Monday, 29 June 2009

More Cutting Times (Rent Supplement)

Nat O'Connor: Today’s Irish Times suggests that rent supplement (along with child benefit) is being targeted for cuts by the Special Group on Public Service Numbers and Expenditure Programmes (aka 'An Bord Snip Nua').

Rent supplement is a reasonably large area of expenditure in the national budget. The 2009 Revised Estimates for Public Services give a total spend of nearly €11 billion for Social and Family Affairs, of which the package of supplementary welfare allowances make up €1.1 billion or around 10%. Rent supplement is estimated at €490 million; that is, 4.5% of welfare spending. This represents a steady increase in recent years; for example, it has increased from €151 million in 2000, when rent supplement represented 2.8% of a total social welfare expenditure of €5.3 billion.

The Comptroller and Auditor General conducted a value for money exercise about rent supplement, published in April 2006. Without going into the detail here, the report noted that the payment was not being used for its original, temporary purpose, but is relied on for long-term housing by many households. The long waiting time for social housing can partially explain this situation.

Now, it is generally acknowledged that rents are currently in decline, although there is a lack of available data. Frustratingly, the state body, the Private Residential Tenancies Board (PRTB) has a great deal of information in its database about the actual level of rent paid that could provide a detailed rental index. Likewise Revenue and the Department of Social and Family Affairs may have data on rent levels that could be used to construct a rental index. A limited picture of current rents is available through DAFT, but this data is limited to asking prices not actually paid rent, and only applies to properties currently to let through the DAFT website. Nevertheless, it is possible to use the DAFT report (Quarter 1, 2009) to show the limits of the current level of rent supplement.

DAFT gives an average monthly rent for every county in Ireland, with a breakdown of this information for the larger cities. Although Rent Supplement might be expected to be paid to properties at less than average rent levels in some cases, it is reasonable to assume that rent supplement will provide an equivalent level of support across the country.

This does not appear to be the case, as there is a wide range of difference in how much of average rent will be covered by rent supplement in different areas.

For example, maximum rent supplement for a single person or couple sharing a dwelling varies from €66 to €92 per week. Although this variation is meant to be in line with different rent levels across the country, the payment – plus the €24 weekly contribution the household makes – represents anything from 37% of the average rent level of South County Dublin or 46% in Galway City to 78% of average rent levels in Leitrim or 79% in Laois.

A single person on his/her own is paid a maximum of €85 to €122 per week, depending on the area. Adding the €24 weekly contribution, this equates to 47% to 103% of average rents, depending on where the person is living.

What this variation shows is that there is seemingly a poor alignment of rent supplement with local rent levels (despite the regional rent supplement maximums). This means that households in some areas are much less well supported than households in other areas. One basic anomaly is the fact that average rent levels vary considerably in the city versus the county in Cork, Galway, Limerick and Waterford, but rent supplement remains the same. Similarly, rent levels vary enormously across Dublin, yet there is only one level of rent supplement for the capital, which essentially means that people who rely on rent supplement are effectively excluded from living in large sections of the city.

In this context, it is worth reminding ourselves of the overall aim of Government’s housing policy, which is to “enable every household to have available an affordable dwelling of good quality, suited to its needs, in a good environment and as far as possible at the tenure of its choice”.

It is true that rent supplement levels for families with two or more children can be above the average market rent in some cases. However, caution must be exercised in interpreting this, as rent levels for larger houses are also going to be above average.

It is a very simplistic argument for the Government to make that rents have decreased across Ireland, hence it can universally reduce rent supplement. Cuts across the board will fail to address the fact that rent supplement is already distributed in an illogical and unfair manner. Not least, some of the most vulnerable people (especially single people) already do not receive sufficient assistance to pay for decent housing in many areas. Organisations such as Threshold and the Peter McVerry Trust have long pointed to the fact that many households are required to top-up their rent with additional payments, leaving them with very little to live on.

The Government may have some margin to reduce rent supplement in a few cases. The Comptroller and Auditor General’s value for money report noted that landlords have no incentive to ask for less than the maximum payable and it is possible that the maximum may now be above average in a small number of areas. But the Government can only reasonably proceed to lower rent supplement if its decision is based on good evidence of local rent levels. The current wide variations suggest that the levels of rent supplement are not evidence-based.

Given that the Government has access to data with which it could generate a much more sophisticated national rental index, why is it not using this data in order to more fundamentally revise the level of payments based on local rent levels?

If the Government simply introduces cuts across the board, this indicates to me that not only are they unfairly punishing some of Ireland’s most vulnerable households, but they are incapable of the basic competence required to operate the rent supplement system as it stands, never mind developing an alternative housing policy that would be more sustainable and give the taxpayer a tangible asset (like social housing) for the large amount of money currently paid out to private landlords.
Dr. Nat O'Connor is Policy Analyst with TASC


karl deeter said...

I think you would find that a reduction in rental allowance wouldn't result in wide scale evictions, or punishment of the vulnerable.

the reality is that supply far outstrips demand, and the way to allow the market to adjust rather than trying to keep rent allowance high (as it distorts the actual market prices), is to give landlords a choice - accept the new price or don't. the tenant has wide and varied choice in the current market, that's across all counties.

in fact, it would (on the whole) help, because doing this saves tax spending, meaning there is more to spend on the likes of education and health, the rise in spending on rent allowance takes away from vital projects elsewhere, it means that market clearing levels are not reached.

trying to avoid this might have an ethical foundation but the pragmatic reality is that the vast majority of landlords are willing to change with the times, guaranteed rent has a certain premium.

if the approach to what must be done (and spending cuts are not 'might' they are 'must') starts to apply to every interest group then we will just increase our deficit and frankly, that will hurt more people than it saves

Nat O'Connor said...

Actually, I agree that some rent supplement payments can be lowered if they are above market rent levels. But I am concerned that the Government will cut rent supplement across the board, without taking the time to fix anomalies in the system.

For example, if rent supplement (plus contribution) for a single person in Roscommon really is equal to 102% of average rent in that area, then there may be scope for cuts. Although, remember that Community Welfare Officers can (and do) pay less than the maximum allowable.

But the maximum rent supplement payable in Dublin (plus contribution) only comes to 59% of average rents in the City Centre area. This suggests that people on rent supplement in Dublin city are already pushed to the bottom of the market and many of them are probably already making extra top up payments to their landlord to bridge the gap. A cut in Dublin will indeed hurt vulnerable people in this situation.

So, my point is simply, why doesn't the Government use the data that it has to re-align rent supplement levels with market rents?