Dr. Barra Roantree:

The ESRI has recently conducted research on the specific policy of the newly introduced housing assistance payment, HAP, which the Government plans will eventually replace the rental accommodation scheme, RAS, and rent supplement for long-term claimants. These three payments in 2016 covered approximately a quarter of the private rental market, with this proportion likely to grow in the coming years if the Government’s targets set out in Rebuilding Ireland are met.

New research, as part of the ESRI’s tax, welfare and pensions research programme, finds that in addition to providing support to low-income families for housing costs, HAP should improve financial work incentives for most households that would otherwise claim rent supplement. This is primarily because HAP does not require claimants to work less than 30 hours per week to remain eligible for the payment, as does rent supplement, and is means-tested against other income at a slower rate than rent supplement. These differences will also result in more working households qualifying for HAP than would have for rent supplement.

However, our research looked at the impact of introducing HAP, with tenants’ rent contributions assessed through a unified national rent scheme that was being considered by the Department of Housing, Planning and Local Government in 2014 as proposed by the Housing Agency. Under the version of HAP rolled out nationally, tenants’ rental contributions are instead determined by their county or city council’s rent scheme, which is also used to calculate the contributions of local authority tenants. While, like the unified national rent scheme that we considered, these local authority rent schemes place no restrictions on working more than 30 hours per week and so should strengthen the work incentives HAP claimants face relative to rent supplement, the detail of these schemes differs significantly, meaning that the level of support provided to HAP claimants with identical circumstances can vary substantially across local authorities.

I will give an example of a one-earner couple with two children and earnings before tax of €35,000 who find a two-bed property to rent for €1,275 per month, the maximum allowed before flexibility under HAP or rent supplement limits. If they find that property in the area covered by South Dublin County Council, they will pay about €270 per month in rent. However, under the exact same circumstances in the Dublin City Council area, they will pay about €350 a month, and if they find the property in Bray or Greystones, they will pay €450 a month in rent. It is difficult to justify such differences in levels of support for a national scheme when they arise not because of differences in the quality of accommodation or the desirability of these areas - the market rent for the property is the same - but because of historical choices made by local authorities and HAP using local authority schemes to determine rents.

The anticipated growth of HAP means that issues surrounding the design of rent schemes are likely to be of increasing importance for both central and local government policymakers. Key among these are the limits on the rent that can be paid for a property by someone receiving HAP or rent supplement, which were last revised in March 2017. Since then, the rental index compiled by the ESRI for the Residential Tenancies Board, RTB, suggests average rents have risen by 13%, and even more in Dublin, reducing the number of properties available for rent under either scheme. Given the rate of rental inflation, there is a clear need for more regular review of these limits, analogous to the typically annual increases made to maximum rates of payment for social welfare benefits brought in by the budget and the social welfare Bill.

However, it is important for policymakers to be aware of the potential impacts rent limits can have on the wider rental market. International evidence on the ultimate economic impact of rental subsidies is mixed. For example, a recent study suggested that in 2011, 90% of the burden of cuts to the UK’s main income related support for rental cost, housing benefit, fell on tenants, but a study of an earlier cut to this benefit suggested it was closer to one third. Therefore, the evidence is not particularly strong about where the impact of rental subsidy falls. However, it is important to consider that there may be knock-on implications.

The evidence clearly indicates an increased requirement for social and supported housing in Ireland in the coming years. In this context, long-term investment in and expansion of the public housing stock for rent is key. Policies to provide low-cost rental options for households, such as cost rental or housing co-operatives, can form part of the new rental landscape. Other policies, such as rental price controls or subsidies, can be effective in providing a short-term alleviation of price pressures. Such responses may have limitations, however, especially in the longer run, or possible unintended consequences.

Understanding the structural rather than the cyclical nature of persistent affordability challenges for many low-income households and urban renters is critical to deciphering the appropriate policy response. The research suggests State intervention is required to provide appropriately priced accommodation for these households through the economic cycle. As our economy attempts to navigate the many uncertainties such as Brexit and a potential global economic slowdown, we must ensure a steady provision of such units.