Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

March 2018

Can cost-rental kickstart home-building?

Last week, a Dáil motion on cost rental housing was successfully passed. Proposed by Green Party TDs Eamon Ryan and Catherine Martin, it gained coverage primarily because of the locations suggested by the Green Party for pilots: Cathal Brugha Barracks and the Broadstone Depot. Both of those sites are near the epicentre of the housing crisis. Over the last three decades, there has been a return to urban centres across the world, including in Ireland. This likely has a number of contributory factors, one of which is the banning of smoky fuels, which made urban centres visibly dirty.

This move back to city centres was hidden from view somewhat in Ireland during the Celtic Tiger, as policymakers and private sector were more comfortable with extending the cities, through motorways and greenfield developments, than recycling the cities. But reusing the same site for a new purpose – what is known in the business as brownfield development – is central to what keeps a city thriving.

And this is where Cathal Brugha Barracks and the Broadstone Depot come in. Cathal Brugha Barracks – or Portobello South, as it would no doubt become – is a sprawling 17-hectare site. It is situated between Dublin 6 and Dublin 8, both areas in very high demand in recent years. In Dublin 6, rents have risen 82% from their lowest point, while in Dublin 8, they have almost doubled in a few short years. The picture is not much better near Broadstone Depot, or Stoneybatter East, as I’m sure it would be known. Rents in Dublin 7 have risen by over 94% from their lowest point.

So how could cost-rental help? The idea behind cost rental is that the rent paid by the tenant relates to the cost of making their home, not its market value. This is a crucial distinction. Social housing supports that are based on market values, such as market rents, merely pit the so-called “working tenant” against the so-called “welfare tenant”. There is no guarantee that market rents are enough to encourage new supply.

Social housing supports that are based on the cost of providing new homes, however, are – by definition – linked to new supply. And thus, if we as a society want to guarantee a right to a home for all our residents, then cost-rental is a key ingredient. Social housing must be in addition to market housing, not a chunk taken out of it.

There is likely to be a significant positive spill-over from such a system. In particular, once they are meaningfully involved in the provision of new homes, local authorities are much more likely to be cost-conscious.

A raft of new regulations pertaining to newly built homes were introduced in the aftermath of the Celtic Tiger. They are most commonly justified with reference to what was built during the Celtic Tiger. However, if the regulations that had been in place had been actively enforced, the various shoddy developments that spring to mind would never have occurred.

The answer to poorly enforced regulation is not to bring in lots more – it is to enforce what is there in the first place.

The net result is that cost-rental would be very expensive if introduced tomorrow. The likely break-even rent for a two-bedroom apartment in the market today is at least €350,000, or €1,800 per month given the yield needed by the ultimate owner.

Setting profits and the cost of land to zero, it is still in the region of €1,250. Scrapping local authority levies and VAT also, and taking advantage of low interest rates available to the State, the up-front cost is still in excess of €175,000.

These rents are simply not affordable to those in need of social housing. But that huge gap in itself may make local authorities and national policymakers finally pay attention to what housing market commentators such as me have been saying for close to five years now: lowering costs, not increasing rents, is the best way to solve the lack of housing supply.

Suppose policymakers do finally grasp the nettle and bring housing costs down by, say, one quarter. The break-even or ‘cost rent’ for a two-bed is still likely to be in the region of €1,000 per month. For many – indeed perhaps most in need of social housing – this will still not be affordable.

This is where the second key element of social housing kicks in. Cost rental is just one part of the solution – the other is an income-varying subsidy. Typically, this works by taking a fraction of the disposable income of the tenants, usually about one third.

So a household with a monthly disposable income of €1,800 would pay €600 to their housing body for rent. If the cost-rent is €1,000, this means that the taxpayer covers the remaining €400. If the household’s income increased to €2,100, their contribution to the rent would increase to €700 and the subsidy falls to €300.

There are many attractive features to such a system. It means that those in most need – for example those with disposable income close to zero – get the most help. It means that there is no disincentive to getting a job, overtime or a promotion. If, in the example above, the tenants’ income went above €3,000 a month, they would simply pay their cost rent of €1,000, with no help from the taxpayer.

And social housing, by being based on cost rents, not market rents, means it is no longer the afterthought in the housing sector. In fact, if done through non-profit housing bodies, rather than local authorities, social housing can be first on the page, rather than last. This would be where non-profit housing bodies partner with for-profit developers, to bring a mix of social and market housing to a site.

And all the while, the local authority can retain ownership (and ground rents) on the site. But first and foremost, such as system would focus those same local authorities on costs, the root problem of Ireland’s housing crisis.

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An edited version of this post was originally published in my column in the Sunday Independent.

Recycling the city – our problem with vacant homes

This week, one of the co-founders of Twitter – Biz Stone – was in Dublin and, while here, helped launch an online mapping tool called Reusing Dublin. The tool is a collaboration between Space Engagers, a social enterprise, and the Peter McVerry Trust, one of the country’s leading housing non-profits.

The tool is online, at reusingdublin.ie, and is pretty straightforward in its design: if you know of a derelict or vacant home, you can go on to the site and post it. I’m lucky enough to be able to walk into work most days and it’s amazing how many empty homes – or flats above shops – there are once you take the time to look.

If successful, it will identify thousands of empty homes around the city, as well as sites that could be used. This in turn will help the city tackle what is a persistent issue, not just in Dublin but in Ireland’s other cities: high vacancy rates.

Seven or eight years ago, if you asked someone on the street to picture vacant homes in Ireland, they would probably describe a ghost estate. But ghost estates have by-and-large faded from relevance. Figures out this week show that the number of ghost estates in the country is down over 90% since 2010.

There are now 256 ghost estates nationwide and the majority of those are at least partially occupied. Indeed, of the 180,000 units in ghost estates back in 2010, the vast majority were either homes that had not even been started or else homes that were already occupied.

There are, in total, just 678 homes in the country that are in ghost estate, complete but sitting empty. That is about five days worth of housing demand.

But the paradox, though, is that despite the ghost estate issuing largely being resolved, vacancy is still a huge issue in a country with a housing shortage. In the 2016 Census, 13% of homes were vacant. If they are not in ghost estates, though, what are they?

The answer is that Ireland’s vacant homes fall roughly into three categories. Two of those categories are rural. In rural Ireland, there are one-off homes built during the Celtic Tiger – often adjacent to another dwelling – that are empty.

And there are also the older rural cottages, many of which have sadly passed their sell-by date. Ireland’s rural population is shrinking – and will continue to do so over coming decades. Those that remain in rural locations are likely to want a payoff, in terms of living space, for being far away from most amenities.

The final category are Ireland’s empty urban homes. And here is where things get weird. Strictly speaking, we know almost nothing about, for example, Dublin’s empty homes. What we do know is that the vacancy rate is higher in Dublin City Council than in the other local authorities. This suggests that the problem is related to older urban homes.

What is particularly frustrating is that Dublin – and indeed all Irish towns and cities – lack the basic information needed to manage their housing stock effectively. Across Europe, municipalities and city councils have complete registers of who owns what and who lives where. Irish cities have neither.

There is a Land Registry, in other words a register of who owns what, but it is incomplete, especially in the cities, where an older system, the Registry of Deeds, was used until recently. The Registry of Deeds is not map-based so finding out who owns what is a very complicated affair.

Not only that, while the Land Registry is now compulsory for transactions, this compounds the problem. If ownership is unclear or unknown, a dwelling or a site will never be transacted and thus never go on the Land Registry.

And Irish local authorities do not know who lives where. I remember distinctly, while an undergrad on Erasmus, being required to register with the Aliens Office in Cologne. I remember it so clearly because I took offence at the name! But whatever you call it, it makes sense for a city to know who many residents it has and where they live.

Of course, the principal reason cities around the world keep track of who owns what and who lives where is that they levy a property tax and thus want to make sure that everyone pays. Indeed, a reasonable number of homes are foreclosed each year in the US not by banks but by the city, for unpaid property taxes.

Our local authorities don’t have a property tax, at least not one on the same scale as the rest of the developed world. Therefore, if you don’t have the stick, you need to use the carrot.

The ‘Reusing Dublin’ app is one such carrot, because it highlights the opportunities being wasted in front of our eyes. Let’s all look around and take a note of empty or derelict sites and homes. This will at least give information to policymakers that their peers in other countries take for granted.

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An edited version of this post was originally published in my column in the Sunday Independent.

What the snow tells us about how we live

The week just gone has given Ireland its biggest snowfall over 35 years. The snow affected Ireland’s cities and towns as well as its fields and mountains and areas that have perhaps become a little bit inured to hearing about yellow and orange warnings got a reminder that we need to take our experts seriously.

This year, the Government is launching its “Ireland 2040” strategy. This comprises two elements. The first is a planning framework out to 2040, setting out the contours of population growth over the next two decades. The second is an investment plan for the next few years, in particular around transportation infrastructure.

Does the snowstorm and how it affected daily life here tell our policymakers something important for those plans? This can be thought about in terms of both causes and effects. There will perhaps be some discussion in the aftermath about the causes of events like this.

Expect a row about whether events like this will become more common due to climate change, for example. One thing that is certainly relevant, however, is that the Gulf Stream is our protector. Ireland lies between 52 and 55 degrees north of the equator, in line with parts of Alaska and Siberia.

To our east, the city of Omsk in Central Russia, which is 55 degrees north, has 144 snowy days a year. Vancouver, on the west coast of Canada and only 49 degrees north, gets roughly 40cm of snow a year. Dublin, on the other hand, has only a handful of snow days a year on average.

Ireland is a something of a weather freak. But this all depends on warm air blowing from the southeast. If that were to change, whether because of human activity or some other reason, we would need to be able to deal with more extreme weather – in particular colder winters – a lot more.

But the effects of the “Big Snow of 2018” are also relevant. As we take stock of the disruption caused by the snow, an obvious theme emerges. Where people have clustered together, the disruption was far less. Even on Friday morning, at the height of the snowstorm, life in Dublin went on despite the huge snow fall.

In the centre of the city, coffee shops served people on their way to work. The regular traffic – mostly pedestrian but some vehicular – meant that the main thoroughfares were navigable, if very snowy. An hour outside the city, however, and life had come to a complete standstill.

During the night, numerous vehicles got stuck on the country’s main roads. This includes ambulances, with one seeing a baby born on the side of the road near Kilkenny.

In other words, the snow caused the most disruption where we have set up our lives in a way that makes us dependent on travel. The implications for housing are obvious.

As Ed Glaeser, the world’s leading urban economist, has written, the research on density is clear. Cities make us not only richer – we can find jobs that match our skills better – they also make us happier and healthier. Services – including healthcare and education but also experiences like restaurants and sports event – are cheaper.

As a country, we have been living something of a lie the last thirty years. We have tried to convince ourselves we can have all the benefits of a modern – city-based – economy with actually have the density that cities require. We have spread out, rather than moved closer.

And this is getting worse, not better. The number of people commuting more than an hour each way grew by a third between 2011 and 2016 alone. A quarter of the working population of Leinster outside of Dublin now commutes to Dublin every day. And the picture is similar in Cork and Galway.

The lie we have been living as a country is that we can live where our parents did but enjoy a standard of living like we see on TV. One-off housing should not be banned – but the full cost of connecting the various utilities and services should be paid by those in one-off housing. Otherwise, we are punishing those who choose to live in the cities.

By 2040, based on our what our peers have done, Ireland will probably be a country that is 75% or perhaps 80% urban. This week’s snow confirms just how important it is for policy to facilitate that. Sprawl is certainly an option – but a very costly one.

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An edited version of this post was originally published in my column in the Sunday Independent.