The Department of Public Expenditure and Reform has recommended that people on social housing schemes supporting private rental accommodation should be asked to pay a progressively larger share of the rent as their household income increases.
The Department has also recommended that there should be a far greater focus on building or acquiring houses for local authorities in areas such as Dublin and its surrounding counties where rents are high.
The recommendations resulted from a detailed review of the current and capital spending on social housing in Ireland. Both recommendations, if implemented, would represent a significant change to existing housing policy.
There are currently 85,799 households on social housing waiting lists. That's 6.3% below the number a year ago, so some progress is being made.
The Government made huge commitments in a strategy document called "Rebuilding Ireland", which covered the six-year period from 2016 to the end of 2021. As a result there are some very big social housing targets to hit.
The Government has promised to build, acquire, or lease 41,000 new social houses between now and 2021. On top of that, they have also committed to pay the vast majority of private sector rent for an additional 59,000 households on the social housing list.
That is 100,000 social housing units to be delivered by-hook-or-by-crook over the next four years. It is going to be very expensive.
At the moment, according to the ESRI, we have 253,000 social housing units in Ireland. That equates to 15% of all of the homes in the country. Promising to add an additional 100,000 units to that total in just four years is an incredibly ambitious target. If delivered it would represent a 40% increase in social housing units by the end of 2021.
Yet, according to the Central Bank, the construction sector in Ireland has regained less than a third of the workers who lost their jobs during the crash.
We know too that we only managed to build 14,446 houses throughout the entire country last year. If we continue to build at this pace and allocate every single new home built to social housing between now and the end of 2021 we would only manage to reach 60% of the Government’s social housing target and not a person outside of the social housing list would be catered for.
Yet we also have a monumental shortage of new houses in the private sector and that must be addressed too.
It is going to be extremely interesting to see how all of this is going to play out over the next few years and whether or not the social housing targets can be met.
Currently, the Government spends €2bn per year on social housing. Just over half of that money - 55% - goes to build social housing units, buy houses, or on signing very long-term leases for houses to be allocated to local authority tenants. All of that is classed as capital spending. Effectively it is an investment - the State is going to own the houses it builds or buys.
The remaining money - about €900m per year - is used to subsidise private sector rents paid to landlords for local authority clients, as well as homeless services, traveller accommodation and other supports.
In these cases, the State is paying for services. These payments are not an investment. They do not result in the purchase of an asset. The State does not own anything after the money is spent. It is not capital expenditure. It is current expenditure and it is treated differently and scrutinised differently in the public sector accounts.
The Government’s plan to subsidise private sector rent for an additional 59,000 families on the housing list over the next four years is going to drive up current Government expenditure significantly. If the plans are delivered by 2022 it could be costing the taxpayer an additional €1.7bn per year to fund rents paid to private sector landlords. That would take the annual amount paid to landlords for social housing clients to well over €2bn by 2022.
It’s hardly any wonder that the Department of Public Sector and Reform decided to take a closer look to see if it represents good value for the public purse.
What it found should be enough to cause a rethink about how the Government is planning to deliver social housing services throughout the Greater Dublin region and in our main cities where rents are highest.
As everybody knows rents have risen very sharply since 2013 when plans for the Housing Assistance Payment Scheme was being hatched.
This scheme - known as HAP for short - is the main scheme through which the Government is planning to fund private sector rental accommodation for people on housing lists over the next four years.
The HAP scheme leaves it up to someone on the housing list to find private sector rental accommodation to suit themselves. The local authority then commits to pay up to 87% of the rent to the landlord on behalf of the State.
The tenant is responsible for paying the remaining rent differential to the landlord themselves. But they are allowed to work full-time and no matter what they earn the subsidy towards their rent remains fixed. They are not asked to pay any more towards the rent even if their household income goes up.
The Rental Accommodation Scheme - RAS for short - is very similar scheme although it has been in operation for longer - since 2004. The difference is that under this scheme it is the local authority rather than the tenant who finds the accommodation and rents it from the landlord. In this case the tenant is allowed to work up to 30 hours per week but again the rental subsidy is not linked in any way to the amount of income the household earns.
According to the Department of Public Expenditure and Reform the typical weekly differential rent paid by tenants on these schemes out of their own resources ranges between €43 and €68 per week.
In fact, the Department says the average the tenants have to fork out themselves works out at just €50 per week nationwide and it has been at that same level throughout the past ten years.
The Department is also concerned about anomalies such as the fact that a family of two adults and two children pays less on differential rent in south Dublin than the same family type in Roscommon and Leitrim at the same income level.
The Housing Assistance Payment Scheme and the Rental Accommodation Scheme probably made sense to policy makers when rents were lower. But rents have risen so sharply and are now at levels we have never seen before. Rents are up 35% nationally and 53% in Dublin since 2013.
It now appears that this very sharp jump in private sector rents may have undermined the rationale for both schemes. At least that is what the Department of Public Expenditure and Reform appears to think. They have advised the Minister for Finance that significant changes are needed.
The Department has new section that goes by the fancy title of "IGEES". It stands for Irish Government Economic and Evaluation Service.
It is dedicated to number crunching and analysing spending programmes to ensure the State gets the best possible value for the taxpayers’ money it spends, and that Government schemes in operating are fit for purpose.
On both fronts - value for money and fit for purpose – they are now seriously concerned about housing policy.
The Department has crunched and analysed all the numbers. They have concluded that in places like north Dublin the State could build social houses for up to half the money they would have to spend on rent for social housing tenants over the next 20 years.
They estimate that the State could have to spend up to €260,000 on rent support for a two-bedroom house in Fingal and up to €290,000 for a three-bedroom house.
Yet they estimate it would only cost the State up to €130,000 to build a two-bed and €140,000 to build a three-bed home in the area. In both cases building is half the cost and the State would own those homes as assets forever.
The conclusion and the advice is that a greater focus should be put on building social houses in areas where rents are high rather than resorting to the private sector rental market to solve social housing needs.
The second big conclusion that the Department came to is that the State cannot afford to continue to provide massive fixed rental subsidies of up to 87% of the rent without taking account of rising household income.
It points out that the economy is approaching full employment, and that people on the HAP scheme are allowed to work full time. Many of them can afford to pay more when their incomes rise. The Department's strong advice to the Minister for Finance is that social housing tenants (on the HAP and RAS schemes) should be asked to pay a higher differential rent up-to-and-including the full market rent as their household income allows.
Both of these recommendations would represent very significant changes to the current direction of social housing policy in Ireland and there is no doubt the Government will be giving them very serious consideration in the weeks and months ahead.