sector.  These close relationships have provided fluctuating outcomes for Irish housing.

To take two broad, and broadly different, examples.

Firstly, attempts by the state to solve period social housing crisis have in the past focused on strategies to increase supply and/or renovate existing stock.  Moreover, this has often been achieved through incentivizing the private sector.  For example, the plans to create Ballymun emerged in the context of a crisis of tenant housing in Dublin city centre.  Built using new rapid-build materials, Ballymun was intended to as modernist utopia delivering a large supply of working class housing.  However, while the development proved a relative success in the early years, the state’s failure to deliver local jobs coupled with the withdrawal of Dublin Corporation investment and general upkeep of the flats led to spiralling social problems in the area.  The supply of housing alone was not enough to make the community sustainable.

However, when the regeneration of Ballymun was slated in the 1990s, the focus was once again overwhelmingly on the ‘bricks and mortar’ approach to supply.  Although the plans included provisions for community and economic regeneration, these promises remained largely undelivered by the state.  Moreover, the regeneration was to be financed by the construction of new private housing units on site, which was expected to also lift the economic profile of the area.   Thus, what the community got was new public and private housing units, but less in terms of long-term investment in the community or the local economy.  The regeneration during the 1990s failed to deliver on long-term community development because of a focus on a supply of housing units rather than taking a more holistic view of housing.

Despite these problems, the Ballymun model of regeneration became the template for regeneration schemes in places like Cork, Limerick, and Dublin.  Using a Public Private Partnership (PPP) approach, regeneration of social housing was expected to deliver new social housing, enhance community development, and deliver private sector housing supply.  Moreover, it was expected to do this by incentivizing the private development sector.  Many of these PPP schemes collapsed with the property crash, leaving communities high and dry.

Secondly, from the 1986 Urban Renewal Act on, the state introduced a series of tax incentive schemes to increase the supply of property development in urban and rural areas.  This was a major factor in kick-starting the Celtic Tiger property bubble, which saw an astronomical increase in the supply of housing.  Between 1991 and 2006, 762,541 housing units were built in Ireland.  However, this supply did not lead to more affordable housing. In fact, house prices increased by between 300 and 400 per cent in different parts of the country.

The tax incentive schemes were extended far beyond the point at which they were necessary.  These policies to increase supply were a key factor in the creation of the 2,846 unfinished housing estates identified in 2010, including 78,195 complete and occupied units, 19,830 under construction, 23,250 complete and vacant, and planning permission in place for a further 58,025.

Moreover, the unregulated development that resulted from reducing the barriers for developers actually undermined the creation of sustainable communities built around strong transport links and services.  One of the reasons planned developments like Adamstown and Clongriffin failed to deliver on their promises, for example, was that unregulated development in neighbouring local authorities undermined plans for the timely delivery of schools, transport links, and other amenities in tandem with the phased delivery of housing.

Following the crash, there was little legislative change introduced to the planning system. And while the development sector has been significantly affected by the financial and housing crash, this has been the impact of external factors rather than designed through government policy.

The current housing and homelessness crisis is a direct outcome of the series of systemic problems created throughout the boom and the policy responses to the crash that ignored issues like mortgage debt, the decline in social housing provision, and the changing character of the rental sector, and continued to support existing and new development interests.

 

More than supply

The Housing Bill aims to solve a series of complex problems in the housing system through a short-term intervention to increase supply.  While this might be what vested interests in the sector need to get building in the short term, it will only exacerbate conditions for most of us with regard to our access to secure and affordable housing.

It foolish to assume that focusing on the needs of the same vested interests will remedy these problems.  Firstly, because they have never solved these problems in the past and indeed created many of them. Secondly, because the housing market has changed since the crash.

For financial actors, the rental market has become more profitable in recent years as a form of investment.  For international funds, in particular consistent rising rents is essential for them to return growing profits on their investments.  As such, a greater supply of rental stock will not mean more affordability – there will still be pressure to push up rents.  In combination with the incentives for first time buyers, measures supporting developers, landlords, and investors will only serve to further inflate the housing market.

In the meantime, the clear and modest demands to increase the supply of social housing, or improve tenants’ rights are being side-lined.  For example, the Secure Rents campaign asks for three things:  to regulate increases in rent by linking rents to the Consumer Price Index; to revoke the right of landlords to evict tenants for the purpose of sale; and to move from current 4 year leases to indefinite lease terms. These provisions are not radical by any means, but rather start to address some of the imbalances between the rights of tenants and those of landlords.  Indeed, tenant rights are particularly poor in Ireland in comparison to the rest of Europe. These provisions would not unnecessarily penalise developers, landlords, or investors. But they would slow down some of the crisis conditions.

More starkly, within the context of a housing crisis of unprecedented proportions, the Irish Housing Network have made a call for a complete ban on evictions.  It is worth remembering here that the number of homeless people in Dublin has risen by 35 per cent in a year.

In sum, the Housing Bill is unlikely to change the current system to any great extent – in terms of tenants, the new amendments will not make much of a dent, while in terms of development interests, the changes are just the latest iteration in a long-standing state support for this sector.  But in the context of the current housing crisis, this response is inadequate at best and has the potential to worsen the problem.

The assumption of supply being the most significant factor is highly problematic, as we can see from historical evidence.  The evidence suggests that relying on the logic of supply (without considering issues of affordability and security of tenure) will create increasingly dysfunctional housing systems.  It is time that we finally took stock and addressed the bigger housing problems that repeat themselves.

This is an emergency. And an emergency requires new thinking.

Cian O’Callaghan

*My thanks to Lorcan Sirr for providing this figure

 

Towards a Real Housing Strategy #5: Renting Solutions and Funding Social Housing

Introduction
Situated in Liberty Hall, the Housing Crisis Conference brought together people of all academic, social and political backgrounds to discuss the ongoing crisis occurring in our own backyard. It was essential that at such a conference it was not just academics and public representatives that had the opportunity to voice their opinion, but that ordinary people would also be heard. Families in emergency accommodation, high rents and insufficient government support are issues that were addressed with suggestions of government intervention and an increase in provision of public housing among the solutions discussed. This report will discuss the Renting & Funding Social Housing workshop outlining the issues and solutions deliberated throughout the session. The workshop was facilitated by Dr. Cian O’ Callaghan, Maynooth University, with guest speakers Dr. Lorcan Sirr, Lecturer in housing DIT, Des Derwin, SIPTU Dublin and Simon Brook, Clúid.

“Where have the houses gone?”
Focus Ireland states that in 2014 the number of additional families entering emergency housing in Dublin was 40 a month, doubling from the previous year. January 2015 saw a further increase, with a total of 400 families in Emergency Accommodation. This figure then increased by 76% to 700 families in August. Des Derwin revealed that 1,257 children are included in these 700 families, leaving them with a very unstable life. Drawing on the discussion, Derwin, posed the question of how we have gone from ghost estates, to families sleeping in parks. “Where have the houses gone?” he asked the room. According to a report  published by UCD and DIT, 170,000 houses were left vacant in 2010 following an excess of building during the Celtic Tiger. Five years on, can we really believe that some of these houses are not still available? The discussion reflected on how leaving the provision of housing to the market led to oversupply during the boom but to a deep crisis of inaccessibility and unaffordability during the recession, particularly as mortgages have dried up, rents continue to increase and the numbers of people left homeless continues to rise. Shelter, or housing, should be seen as a basic human right and this was highlighted on numerous occasions throughout the workshop.

 

Towards a Real Housing Strategy #3: Homelessness could be closer to your own door than you think – Some potential solutions

Since the economic crisis, starting in 2008, there has been a massive increase in the need for social housing across the nation. Figures from 2008-2013 indicate that there are now 100,000 households on social housing waiting lists. It is in response to this and additional problems surrounding housing, that the public conference “Towards a Real Housing Strategy” was held, on Saturday 3rd of October in Liberty Hall in Dublin’s City Centre. It was organised by Housing Action Now with support from charities such as Inner City Helping Homeless (ICHH), and academic and research institutes, including the Geography Department and NIRSA from Maynooth University. The conferences main objective was to create a real strategy to combat what can and should be addressed as “The Irish Housing Crisis” through raising awareness about alternative policies.

The conference brought together a varied mix of people with different interests and backgrounds from academics, activists and people who have been personally affected by the housing crisis; united in a desire for change and for action to be taken to tackle the crisis. The morning presentations given by housing experts, agencies and academics helped set the context from which the Housing crisis emerged, identify the primary problem as the lack of government intervention in providing social housing and regulating the rental sector and their failure to acknowledge a housing crisis.

Away from a statistical and objective perspective a testimony from Danielle, a mother of three left homeless since August exposes the real human suffering brought about by this crisis. Danielle described how she was forced to split up her family and allow her children to stay with relatives after she could not avail of temporary accommodation. In addition she felt that she was often not met with compassion. These figures and personal experiences highlight the deepening economic and social inequalities embedded in Irish society.

 

Ireland’s New Transnational Landlords

We have heard a lot about the crisis in Dublin’s rental sector in recent months. On the surface, a lack of properties for sale or to let on the market has contributed to rising rents and the crisis of homelessness. But underneath this, a less visible, though no less worrying, change has been taking place – the rise of the transnational landlord.

Traditionally Irish landlords have been small-time amateurs. 65% of landlords have only one property with most others having just two or three. Many landlords work full time in addition to renting properties and up to one third are described as ‘accidental landlords’ – such as people renting out their own principal residence due to mortgage arrears. But recently a new breed of landlord has entered the scene, referred to as ‘professional’ or ‘institutional’ landlords. The most prominent is Ireland’s largest landlord, I.RES, a Real Estate Investment Trust focusing on long term investment in the rental sector. Other examples include global real estate companies such as Hines, Kennedy Wilson and Oxley Holdings, all of which are pursuing ‘build to rent’ strategies across Dublin.

Like much of what’s going on in the Irish property market, this development is driven by three interacting sets of dynamics.

Firstly, Irish property is being sold en masse at bargain basement prices . The sellers are financial institutions seeking to deleverage rapidly. These include foreign lenders such as Lloyds who sold their mortgage book to private equity firm Lone Star Capital. But the main players have been the Irish bad banks – Anglo and especially NAMA. Indeed 800 of the 1,200 apartments owned by I.RES were bought in one go from NAMA under Project Orange. The largest asset class held by NAMA is development land, and much of this has been sold to global property companies seeking to become long term investors in rental accommodation. For example, NAMA was one of the main owners of 400 acres of suburban land in Cherrywood sold to Texas based Hines. Hines plans to develop up to 3,600 apartments on the site.

Map of the boundary of the Dublin Docklands SDZ

Secondly, there has been plenty of money washing around the global financial system and seeking to find its way into Irish property. As a PWC report earlier this year put it, European debt markets are ‘awash with capital’. The global financial environment continues to be characterized by some of the core dynamics that drove the financial boom of the 2000s: very low interest rates and low yields in traditional asset classes such as government and corporate bonds. Add to this significant quantitative easing in the US, UK and now the EU. There is a lot of money out there looking for somewhere to go, and heavily discounted real estate looks like a good bet. Hence, much of the money buying up Irish real estate is flowing in from the global financial system. Hines, itself a Texas based company, is backed financially by New York private equity firm King Street Capital. I.RES has funded its property shopping spree through its Canadian backer, the Canadian Apartment Properties Real Estate Investment Trust.

Thirdly, and finally, the transformation of the Irish housing system has turned the rental sector into a viable investment for international players. The sector continues to expand rapidly, increasing by over 100% in the Dublin region since 2002, as do rents. Most importantly, however, the collapse of the mortgage market means yesterday’s ‘first time buyers’ are today’s ‘top end renters’. The new class of landlord is chasing the high rents paid by a new class of renter, e.g. two income professional couples who are renting long term.

The business strategies of all the new institutional landlords thus work around these three axes: using global sources of capital to buy discounted Irish assets and rent them to relatively well-off renters. Let’s look in a little more detail at just what they’re up to.

I.RES (Irish Residential Real Estate Investment Trust) has spent around €400 million in the last year or two acquiring 1,200 apartments in Dublin. They hope to expand their portfolio to around 3,000 apartments. The company claims it “is focused on consolidating the fragmented Irish rental market by targeting high quality property assets … To deliver superior customer service, enhance tenant retention, and deliver quality homes.” They have been widely reported to be seeking rent increases of up to 20% across their portfolio this year. They are also considering expanding into affordable housing, social housing and student residence, all of which are potential new asset classes for global property investment in Ireland. You can read more about their plans in their investment brochure.

Oxley Holdings are also pursuing high end renters, but are even more focused on the top of the market. The Singapore based developer describes itself as “a lifestyle property developer that caters to the upwardly mobile homebuyer and entrepreneur” and is building 200 apartments at 72 – 80 North Wall Quay in Dublin’s Docklands, bought from NAMA last year.

Hines, which opened its Irish office last year, articulated its motivation for entering the Irish property market as follows:

“The firm made the decision to set up in Dublin to acquire single assets, portfolios, or debt; to enter into joint venture arrangements where appropriate; and to look at opportunities emerging from the de-leveraging in Ireland.”

In two years they have acquired over €1 billion in commercial, retail and residential property. As mentioned they look set to become a huge landlord under the Cherrywood development and are also building apartments in the Docklands, where they are completing the Spencer Dock development in conjunction once again with King Street Capital. Hines also sees themselves as a targeting the high end of the market and providing the high quality rental property. Their developments will also include special facilities and property management.

Finally, LA based Kennedy Wilson has aggressively entered Ireland chasing distressed assets but also developing major projects. While they have only a small residential portfolio (mainly investing in offices) they have snapped up around five apartment blocks in Dublin and are building the Clancy Quay complex near Island Bridge. KW have also entered a joint venture with NAMA to develop the Capital Docks project on Sir John Roggerson’s Quay in the Docklands. They submitted planning application in April 2014 for a major development on the 5 acre site. One of the buildings will be a nineteen story tower while overall the development will provide 300,000 sq. ft. of office space and 204 apartments (check out the commercial brochure for more details ). Interestingly, Deutchse Bank issued the first Commercial Mortgage Backed Security backed by Irish rental properties in 2015. The MBS was backed by loans linked to KW’s apartment investments.

Plans for Capital Dock

But what does this all mean for tenants and for housing more generally? While it’s too early to say, international research certainly gives cause for concern. The pioneering work of Desiree Fields has documented the impact of private equity firms on residential rental properties in New York and elsewhere. Issues include high rents, high rates of tenant turnover and other aggressive business strategies which hit tenants hard. In the Irish case, given that institutional landlords are focused on relatively well-off tenants, we might be tempted to think that their impact will be negligible. Given the chronic lack of affordable rental accommodation, however, we should certainly be concerned about the opportunity cost associated with this new form of investment. Every apartment block or development site snapped up by global companies with significant financial fire power is a lost opportunity for affordable housing. From the point of view of the city as a whole, it would have been better to see heavily discounted apartment blocks and cheap development land being bought by local authorities and housing associations. Instead, affordable housing is being crowded out by a few large players whose only interest is in ‘top end’ tenants. Thus, while the possibility of professionalization raised by institutional investors has been welcomed in some quarters, the early indications are that they will do little for the majority of tenants.

Mick Byrne

Mick Byrne is an IRC postdoctoral researcher in NIRSA NUI Maynooth. He is also an activist involved in various housing issues, including the Dublin Tenants Association.

 

Housing market should serve interests of all not just the few

Previously published in the Irish Examiner

THE Central Bank’s proposed mortgage lending regulations — through the introduction of a 20% deposit requirement for borrowers — have drawn criticism from the Government, property market interests, and the ESRI, for its likelihood to restrict the ability of people to get mortgages to buy housing.

The ESRI state that “Irish house prices still appear to be undervalued” and that “most commentators have identified a lack of housing supply as the main policy concern in the Irish housing market at present”.

Instead, they want to give a different “signal to the market”, ie tell property developers that financial institutions will be allowed give lots of people lots of credit to buy homes, and thus they should start building again.

Prices will stabilise, their theory says, and we will have another generation of happy homeowners living the property dream.
Of course the reality will be developers and sellers pushing up prices in the knowledge that borrowers will be able to get mortgages at multiples of their incomes and deposits.

Doesn’t this seem eerily familiar?

Wasn’t the expansion of unsustainable borrowing for home ownership one of the fundamental causes of the crash?
Have we learned nothing from the fact that 130,000 households are still in mortgage arrears?

If the concern of policymakers and economists is to provide young families and low to middle income earners with high quality, affordable, secure housing in sustainable communities, then clearly this is not the way to do it.

There is a need to explore alternative ways of addressing this need rather than creating another housing bubble and unsustainable levels of indebtedness, poverty, and stress.

One obvious area that offers great potential is the private rented sector.  Many people looking to buy a home are doing so, not because of some insatiable desire to own property, but simply because of the failure of the private rented sector to meet their needs.

The private rented sector now accounts for a fifth of all households.  In urban centres it is even more significant with almost 40% of people renting in Galway, 35% in Dublin, and 29% in Cork.

However, the recent annual report of the national housing charity, Threshold, detailed chronic failings “that need to be addressed before anyone living in a rented dwelling can really consider it their long-term home”.

Threshold has found that “loopholes in the law are enabling landlords to remove tenants from their homes and then re-advertise the same properties at substantially higher rents” and they are “increasingly witnessing such economic evictions, where families are forced to leave their homes because of exorbitant rent hikes”.

In the absence of any regulation, rents have increased dramatically, in some cases up to 40% in the last four years.
The introduction of rent control is imperative to change this and provide a functioning housing system that can meet people’s needs.

The youth campaign We’re Not Leaving recently produced a report that pointed out Germany only allows increases in rents for sitting tenants of up to a maximum of 20% over three years, with some cities permitting no more than 15%.

The Netherlands has rent control between and within tenancies where the initial rent for a unit is regulated and there is a maximum rent for each dwelling based on a points system awarded according to size, quality, area etc.

This shows that the argument that rent control reduces supply is not true. These countries have a much larger provision of rental properties than Ireland.

The issue of supply could also be addressed by the use of the 43,707 vacant properties in Dublin (including 16,321 apartments), 6,168 vacant units in Cork City, and 3,755 in Galway City.

Refurbishing and rebuilding derelict units or converting the thousands of empty retail and office buildings into suitable accommodation could also help supply.

Nama’s €3bn development fund should focus on funding local construction workers to undertake that work and provide low-cost rental accommodation rather than funding the large developers and real-estate investors.

Another issue raised by landlords and property economists is that rent control would contravene their private property rights enshrined in the Constitution. It is true that Article 43.2 protects “the right of private ownership”.

However, Article 43.2.1 states that this right “ought to be regulated by the principles of social justice” and the State may, “delimit by law” these rights for “the common good”.

Essentially, the Constitution protects the right to private property but states that these rights can be superseded by laws and measures (such as rent control) that are in the interests of social justice and the “common good”.

An expert on housing and property law, Padraic Kenna of NUI Galway, has detailed how there is no property rights impediment to rent regulation at an Irish and European level.

He has pointed out that the European Court of Human Rights has established that rent controls are accepted as a means of state control on the use of property in the general interest.

For example, in 2013, the ECHR held in a Dutch case that laws on rent control which imposed caps on rent increases of 2.5%, 1.2%, as well as rent reductions, did not impair landlord’s property rights.

So there is nothing stopping the Government from passing regulation to restrict the rate of rent inflation in any one tax year to, for example, 5%, and then recouping a higher rate of tax on rental incomes where a landlord has breached this cap.
We need a national debate about who really benefits from the current housing and property market based around homeownership, and spiralling house prices and rents.

The big beneficiaries remain the banks, developers, estate agents, solicitors, landlords, and increasingly, international capital and vulture fund investors who are buying up huge swathes of Irish residential property (often from and with Nama).
They all have a vested interest in a rising property market.

It is unsurprising, therefore, that property commentators, who are generally in some way connected with one of the above interests, argue against rent control.

The truth is, rent regulation along with significantly increased security of tenure for tenants, and improved standards, would help to make the private rented sector a realistic long-term housing option.

It would also immediately help address the homelessness crisis.

Rory Hearne