Tuesday, 1 September 2015

Tax Breaks Won't Solve Homelessness

Nat O'Connor: Some campaigners have called for tax breaks to help provide more housing for people who are homeless. The homelessness crisis is serious and requires urgent responses. But tax breaks have all sorts of negative consequences compared to alternative options, not least the option of tax-and-spend to address the crisis.

What follows is a quick sketch of the problem and the scale of the solution required, followed by some observations on tax breaks.

A twin-track solution is needed to address the core problem of homelessness. Firstly, anything from 2,000 to 4,000 units of decent quality, affordable housing are required immediately to address the needs of everyone currently in homeless services - including those who the local authorities are accommodating in hotels and B&Bs because they have nowhere else to go. Secondly, action is needed to address the flow of people into homelessness, which means more units of decent, affordable housing are required every year for people who cannot otherwise house themselves.

The cost and implications of the first intervention are relatively easy to work out. Purchasing or building 4,000 units of housing at €200,000 each would cost €800 million. Leasing 4,000 units at an average of €18,000 each would cost €72 million per year. One can quibble about the unit costs, but the basic argument remains the same.

The state currently does not have - or does not allocate - this kind of money to house people who are homeless. But, it is clear that the government could easily raise this level of money in taxes if they wanted to do so.

The second intervention is much more complicated and it exposes the deeper cost of homelessness. If everyone currently accommodated by homeless services was housed, there will still be more people becoming homeless every year - largely due to poverty combined with the absence of a supportive network of family/friends who might provide a place to stay. (In some of these cases, addiction and/or mental health problems might explain both a person's poverty and his/her lack of a social network). But how many extra units would be needed per year?

A rough estimate at the moment would be 1,000 to 1,500 units. If it is 1,500 units, this would cost €300 million to buy or €27 million per year to lease (based on the above figures). Hence, to solve the current homeless crisis, one could do so for a down payment of €800 million and an annual cost of €300 million, which will go down over time. Averaging this out over five years, it would cost less per year than the Government's proposed tax cuts in Budget 2016 alone.



So what's the deeper problem? And why are tax breaks being suggested by some as part of the solution?

It seems clear that the Government is not willing to prioritise homelessness sufficiently to raise taxes to purchase enough housing units. This might not just be a question of cost, as there are the social and community implications of rapidly housing 4,000+ families and individuals. The scale of housing required almost certainly means whole neighbourhoods would have to be built, and there may be reluctance to house many disadvantaged people together in one place for fear of creating a ghetto. (But what about the ghettos of B&Bs and homeless services?) Also, having moved on homelessness, the Government would swiftly find other groups seeking housing assistance of one form or another. Many people are badly affected by the lack of affordable housing in Dublin, but the cost of fixing the housing system could easily be ten or twenty times the cost of housing people who are already homeless.

Hence, there is a sense that the Government is willing to leave people who are homeless in B&Bs and other short-term accommodation in order to avoid seriously intervening in the housing market at all. In five years or so, the market may produce enough housing units to lower rent pressure. If prices fall a little, more people may buy houses. According to this view, more supply will ultimately ease the homeless crisis. (Of course, during the boom supply of housing went through the roof, but prices did not fall. Furthermore, the implication of the wait-and-see approach is that homelessness will never be solved, only reduced to a level that does not attract as much sustained media attention to the failings of the housing market).

Faced with this vista, some homeless services are seeking to maximise what housing can be squeezed out of Ireland's dysfunctional, laissez faire housing market. Hence suggestions like extra tax breaks for landlords who will make housing units available to people moving out of homelessness.

But giving tax breaks to some taxpayers is just another way to spend public resources, only without the beneficial side effect of public ownership of assets. (And tax breaks can distort business decision making and cost far more than initially thought; e.g. the boom-time hotel tax breaks).

Of course, homeless services are rightly concerned to access every available housing unit they can get. But the problem of advocating tax breaks is that it reinforces the view that the current housing crisis can be resolved by tweaking the housing system or refining it slightly. However, tax breaks are unlikely to release anything like the scale of housing units needed. The reality is that major policy changes are needed to ensure housing is affordable across society - not least to ensure the conditions are put in place so that people do not become homeless.

Spending €2 billion over five years to address homelessness would probably have to be matched by €18 billion to provide public housing for the rest of the 100,000+ families on the lists waiting to access subsidised housing. Housing associations may have a role to play here too, to borrow money from the EIB and other sources to build affordable housing on the scale required. Tenant protection and other legal changes to develop a more sustainable private rented sector (for landlords as well as for tenants) would have to be put in place. And measures to ensure sustainable place-making rather than urban and rural housing sprawl would have to be implemented.

Housing policy is like Pandora's box. Once opened, all the evils of the world are released and need to be recaptured. But the evil of homelessness will only be dealt with by policy that is of the same scale as the problem. Simplistic, 'easy' options like tax breaks are no solution. The real scale of the challenge calls for massive investment of public money alongside a newly strategic approach to the development and regulation of the housing market.

Nat O'Connor is lecturer in public policy and public management at Ulster University, and a member of TASC's economists network

1 comment:

James Wickham said...

Nat rightly calls for a policy to tackle homelessness and the broader housing crisis in which a key element should be the ‘purchase’ of new public housing. Presumably this largely means the physical construction of new housing. This raises two crucial questions:
(1) How is the housing to be built? Research in tasc’s Working Conditions in Ireland Project on the construction industry has shown that there has been an expansion of bogus self-employment in the sector. Instead of building workers being employed by building firms, workers are pressurised into declaring themselves self-employed and to effectively tender for their own jobs. Bizarrely, this has been actively facilitated by the government. It is now easy for employees to declare themselves self-employed by simply filling in a so-called Relevant Contract Tax application. Such notionally self-employed workers are tax-compliant, and thus in tax terms not part of the black or informal economy. However, as self-employed they are outside the protection of much employment regulation and are more difficult to organise in trade unions. Any state housing programme therefore has to involve measures to protect working conditions in the industry.
(2) Where is housing to be built? The boom was of course characterised by an acceleration of suburban sprawl. In tasc’s book on Dublin transport I described Irish house building as ‘developer-led development’. In other words, it was the developers, not the planners, who decided where what was to be built. The housing was often sub-standard (light touch regulation was not confined to financial services) but crucially it was socially and environmentally unsustainable. Much of the new housing was built away from amenities and facilities and above all, away from any public transport links. The way housing was built in the boom made Dublin’s existing car-dependency even worse (Caulfield and Aherne 2014). So any new housing programme has got to finally be part of grown-up effective land-use and transport planning.
Reference:
Caulfield, Brian and Aoife Aherne (2014). ‘The green fields of Ireland. The legacy of Dublin’s housing boom and the impact on commuting’. Case Studies on Transport Policy 2.1: 20-27.