‘Housing crisis’ has become part of Irish vocabulary in the last couple of years. But what are people talking about when they use the phrase?
Are they talking about rising rents? The increase in homelessness? The growing number of house repossessions? The lack of construction?
Unfortunately, Ireland’s housing crisis does not involve a single issue, but represents a confluence of problems that have been growing under the surface for many years, and each issue exacerbates the others.
I will look at the issues individually, examining the background, the keys figures, the causes and the suggested solutions.
Our housing system is based on a three pillar system; home ownership, private rented accommodation and social housing.
The majority of the Irish population own their homes rather than renting or receiving accommodation from the State. According to the National Economic and Social Council (NESC), 71% of the population were home owners in 2011, with 19% renting on the private market and 9% renting from a local council or approved housing body.
The NESC noted that home ownership was heavily promoted by Government policies such as mortgage interest relief and local authority loans.
The ECB economist Klaus Regling suggested that the Irish were “obsessed” with home ownership.
Many historians say this was as a result of our colonial past and having to pay tithes to English landlords. Others says that owning property was seen as a form of financial security or a future pension plan.
Whatever the reason for our ‘obsession’ with owning property, it is becoming clear that we will not be able to maintain such high levels of home ownership into the future. This is partly due to a lack of availability of housing, and partly because of the strict mortgage controls which have made it harder to get a loan to buy property.
Private Rented Sector
The number of people residing in the private rented sector has doubled in the last five years, from 10% of the population to over 20%.
This is due to two things: first, people are finding it harder to buy property and are therefore renting for longer periods.
Second, the Government has to a certain extent privatised its social housing programme. The Housing (Miscellaneous Provisions) Act 2009 recognised social housing as now including ‘housing supports’ which the Government provides.
Housing supports include rent supplement, the Housing Assistance Payment and the Rental Accommodation Scheme. All of these involve the Government paying to cover the rent for a claimant who is renting on the private market.
Local authorities are the main providers of social housing for people who cannot afford to buy their own homes. Local authority housing is allocated according to eligibility and need. Rents are based on the household’s ability to pay.
If you qualify for social housing you will be put on a housing waiting list. However, there has been a chronic shortage of social housing.
Currently there are in excess of 100,000 people on the social housing waiting list, with some people waiting in excess of ten years.
1) Lack of Supply
Data from the Housing Agency shows that we need to build a minimum of 21,000 houses a year in order to meet demand.
However, figures from the Department of Environment indicate that we are only building about 11,000 houses a year. We will be about 4,000 housing units short of the estimated 7,000 units that need to be built in Dublin this and every year for the foreseeable future.
The lack of supply is being demonstrated in other ways:
- There are over 100,000 people on the social housing waiting list currently
- There are 4,000 homeless people
- Monthly rents in Dublin are just 2.3% lower than they were at the height of the boom
It was recently reported that there are currently no houses or apartments available for purchase in Dublin city centre.
Initially under Part V of the Planning and Development Act 2000 up to 20% of developments above a certain size had to be set aside for social and affordable housing.
However, Chief Executive of Threshold, Bob Jordan argues that:
Unfortunately there were too many get-out clauses in that legislation and the net result wasn’t 20% or anywhere near it, it was more like 6%.
Ireland currently only has 9% of its housing supply as social housing or local authority housing, while England, for example, has 17%.
In the case of local authorities, there is almost a total lack of new supply because of borrowing constraints, and the fact that building costs are not covered by the differential rent.
Jordan argues that we fell behind in house building as a result of the recession.
Part of the bail-out programme was reducing capital spending and unfortunately housing took a massive hit… spending on social housing went down by 80%. The output of social housing went down by 90%, and that continued for seven years until recently. So we have had almost a lost decade in which virtually no social housing has been built and obviously we’re paying the price for that now.
2) Rising Rents
Taking into account inflation, rents in Dublin are at almost the same levels as they were during the height of the boom.
In the last year alone rents in Dublin have increased on average by 9.3%.
However Jordan says that this masks what people on the lower end of the market are facing.
50% of people coming to Threshold face a rent increase of €200-€400. To put this in perspective, such a rent increase means that a family on low income is expected to find an extra €3,000-4000 a year just to stay in their homes.
According the Threshold there has been a rise in ‘economic evictions’, where people are forced to leave their accommodation because they can’t afford to pay the rent any more.
The Residential Tenancies (Amendment) Act 2015 amended the main legislation covering tenancies, the Residential Tenancies Act 2004.
Under Part IV of the 2004 Act you have security if you reside in a property for more than six months and you abide by the terms of the agreement, such as paying rent and not acting in an anti-social manner.
This security lasts until the tenant has been residing for four years, after which time the clock reset.
The landlord can terminate the tenancy for one of the following reasons:
- The landlord wants to sell the property within the next 3 months
- The property is no longer suited to the needs of the occupants
- The landlord or a family member wants to move into the property
- Vacant possession is required for substantial refurbishment of the property
- The landlord intends to change the use of the property
The 2004 Act provided that the landlord could only increase the rent once a year, with 28 days notice, and not more than the market level of rent for a similar property in the area.
This legislation only covered a tenancy in the private rented sector, and did not include renting from an approved housing body or renting when the landlord was also living on the property, among others.
The Amendment Act modified the reasons for terminating a Part IV tenancy. Where the property is going to be refurbished the landlord must include a copy of the planning permission, and specify the name of the contractor and the dates on which the works will be carried out.
If selling the property, the landlord must give a signed statement that they intend to enter into an enforceable agreement to transfer their whole interest in the property for full consideration.
Where previously the maximum amount of notice given for termination of a property any time after four year was 112 days, the notice now increases incrementally between 4 and 8 years. 224 days is the new notice period for tenancies which have existed for 8 or more years.
The Amendment Act put in place a temporary provision to allow rent increases only once every two years, and requires the landlord to give 90 days notice of an increase. It required that notice be in writing, and include three examples of similar properties in the area with the rent level sought.
It replaced all mentions of the ‘private rented sector’ with the ‘rented sector’ in order to include publicly owned rented buildings under the scope of the legislation.
It also provides for a deposit retention scheme, where deposits will be held by the Private Residential Tenancies Board rather than the landlord.
The Private Rented System isn’t fit for purpose
Until recently the private rented sectors was seen as a place where people stayed for short periods of time. They were students, or people saving to buy a home or to move on to local authority housing.
While in the past renting was perceived to be transient, there are an increasing number of people who will be renting for the foreseeable future.
Unlike other countries where many people rent long term or for the entirety of their lives, the Irish system is built to be temporary. This is reflected in the legislation, where definite security of tenure only lasts four years.
Additionally, the Irish market is characterised by landlords who only own one property. They often buy these properties to increase their assets and try to cover their mortgages through rent. Currently two out of three landlords own only a single property.
These amateur landlords are often ignorant of the law or they will disregard it altogether. They do not have economies of scale. Where something goes wrong they are not familiar with the legal process to pursue tenants for unpaid rent, damage to the property, or where the tenant refuses to leave the property despite being legally evicted.
These difficulties make landlords more likely to leave the market in the long term, and to simply sell their property when it becomes profitable.
Therefore, the market is unstable for both landlords and tenants in its current form.
There are problems with the quality of the housing
If a property does not meet the standards the tenant is supposed to refer the case to the local council. The council will inspect the property (which may take a while to happen depending on their backlog) and if repairs are to be made they will leave an Improvement Notice outlining the required changes.
If the landlord does not carry out these works, the housing authority may issue a Prohibition Notice, directing the landlord not to re-let the property until the breach of the regulations has been rectified.
If the landlord does not abide by the prohibition they then may be taken to court.
As a result of this long drawn out process not many landlords are held up for renting sub-standard accommodation.
Threshold suggest that properties should have to be certified as meeting the minimum standards set out in the legislation prior to being let.
Rent supplement limits do not match the cost of renting
Government have not raised rent supplement limits since 2013. They argued that increasing the amount of money provided would only push up rents further.
However, this has resulted in a rent supplement limit of €950-€1,000 for a family in Dublin when the average rent is over €1,300.
Currently, rent supplement will not cover the rent of 95% of properties.
It is even more problematic when you consider that under the law you are not allowed to top up your rent supplement.
Therefore, those who were already on the margins of the housing system have been pushed even further out.
The Government may reconsider limits now that there is a two year rent freeze.
As of 30 November 2015, there are nearly 4,000 people who are homeless in Dublin, according to the Dublin Regional Homeless Executive (DRHE).
According to Cathal Morgan, the Director of the DRHE, the biggest change in the homeless situation has been the number of families becoming homeless. There has been a 105% increase in families becoming homeless since the start of the year. On average 60-70 families become homeless every month.
Previously those who became homeless were referred to as the ‘mad, sad and bad‘: people who became homeless due to mental health and addiction issues, relationship breakdown or a history of institutionalisation.
However, due to rising rents, the increase in home repossessions and the lack of supply of affordable housing, there has been a growing number of families who have ended up in emergency accommodation.
There are a number of different bodies responsible for dealing with homelessness
Morgan argues that part of the reason there has been a lack of building of social housing is that there is no one body in charge of housing policy or the construction of housing.
At the moment we have different institutions responsible for different elements of it. The Department of the Environment is the lead department. It has a housing division. The Housing Agency is there as well, which is kind of a support to the Department and to local government as well. And then you have local authorities and you have housing co-operatives and you have voluntary housing bodies as well. And then you have the private rental system. So that to me doesn’t suggest coherence.
The lack of social housing means that a large number of families are being placed in hotels
Of the 705 families who are homeless, 500 are currently living in hotel rooms which are being paid for by the State.
Morgan argues that not only is this financially inefficient, but it also have negative consequences for the families.
If you’re in a hotel you can’t cook for yourself, you’re eating out all the time, you’re making arrangements to send your child perhaps ten, twelve miles to school. So there’s a lot of hidden costs … We can’t deny the psychological and the physical aspects of being in homeless services are quite substantial for the households.
4) The Mortgage Crisis
As can be seen from the above graph, the amount of mortgage cases in arrears of over 90 days has been gradually decreasing.
Paul Joyce, Senior Policy Analyst with FLAC (the Free Legal Advice Centres), suggests that this is partly due to improving financial circumstances over the past twelve months, which are allowing people to start making mortgage payments again.
Additionally, the banks have been working with people to put together ‘alternative repayment arrangements’. The most common repayment arrangements include temporary interest only payments, term extensions on the loan, arrears capitalisation and temporarily reducing the payments.
However, the amount of accounts in arrears of over two years has not budged.
Joyce says that “while there are some solutions that have been found… the longstanding intractable mortgage arrears cases are not being solved.”
There has also been a steep increase in housing repossession orders granted by the courts.
In 2013 the number stood at just 244. However, in the first nine months of 2015 that number was more than four times as large, standing at 1,088 orders granted.
Joyce argues that the only reason the orders granted before 2015 weren’t larger was because the banks didn’t want to repossess homes which were in negative equity – where more was owed on them than they would have sold for.
The alternative payment arrangements aren’t necessarily sustainable
When a borrower falls into arrears, the lender is obliged to make every reasonable effort to agree any alternative repayment arrangement.
In theory the lender should take into account your personal circumstances, your overall indebtedness, your current and future repayment capacity and your previous repayment history. However there is no way of knowing whether the bank undertook a full assessment.
The bank then decides if it wants to offer you an alternative repayment arrangement. It is not required to offer any particular option.
The fastest growing alternative repayment arrangements is capitalisation of arrears. This involves a new, higher payment because there is a greater principal amount and more interest needs to be repaid. Obviously this is problematic as it involves the borrower or borrowers paying a greater amount than when the problem arose in the first place.
Joyce says “it’s quite telling that one in every four capitalisation of arrears cases is “not meeting the terms of the arrangement”.”
There has also been an increase in ‘split mortgages’. This is where you split the amount owed in your mortgage in two e.g. instead of a €100,000 mortgage you have two €50,000 mortgages. The second part is ‘parked in a warehouse’ until a certain point.
This has the advantage of being more affordable in the short term, as you don’t have to pay as much interest. But there is a large capital balloon payment that will have to be faced in the future.
There are a lack of fair procedures in the mortgage process
The mortgage resolution process, as set out under the Code of Conduct on Mortgage Arrears, should go as follows:
- Where a borrower defaults on their payments the bank will write to inform them of the default and to give them a specified period during which to pay.
- Where an account has been in arrears in excess of 31 days the bank will them examine the mortgage to see whether it is sustainable and offer an alternative repayment arrangement. The borrower can suggest an alternative but they only have power to accept or reject the arrangement the bank has offered.
- The bank can initiate legal proceedings if:
- They deem your mortgage ‘unsustainable’
- They offer an alternative repayment arrangement and you don’t accept it
- They deem you ‘non-cooperating’
- If you mortgage is unsustainable or you reject the alternative repayment arrangement then the bank can initiate legal action after three months. If they deem you non-cooperating, which includes not replying to letters, failing to provide information within a reasonable amount of time, or not contacting the bank when you were in arrears for more than three months, then they can take legal proceedings immediately.
However, a recent Supreme Court decision has made it clear that even the above rules are not binding on lenders apart from the moratorium on legal action.
This creates a situation where there is no defence to repossession in legal proceedings except to argue that you don’t owe any money or that it is not your property.
And while you can appeal a decision by the lender, they are not required to provide you with the information of what arrangements they considered and why they made a particular decision in your case.
Joyce says “You have a right to appeal but how do you appeal when you don’t know the basis upon which the decision was arrived at? You would never get away with this in a court. And yet, in this private engagement between lender and borrower it seems that fair procedures can be short-changed.”
Your mortgage can be sold on to a vulture fund
While there is very little legal protections when you have a mortgage with one of the banks, there is little or no protection where your mortgage is sold to so-called ‘vulture funds’. Such vulture funds are not regulated by the Central Bank and therefore are not subject to any of the rules under the Code of Conduct on Mortgage Arrears.
Banks can sell on their mortgage portfolios to these funds. The borrower will still owe the remaining amount on the loan, but may be subject to increased interest rates which can’t be challenged by taking a case to the Financial Ombudsman.
When asked how it can be legal to have your loan sold on to a different entity, Joyce explained that when there is a clause allowing it in the mortgage agreement.
Unfortunately the problem is when you enter into a mortgage agreement you agree to all of these things without necessarily knowing half… The terms and conditions always authorise the lender to sell that loan on to an entity of its choice. By signing all the paperwork you tacitly agree to that.
Currently the Sale of Loan Books to Unregulated Third Parties Bill 2014 is before the Oireachtas. The Bill would require the funds to comply with the Code of Conduct on Mortgage Arrears
The mortgage crisis is driving homelessness
Part of the increase in families becoming homeless is due to the parallel increase in the number of repossessions of houses, the majority of which are primary homes.
Additionally, a large proportion of landlords bought property during the boom and ended up renting out the property in order to pay their mortgages.
This has lead to a scenario where if a tenant cannot afford to pay their rent or to pay a rent increase this can have the knock-on effect of causing the landlord to be unable to pay their mortgage.
The law surrounding repossessions of property where a tenant is already residing is murky. Often there is a clause in the mortgage agreement between the lender and the borrower which allows them to force a tenant out to get vacant possession of the property.
So where a borrower fails to pay their mortgage this can have the effect of making their tenant homeless.
It’s harder to get a mortgage
The new mortgage controls require the mortgagee to provide 20% of the mortgage upfront as a deposit, subject to exceptions. You will not be given a loan of more than 3.5 times your income (or shared income if you are borrowing with another person).
The creates two distinct problems. The first is, given how expensive rent is currently, it is hard for anyone to save up the amount required for the mortgage deposit.
Second, according to the CSO, the median Irish income is €28,500. So if you have a couple who are both earning this average income they would only be able to get a mortgage to the value of just under €200,000. But the median house price in Dublin is €400,000.
The Central Bank has said they will reconsider the lending controls in November of this year.
As we can see, all of the problems are inextricably linked.
The lack of supply has lead to increased competition between renters and therefore an increase in rents. Homelessness is mostly being driven by the increase in rents, which has resulted in people being economically evicted. The mortgage crisis is causing families to become homeless, and tenants are being evicted by banks where properties are being repossessed.
But all of these current and pressing issues also mask a number of underlying problems that existed in the system even before the recession.
We don’t have a funding model which ensures the supply of housing: While the recession and the cut in funding for building social housing are a large part of the problem we’re seeing today, even before the bail-out programme we were not producing enough social housing. Local authorities were not getting enough money from the differential rent being paid by tenants to fund, or even maintain, the social housing stock.
We also relied heavily on private investors to provide us with housing under Part V of the 2000 Act, but this failed to produce even half of what was required.
We need to find a way of funding the production of housing that is politically feasible, but doesn’t rely completely on private interests.
Our social model is subject to market cycles: The Government’s opposition to raising the rent supplement shows that they are sensitive to the market and the sudden swings in the cost of rent. And as a big player in that market, the Government’s decision to change the amount of rent supplement offered can influence the cost of rent.
This negatively effects Government when we’re doing well economically and the cost of property increases. It also negatively effects Government when more people are reliant on social welfare and they therefore have to pay out more. Right now we have the worst of both worlds.
We have an outdated private rented sector: The private rented sector has doubled in five years, and before the end of this decade it is quite likely that one in four Irish people will be residing in rented accommodation.
However, we currently don’t have security of tenure, and we also don’t have a way of ensuring good quality, affordable housing.
Our focus should be on keeping people in their homes: Paying to put families up in hotels is not only expensive, it also causes health and psychological problems for those families.
We need to figure out a long term strategy to avoid another homeless situation similar to the one we have currently.
The mortgage process leaves borrowers at the mercy of lenders: The legal process surrounding mortgages does not provide borrowers with any clear information as to what to expect from their lender, and what their rights are.
Overall, there has been a lack of joined up thinking, or a coherent policy which addresses all of the areas. We don’t have one specific housing body. We don’t have a clear way of funding the housing system. We don’t have a way of ensuring that everyone will have affordable and good quality housing. Ultimately, the lack of a strategy or plan for the future has resulted in the housing crisis which we are experiencing.