Dr. Conor O'Toole:

I thank the Chairman for the invitation to the ESRI to appear before the committee. I am joined by my colleague, Dr. Barra Roantree. We are delighted to have the opportunity to share with the committee the findings of our empirical research in the area of housing affordability. In our evidence, we will focus on the findings of two recent studies on the Irish housing market. The first is an exploration of trends in housing affordability, while the second is an assessment of how the housing assistance payment, HAP, affects work incentives. Both studies are publicly available on the ESRI website. I acknowledge that the study on affordability was conducted in conjunction with economists at the Department of Housing, Planning and Local Government under an ongoing research collaboration on housing economics between the ESRI and the Department. This initiative is an excellent opportunity to link research evidence and policy across the range of housing topics considered.

Last June, the ESRI and the Department released our research paper on trends in housing affordability in Ireland. Using detailed household data from the CSO survey of income and living conditions, SILC, the objectives of this research were threefold. The first was to document the housing affordability trends across Irish households split by age, region, household structure and their position in the income distribution. The second was to look at international definitions of high housing costs and evaluate the suitability of these thresholds in an Irish context. The third was to provide evidence to inform policy in terms of targeting specific groups with affordability challenges. All this research is built on measuring housing affordability in terms of the share of net monthly household incomes spent on the housing payment, whether rent or a mortgage.

A number of clear findings emerge from the research. On average, households were paying approximately one fifth of their income on housing costs in 2016, which is only a very slight increase from 2005. However, for specific subgroups significant affordability challenges are evident. In particular, households in the private rental sector, those living in urban centres, particularly Dublin, and those on low incomes face the greatest challenges.

Households in the lowest 25% of the income distribution were paying nearly two fifths of their income on housing payments. This does not include the cost of other housing services or utilities.

Looking at mortgage holders in more detail, we found a sharp increase in housing repayment burdens for low-income mortgaged households between 2008 and 2015. Many of these households received relatively high levels of mortgage credit with poor underwriting during the boom, and this reinforces the importance of strong macroprudential rules on credit access for potential borrowers. We find that over the period 2005 to 2016, low-income renters have consistently faced high housing cost to income ratios. While rental price inflation has been high in the very recent period, the persistent high rent to income ratios suggests affordability challenges are structural rather than cyclical in nature. They have persisted over time.

Using simple thresholds, such as the share of households that spend over 30% of their income on housing costs, it would indicate about one in six households had high housing costs by this metric, but this figure was one in three for private renters and seven in ten for households in the lowest quarter of the income distribution.

The paper explored how much income households had left after they made their housing payment - the so-called residual income approach - and tested whether this would be sufficient to purchase a minimum standard of living. We find many low and middle-income households would have insufficient resources after housing costs to do so. We also find that for many low-income households, even if their housing cost is low, they have few resources left after making their monthly rent or mortgage payment.

The policy implications of the research are twofold. First, the pockets of high housing cost identified suggest that an increase in the long-term provision of State-supported housing and the development of alternative rental models which limit cost pressures are required to provide low-income households with sufficient financial buffers to withstand economic shocks and market fluctuations. The research suggests there would be considerable benefit from a policy perspective in adopting an affordable housing definition based on international norms that could be used in monitoring of and as an evidence-based anchor for eligibility for schemes. For example, eligibility for social housing, which is also based on strict income limits, could also be linked to a common evidence-based definition of high housing cost. However, this research did not consider any specific scheme in detail.

I ask my colleague, Mr. Roantree, to talk about our research on housing assistance.