Tuesday, 18 August 2009

Lower Rents Still Higher Than Rent Supplement in Dublin

Nat O'Connor: Rents drop 17% over 12 months according to DAFT’s latest Rental Report. This headline will be referred to in the next Budget to justify cutting Rent Supplement payments. But it isn’t that simple.
As noted previously, the Rent Supplement maximum payment will cover a significantly different proportion of average rents, depending on what part of the country you live in. So people in some areas are more likely to be squeezed into poorer accommodation and/or to make further top-up payments from their social welfare than are their equivalents in other areas, by the mere chance of what administrative area they live in.

Another problem with the headline figures is that it is an average across all housing units, from one-bed studios to 5 bed+ houses. However, some detail is given on page 7 of the report based on the number of bedrooms in the dwelling. So, let’s illustrate what Rent Supplement will do for you (bearing in mind the limits of the available data):

A three-bed unit will cost an average of €695 in Waterford City, €780 in West Leinster, €1,273 in Dublin 8 or €1,486 in Dublin 1.

Rent Supplement for a family with 3 or more children is the highest possible Rent Supplement payment, and it varies across the administrative regions of the health services (who administer the payment). Including the family’s contribution of €103 per month, the maximum payment is €788 in Waterford City, €909 in Meath or €1,203 in Dublin.

So far so good, if you don’t live in Dublin. Maximum Rent Supplement covers average asking prices. But given that it has already been cut and rents have fallen, is there really much scope for cutting RS further? Also, it is a maximum, so a CWO can simply decide to pay a lower amount. Do we need a further blanket cut of payment ceilings? Dublin already lags behind by €70 per month in Dublin 8 or €283 per month in Dublin 1, which is a lot of money for a family on welfare. So there is a clear problem with how this payment is calculated. And if other social welfare payments are cut in the next Budget, people’s ability to pay for their housing will be put further at risk.

Now take the example of a one-bed housing unit, which will be an apartment in most cases. A one-bed will cost an average of €532 in Waterford City, €511 in West Leinster, €849 in Dublin 8 or €892 in Dublin 1.

Maximum Rent Supplement for a single person living on his/her own (plus contribution) will cover €571 in Waterford City, €571 in Meath or €632 in Dublin. So, it’s sufficient in Waterford or Meath, but €217 too low in Dublin 8 and €260 too low in Dublin 1 (and these are not the most expensive areas in Dublin either). There is a massive gap in Dublin between average rents and Rent Supplement, which is likely to force single people into the cheapest accommodation and to make further top-up payments from their welfare payments.

Some people will say that we should expect people on Rent Supplement to move into the cheapest accommodation. But let’s examine this logic.

If lower Rent Supplement forces people into the cheapest accommodation, the taxpayer ends up subsidising the worst flats, which are often owned outright and can undercut modern apartments (e.g. buy-to-let) in terms of low rent. It also increases ghettoisation, as families on welfare become priced out of large areas of Dublin. The fact that market rents are lowering is an opportunity to move people into better quality, modern apartments and to achieve a better social mix. These are stated goals of national housing policy.

Bedsits have been banned, which is a move towards higher quality standards in the private rented sector. But this means that rents will be higher. So, we have to look at how we meet those costs. Rent Supplement will cost an estimated €490 million in 2009. But part of the problem is the decision to pay near-market rent rates to private landlords, rather than take a long-term view and build (or acquire) more social housing, which very soon becomes a cheaper option for the taxpayer.

8 comments:

Proposition Joe said...

Since you seem to think that welfare recipients deserve to have at least the average rent in their area covered by the state, can you tell me who you think should be residing in the *below*-average rental stock?

Tax-paying workers perchance?

Nat O'Connor said...

You are conflating rental costs with quality.

In terms of quality, I don't think anyone should live in sub-standard housing. Do you? In this particular instance, regulation of the private rented sector needs to be strengthened to weed out poor quality stock.

In terms of average rents, I am assuming that rent levels are relatively close to the average. Given that Rent Supplement recipients make up a large percentage (c.40%) of the private rented sector, it seems reasonable to link Rent Supplement payments to market rents. While recipients might indeed rent the cheaper housing, it is unlikely to be hundreds of euro cheaper per month. Hence, policy should use available evidence to peg the payment against real costs not just administrative areas.

Proposition Joe said...

Nobody should have to live in sub-standard housing, if by that you mean a Dickensian rat-infested hovel. However within the fit-for-purpose stock of accommodation in any given area, there's always a spectrum between the most desirable (therefore expensive) and the least salubrious (therefore cheaper).


What I was questioning is the assertion that welfare recipients should be placed right on the average. Unless there's very little deviation in rents, this would require that someone paying their own way would end up in the less desirable digs. (And I don't believe the deviation in rents is negligible, at least that certainly wasn't the case back in the days when I rented.)

Harsh as it may sound, such a scenario is unsustainable. The lifestyle enjoyed on welfare simply cannot be better than that available to workers on low to average incomes. Otherwise the incentive to work disappears and the welfare system collapses under the weight of claims.

Fair enough, peg the rental allowance thresholds to real costs in the area. Just not 100% of the local average rent, more like 80%.

Nat O'Connor said...

I'm not against setting some kind of peg, if I felt confident that everyone would get adequate quality housing. Unfortunately housing, especially in Dublin, is very segregated by cost. So, setting too strict a peg could excessively restrict the areas where people can live and the type of housing they can live in.

But let's look closer at the question of access to 'average' housing. Let’s say there are broadly three types of welfare recipient: (A) those who can’t work, (B) those who have just lost their employment and (C) those who have not been employed in some time.

Group A: Is it fair to restrict the housing quality of older people or people with disabilities who can’t work? Why can’t they have average priced housing, if that equates to average quality. There is no disincentive to working involved and it increases social mix – which is a goal of housing policy. Social mix is also sensible in terms of spreading the load across all health areas and not creating areas with high concentrations of need.

Group B: Social welfare is a form of insurance that we all pay for. So, if a person in an average rental unit loses his/her job, isn’t it reasonable for welfare to meet that cost, at least for a period of time – in the same way that Jobseekers Benefit is linked with previous earnings and contributions. So, why potentially cause that person to move, with the stress and expense of moving home, maybe moving children out of school or moving away from family, etc. at a time when he/she needs assistance to get back to work.

Group C: There is a risk that we end up segregating long-term unemployed people into certain housing areas, which in turn gain a concentration of social ills, gain a negative reputation, don't have many local workplaces, etc. I agree that someone who works should have more luxury and a better lifestyle than someone who is not working but could. Yet, housing on its own does not provide that lifestyle; access to disposable income, luxury goods, etc. still provide an incentive to work, as does work as a social outlet, a chance to build a career, etc. During the boom, unemployment was so low because almost everyone was willing to work. If there is a small cohort who refuse to work, I don’t see housing them all together in a ghetto as a solution.

Mack said...

Nat -

Most working single people I know rent in shared accomodation. There are nice enough 2-bed apartments available for less than €1,200 (although I'm unsure whether the state would fund the maximum amount for shared accomodation).

There are 81 matches on daft for two-bed apartments in Dublin 2 under €1,200.

http://www.daft.ie/searchrental.daft?s[cc_id]=ct1&s[a_id]=pc2&s[mnp]=&s[mxp]=1200&s[bd_no]=2&refine=Refine&search=1&s[search_type]=rental&s[furn]=&s[refreshmap]=1&search_type=rental

There are 121 rooms available in Dublin 2 at less than the maximum rental supplement payment.

By the way, €1,203 will get you a nice 3-bed furnished house in south dublin. No need for sub-standard accomodation at all.

135 matches on daft

http://www.daft.ie/searchrental.daft?s[cc_id]=ct1&s[a_id]=ga3&s[mnp]=&s[mxp]=1200&s[bd_no]=3&refine=Refine&search=1&s[search_type]=rental&s[furn]=&s[refreshmap]=1&search_type=rental

e.g.

http://www.daft.ie/searchrental.daft?id=759884&search=1

There are 77 houses at less than €1,100

Including this one for €900 per month in Ballycullen

http://www.daft.ie/searchrental.daft?id=756875&search=1

Nat O'Connor said...

Mack -
There is no set amount for the payment, but the Minister can set a maximum. So, CWOs can choose to pay a lower amount. As long as they too see cheaper accommodation on DAFT, they are likely to do point recipients in that direction. But there will be an estimated 86,000 recipients of rent supplement in 2009 according to the Department of Social and Family Affairs. So, the scale of this payment is that they won't find all the units they need at less than average rents.

Now, the maximum is often paid (86 percent of the time, in 2006) because landlords know the source of the rent payment and have little reason to ask for less than the maximum. And CWOs are not resourced to enter into prolonged negotiations. Hence, an income supplement to the person that was invisible to the landlord might make more sense. It would also cut out the (perhaps now dwindling) number of landlords that refuse tenants on rent supplement.

Mack said...

Hi Nat,

Posted a reply yesterday, but not sure if it came through.

Rents in Ireland have a clear floor (in extremis - no landlord pays tenants to rent their apartment) but little limit on the upside. For example the cheapest 2-bed I could find in South Dublin appear to be around €800 per month (those beneath that mostly seem to be rooms, or confusion marketing per person priced apartments)
e.g.
http://www.daft.ie/searchrental.daft?id=771183&search=1

Versus €10,000 per month for the most expensive

http://www.daft.ie/searchrental.daft?id=715145&search=1

What this means is that the average should be significantly above the median. A solid majority of new renters will rent below-average-cost accomodation.

Arguing that rental allowance tenants should be provided with means to rent new properties priced at the average (mean) market rate would enable them to rent properties significantly above the median.

Nat O'Connor said...

Mack -

Arguing that rental allowance tenants should be provided with means to rent new properties priced at the average (mean) market rate would enable them to rent properties significantly above the median.

To be precise, I am not arguing that all rent supplement recipients should be paid at the maximum level. But I believe that a significant number of households will be placed in a very difficult situation if the ceiling for that payment is brought down too low.

I don’t have a problem with a family’s rent being paid, in the short-term, to get them through a crisis period. And if it is above the median rent, so be it. But I agree that people of working age, with no impediment to gaining work and access to cheaper-but-adequate housing, should be given a lower allowance so not to create a perverse incentive to stay unemployed.

For the Department of Social and Family Affairs, the problem is that most RS is paid at the maximum rate. So, it is a big line on their overall budget and they would like to reduce that. But for me, the problem is not the maximum rate but the fact that the way the payment operates incentivises landlords to ask for the maximum.

It is useful for Community Welfare Officers to have the discretion to meet the rent of any household/family that falls into difficulty, as long as that rent is not exorbitant. And, if RS is above the median, I still don’t think it covers luxury rent levels. But, because RS is paid directly to the landlord, he/she knows where the money is coming from (and hence, what the maximum levels are). So, I’m back to arguing for a discrete income supplement that is invisible to the landlord.

And maybe CWOs need more training or access to better data about current market rent levels. (And the state has data available, held by the PRTB, but doesn't use it!)