Dr. Larry O'Connell:

I thank the Chairman and members of the committee for inviting the National Economic and Social Council, NESC, to speak on the cost rental housing model. NESC is a Government body which advises the Taoiseach on strategic policy issues. The members are appointed by the Taoiseach and represent business and employers, trade unions, agricultural and farming organisations, community and voluntary organisations, environmental organisations, as well as heads of Departments and independent experts. Its composition means it plays an important and unique role in bringing different perspectives from civil society together with Government. Noel Cahill and I are members of the secretariat and are attending in that capacity.

The committee has asked us to provide an overview of the council’s position on cost rental. We will draw on two published reports and have brought copies of each. The council has argued for a range of measures to help engineer affordability in housing. Its most recent report identified that land in public ownership is the most critical resource available to the State and recommended its use for permanently affordable housing. It argues that cost rental would represent one good way of using public land. In that report the council argues that the State could retain ownership of the land and make it available subject to rents being permanently affordable.

International experience suggests that cost rental is the most effective and fiscally sustainable way of achieving permanent affordability in housing. It is also the best way to achieve integrated mixed income housing, in contrast to the residual housing of low-income families. This is explained in our 2014 report on social housing.

The basic idea of cost rental is that a housing provider raises the finance to provide accommodation and charges rents to cover current and capital costs. In those systems internationally, those who cannot afford to pay the cost-covering rent generally receive a housing support. Rents in a cost rental situation will generally be lower than market rents. Typically there is some form of subsidy by way of provision of low-cost finance, loan guarantees or preferential access to land.

The lower rent is partly but not solely due to the subsidisation provided. Rents are not based on the maximum that the market will bear, but are sufficient to cover costs net of the subsidy. Over time the rents in cost rental accommodation may increase, but critically any increase will lag the increase in market rents. This has some similarity to paying a mortgage. Cost renting may involve pooling the historical costs of individual dwellings across a large housing stock.

Cost rental uses modest supply side supports to underpin affordability. It also makes rent permanently affordable by ensuring that the equity that builds up over time as loans are repaid is used in the service of further affordable housing.

Austria is a leading international example of how cost rental housing is a critical component of an effective, affordable and stable housing system. It provides extensive but modest supply side subsidies for housing, mainly in the form of low cost finance. New social housing is mainly provided by limited profit housing associations that operate on a cost rental basis. They receive low interest Government loans which represent around one third of the total cost of housing. In Vienna they also benefit from access to land at a moderate cost. As a result, they charge rents to cover their costs and they are well below the market level.

In principle, all social housing in Ireland could be based on a cost rental model. It is a long-term possibility. In the short term a cost rental model could be initiated as an addition to the current model. It could be aimed at intermediate households that are struggling in the rental market but that are either ineligible for social housing or unlikely to be allocated it. Such housing could also be availed of by lower income tenants using the HAP scheme. Cost rental housing should be provided by a housing entity that has a mission to permanently provide affordable and socially integrated housing, rather than extract the full market value of its assets, or by an entity that has a legal duty to so. It could also be provided by a private provider, subject to such conditions in return for an element of a State subsidy.

The NESC has argued that cost rental accommodation would be an alternative to renting in the private sector. In the long term it would help to moderate rents in the private sector. As cost rental accommodation is less heavily subsidised compared to the current social housing model in which rents are very low, it can become a larger sector which can cater for a wider range of people. Cost rental accommodation is a realistic and secure long-term option, quite different from the current system. It offers a way of making housing affordable, is more fiscally sustainable and will in time bring much needed stability to the housing system.