Oireachtas Joint and Select Committees
Tuesday, 3 May 2016
Committee on Housing and Homelessness
Institute of Professional Auctioneers and Valuers
I remind those present who have mobile phones to switch them off or to flight mode. It is not only an inconvenience at the meeting but it also affects the recording and broadcasting of the proceedings. I also wish to draw the attention of the witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence relating to a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to that effect. Where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Their opening statements, which have been submitted to the committee, will be published on the committee website after the meeting. Members are reminded of the long-standing practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I am pleased to welcome the Institute of Professional Auctioneers and Valuers this afternoon. Mr. Eamon O'Flaherty and Mr. Pat Davitt are very welcome. As I said, their full submission has both been circulated to members and will be on the website afterwards. I invite Mr. Pat Davitt to make his opening statement.
Mr. Patrick Davitt:
I will make a short statement of five or six minutes' duration, after which the president of the Institute of Professional Auctioneers and Valuers, IPAV, Mr. Eamon O'Flaherty, will make a brief contribution. We want to leave as much time as possible for questions on our full submission.
IPAV is delighted to take up the invitation to appear before this committee. We hope that, through our submission, we can help in some way with members' work in tackling a difficult, complex problem. I congratulate them on their work to date and I acknowledge the urgency that the new Dáil has given to this matter even before the formation of a Government. The issues of housing and homelessness are complex and inter-related. The housing crisis displays to a dramatic degree how each cohort of society is interdependent. A policy change impacting one group has a downstream effect on another. The committee's work could be a landmark in mapping the way forward.
The IPAV was founded in 1971 and now represents 1,000 members across all 32 counties. Our main aim is to represent our members through education and other means, including by contributing to important debates such as this one by drawing on our vast knowledge and experience on the ground. The IPAV's proposals to the committee are outlined in our submission, which I expect all of the members have. I will highlight some of the key proposals in the short time available to me.
In a market that is functioning normally, one should be able to rent, buy or sell a home. In the current market, choice is diminishing and social change is being foisted upon us. This kind of social change is impacting most severely on younger age groups and those with few resources, but it also hurts the economy. This is happening at a time when there are more than 300 vacant sites in our city, some 150 acres of land that should, and could, be brought into production without delay. Housing policy is so critical to the social and economic well-being of any society, in particular one such as Ireland's that has suffered the severe effects of the financial collapse, that it needs a whole-of-government approach. In this regard, the IPAV strongly encourages the new Government to appoint a full Cabinet Minister with responsibility for the sector. He or she should be supported by a Cabinet sub-committee on housing and planning, which could bring together all of the relevant Departments. The IPAV recommends the setting up of a consultative property council comprising all stakeholders, with varying and divergent views, so as to advise the new Minister. This process should be all-inclusive and rapid, with the Government arriving at a plan for long-term sustainability in the housing market that contains short, medium and long-term goals. The IPAV is prepared to play its part in such a council.
As a representative body for auctioneers and estate agents, the IPAV is keenly aware of the abnormally low numbers of transactions in the housing market. There were 43,428 residential transactions in 2015, including multiple sales, equating to a national turnover of 2.2%, which is considerably below the 4% to 5% that could be considered normal. Despite population projections, new builds in 2016 are on course to fall far short of the 20,000 units and are projected to be more in the order of 13,000. A large proportion of these new builds will be one-off housing in the country, not in the cities where demand is greatest. Ten years ago, new builds were at 93,000 units, which we were led to believe was the amount required. This points to the industry's capability to build 20,000 units per annum.
There are a number of reasons for there being so few new builds. These need to be tackled urgently. There is widespread acceptance that the cost of building is a major impediment to new house construction. The lack of availability of building finance at reasonable interest rates is a particular impediment to house building. The new Government needs to incentivise small and large builders by making building finance available at interest rates of between 1% and 3%. We propose that the Department of the Environment, Community and Local Government be empowered to offer finance to builders who wish to participate in an agreed price building scheme, which would be made available through a separate building fund. The IPAV believes that this new development contribution rebate scheme, which is intended to boost house construction in 2016 and 2017 by returning an 80% to 100% rebate on development levies paid, needs a number of amendments, including an extension to all cities and to all builders who want to take part in the agreed price building scheme.
We believe small builders, the mainstay of Irish construction, are not receiving equal treatment to their larger counterparts. It is estimated that the current rate of VAT at 13.5% adds an extra €15,000 to €17,000 to the price of a new property and a reduction to 9% would further incentivise building. Such a VAT reduction has already proven itself in the tourism sector and could deliver a saving of €7,000 per house.
The Institute of Professional Auctioneers and Valuers, IPAV, believes that while the mortgage lending restrictions introduced by the Central Bank in 2015 were well intended and, in principle, are important for long-term economic stability, they are excessive in some respects. They are disproportionately impacting first-time buyers in urban areas, especially in the capital city. We believe the loan-to-income ratio for first-time buyers should be increased from 3.5 to 4, or possibly 4.5. We were led to believe when these were introduced in February 2015 that the new measures were not designed to steer or limit house prices but rather to restrict lending. We welcome the statement from the Governor of the Central Bank this week that from June 2016, he intends to seek submissions on the macro-prudential policy before a final review. I will now hand over to our president, Mr. Eamon O'Flaherty, who will speak about rural regeneration.
Mr. Eamon O'Flaherty:
I thank the committee. IPAV has long had a major concern about the decaying condition of the majority of our rural towns and villages across the country. Many of these towns and villages contain boarded up former residential and commercial premises with no viable future as a commercial entity. The right kind of radical intervention could breathe new life into these decimated towns and villages. We estimate there are approximately 1,500 of these towns and villages right across our country. We would like to see the introduction of a tax incentive scheme to convert non-viable commercial and residential buildings into solely residential use for owner-occupiers. Already, our members have identified 300 or 400 of these properties throughout the country that would be suitable for such a scheme, with no expensive outlay for the Government; it would be a win-win scenario economically, socially and politically for all of us.
IPAV welcomes the Living City initiative but it is too limited, focusing only on the regeneration of the historic centres of six cities, including Dublin, Cork, Limerick, Galway, Waterford and Kilkenny. There is a clear need for a nationwide scheme that would be open to all our rural towns. Otherwise, such towns will continue to languish and disappear before our eyes. Such an initiative would be win-win for every member of the community. Parts of south Wales, for example, have been struggling with the issue of regeneration more than a century after the first coal pits closed. They desperately want to reverse this legacy of industrialisation but much-promised regeneration has had little success, with the region topping league tables of poverty, ill-health, educational disadvantage and inequality.
The issue must be part of a co-ordinated whole-of-government approach, bringing together all existing incentives. We must examine how they could be co-ordinated and identify how these could be filled with relatively small financial outlays and the setting of specific achievable objectives, especially including yearly targets for local authorities and any implementation plan, with timeframes for each objective.
Mr. Patrick Davitt:
There are other proposals that we wish the committee could consider but which we cannot speak to now. These include NAMA support for Irish governmental institutions, such as housing agencies in acquiring properties; a review of hindrances to our planning system; and the introduction of e-conveyancing in order to speed up the closure of house sales. Our president, Mr. O'Flaherty, and I are happy to take any questions. I hope we will have some answers for the committee. I thank members for their attention.
I thank the witnesses for their opening statement. Before opening up to questions from the floor, will Mr. Davitt expand on the point regarding the loan-to-income ratio for first-time buyers? He advocated increasing it from 3.5 to 4, or 4.5. What underpins that? The concern is that it might just inflate prices, meaning affordability for the first-time buyer might not improve.
Mr. Patrick Davitt:
We have a consideration there as well. We only ask that specific balances be built behind the increasing of loan-to-income ratios from 3.5 to 4 or 4.5.
We believe there is a massive difference between the cost of building new properties and the cost of selling second-hand properties. We see the building costs. Nobody appears to know how much it costs to build a property. We have been asking for a long time, so we can work out the figures for the building costs. I am referring to the building costs, not the costs we can see such as the development levies and so forth. We can see what they are. I questioned the Minister for Finance about this recently at a meeting in Portlaoise and I have written to him about it because we need to know how much it costs to build a house.
There is apparently nobody in Ireland who can say how much it costs to build a house. We have asked numerous times about where the costs are. In our proposal, the committee will see that we came to the conclusion that it costs €100 per square foot to build a property. From talking to small and large builders throughout the country, that figure seems to be a reasonable amount of money to build a property. If that is the case and given the levels that those houses can be built at, we believe that young people who are seeking to buy properties, regardless of how much money they earn, will not able to buy those properties on the 3.5 loan-to-income, LTI, ratio. In those cases we believe the figures should be altered and changed upwards.
There was a slight smile when you said that. Representatives of the Construction Industry Federation and the chartered surveyors were before the committee this morning and we were probing this issue of the actual cost. The committee is expecting further documentation from the surveyors on the cost. Up to now, most of the suggestions were around how we can actively reduce construction costs rather than increasing the loan to value. That is the context for that. I will open the meeting up to the members and I call Deputy Durkan.
I welcome our guests and thank them for giving of their time to discuss this important issue. To refer to the last item first, have the witnesses identified the true building cost of a house at €100 per square foot? I have information to the effect that it could cost considerably less than that. That would mean building by direct labour but it would be considerably less. There are some who say it is considerably more than that. Somewhere in between lies the answer but I do not know what it is. How would the representatives respond to the notion that prevailed at one time, that the building costs were roughly one third for building inputs and materials, one third for labour and one third for profit? That was the old adage, so perhaps they would comment on that.
The witnesses correctly identified an issue that affects younger people, generally under 35 years of age. They and their families are the most seriously affected by the lack of available housing. Might any consideration be given to the Housing Finance Agency loan scheme that existed in the 1980s, whereby three, four or five times the income was given by way of a loan? It worked extremely well but the applicants had to qualify on the basis of their income. They were on the local authority list, so it was catering for that side of the market.
The last point I wish to make is one I have made previously and it arose in the witnesses' submission. I do not favour over-reliance on voluntary housing bodies. I believe they are the cause of the problem. Reliance on housing bodies removed from the local authorities the responsibility for providing housing for a large segment of the population. That included not only people on the council housing list but also people who qualified for local authority loans in the past. All of that has been sidelined in recent times. It is virtually impossible now to get a local authority loan and approximately ten different agencies must adjudicate. I do not know why that should be the case. The witnesses might have thoughts on how to replace that system, which was available during the 1980s when there was relatively little money around as well. Houses were provided for people on the basis of their ability to pay. The monthly repayments might have been a small amount but that market was catered for.
We all probably agree regarding the mystery of the cost of building a house. There is a lot of talk about how we need to reduce the cost, yet we do not seem to know exactly what that cost is. Are the issues mentioned regarding regeneration in a separate document? What was read was quite lengthy and I do not have it here in that detail. Could we get a copy of it?
That is fine, I will get it. I agree with many of those points. I mentioned earlier that we have a great deal of vacant properties, particularly in rural areas, which we should be looking at. Not only is it good for an area to have these places regenerated and people living in them - it breathes a bit of life back into an area - but it can also provide some short-term solutions, because those properties are actually available. They just need to be brought up to standard.
I would be interested in the witnesses' opinions on the whole issue of rent allowance, the housing assistance payment, HAP, scheme and the rental accommodation scheme, RAS, because my experience - I am sure many people have the same experience - is that many auctioneers do not necessarily welcome these schemes. For example, in our area, one would know auctioneers who are particularly helpful in respect of sourcing properties and so on and there are others who do not want to look at it. There does seem to be some stigma attached to that. What are the views of the witnesses is on that. Many landlords, although they are technically not supposed to be able to refuse rent allowance, are able to get away with it.
There is a running theme in the contributions from some of the organisations today. The witnesses have echoed the calls for VAT to be cut, for the mortgage income multiple to be increased to 4.5, for more cuts to development levies and for rural renewal tax break schemes.
A couple of aspects are unique to the representatives of the IPAV. One is that they want the Government to lend finance to builders, including small builders, at a rate of 1% to 3% because the lack of finance is an impediment to house-building. If the Government lends to builders at 1% to 3%, would the witnesses not agree it would be taking a very high level of risk? Property development is a very risky activity for low-risk interest rates. Is it not effectively asking the State to carry the can for property developers going bankrupt, particularly at a time when we have written off billions of euro in this economy, through NAMA and in other ways, for builders and developers who made bad investment choices? Is there any reason other than economic self-interest that the State would do that? Why would the State not, for example, just build social and affordable housing using the money the witnesses want to give to small builders for private housing? Would it not be much better for the common good and for the State if the State were to use such money to build houses itself, rather than giving money to builders to build private houses that will probably never get into the hands of the people who actually need them? There is house-building going on but it is not affordable for those who are in the rental sector or on social housing lists.
It would seem the IPAV exercises very disproportionate political influence. The first page of Mr. Davitt's opening statement mentions three Senators that the IPAV helped to elect, which means that one in 20 Senators is an auctioneer or property valuer, if I am correct. That would seem somewhat disproportionate for a group of 1,000 members in a country of 4.5 million people.
The last issue relates to increasing the mortgage income multiple to 4.5.
This is considered unsustainable and unaffordable by international standards. Rather than reduce house prices, it would increase the level of debt people can acquire.
There may be a misunderstanding regarding urban and rural renewal tax breaks. All tax breaks create a cost for the State. In November 2005, Goodbody Economic Consultants produced a report on the previous round of tax breaks for rural and urban renewal schemes for the Department of Finance, which stated: "By the end of July 2006, when the Schemes are due to expire, it is predicted that the cost to the Exchequer will have risen to €1,933m." The report also noted that the tax incentives had been used primarily by high income earners. In other words, very wealthy people got very rich through the use of these tax breaks. I am not in favour of resorting again to these types of activities because on the previous occasion, the Exchequer suffered dramatic losses and certain people got very wealthy as a result of them.
Mr. Patrick Davitt:
I will address some of the questions, after which Mr. O'Flaherty will respond on renewal and regeneration. To make a jovial point, perhaps the reason auctioneers want to enter the Seanad is a desire to supplement their income because they are doing so badly. Apart from that, it is very good to have representation in the Seanad as it shows that auctioneers are interested in representing the auctioneering profession, as my colleagues and I are trying to do at this meeting. While we do not claim to have all the answers, we have thought long and hard about the points we are raising. We are seeking to build a sustainable property market and get it moving again.
The proposal to increase the loan to income ratio, LTI, for borrowers from 3.5 to 4.5 is part of a whole package. We are not calling willy-nilly on the Government or Central Bank to change the LTI from 3.5 times income to 4.5 times income. The proposal is part of a complete package which includes providing finance for builders.
There are two sides to the housing issue, namely, homelessness arising in the area of social housing and the private housing market. Housing is required in both areas. In this instance, we are discussing finance for private housing. Such finance would only be provided to builders on condition that the house is sold at a capped price. Builders should not be givencarte blancheto obtain various reductions for building homes and subsequently add these to the costs for consumers. Money can be borrowed from the European Central Bank at a rate of 0.005%, whereas home owners must pay high mortgage rates and the interest rates sought from builders to build properties are in the region of 10% and 20% through mezzanine financing arrangements. Some builders who cannot afford to finish houses are being asked to pay these types of interest rates. Ultimately, however, it is the consumer rather than the builder who pays these rates because their costs are added to the price of the house.
We are trying to reduce the price of new housing to a level that people can afford to pay. The only way to achieve this is to consider all the proposed measures together. We are calling for a reduction in the VAT rate from 13.5% to 9%. Such a measure would not generate a loss to the Exchequer as it would result in a significant increase in the number of houses completed and the Government would receive much more in VAT returns as a result. While I am aware that there is a see-saw type of effect at play here, if a lower VAT rate is reduced, more houses will be built and the Exchequer will receive more income. It would also reduce the cost of a new house, thus enabling people to pay the price of a home.
On the proposal to increase the loan to income ratio for borrowers from 3.5 to 4.5, there is no reason banks cannot introduce secured mortgages of ten, 20 or 30 years' duration and apply interest rates that people can afford to pay. Last week, we attended a conference of our European partners in Germany where ten year mortgage money costs 1.8%. The equivalent rate in Ireland is 4.2%.
We believe that if long-term mortgages were given to people, the Central Bank would not be worried about LTI because it would know that somebody got a mortgage for 20 years and at a rate of 2%. The LTI would not enter into it after so many years because the money is guaranteed. Even if people paid a little bit more for a house and if they got a little bit more than the 4.5% they were supposed to get, at the end of the day we hope that with inflation and if wages rise a little bit, that 4.5% will be easily maintained.
The Deputy mentioned renters and auctioneers. Recently, the Irish Human Rights and Equality Commission, through the Minister, stated that auctioneers and landlords could not advertise on their websites or whatever that they would not show properties to, or accept, certain people. There is absolutely no problem there but at the end of the day, the person who makes the decision on who to rent his or her house to is the house owner and not the auctioneer or the Minister. People go through the process of viewing a property and all that goes with it but if an auctioneer has two people who want to rent the property, one in receipt of rent allowance and one who has his or her own money, the landlord makes the decision and tells the auctioneer who to take and who not to take. The point I am making is that the auctioneer is acting on instructions. The auctioneer has to do what he or she is told because we have a contract with that person - a PRSA contract, which is a legally binding document from the PRSA - so we have to get the best price possible when selling a house or when renting a house. If we do not, we can be hauled up and fined. From our point of view, we do not engage in discrimination in terms of who we rent a property to. We are quite happy to rent it to either party. If the landlord says he or she wants to rent it to a particular person, that is what we have to do. It is a great idea but at the end of the day-----
Is there not a responsibility on auctioneers? Maybe some are doing this - some of them are great - but in my experience, some are not. I suggest that auctioneers explain the schemes to landlords and go through the details of HAP scheme and RAS with them. I found that many auctioneers did not know what RAS was. What is Mr. O'Flaherty's option on that? Does he think that in general, landlords tend to say to go with somebody who is not on rent allowance.
Mr. Eamon O'Flaherty:
I can give instances from the town in which I operate and from speaking to colleagues. When one does a viewing for a rental property, for example, a two-bedroom apartment or three-bedroom house, one has to report back to one's client and to the people who want it. It is very difficult for the landlord and it is very difficult for us to help him or her make the decision. People get very aggressive with us. The main problem is lack of supply. One could have 30 people showing up to view an apartment for rental. The problem is that the supply is not there. I agree with the Deputy on the point that landlords need to be made more aware of the benefits of the HAP scheme. When we mention it to landlords, some are up to date on it and know what it is but the vast majority are not and need to be educated about it. That is one point I would wish to make.
Mr. Eamon O'Flaherty:
Deputies Funchion and Coppinger raised the rural renewal tax incentive scheme. Deputy Funchion mentioned that the 2005 scheme cost so many billions to the Exchequer. That was really an investor-driven scheme and, as the Deputy right said, some people got very rich from it. This is a scheme for owner-occupiers and all these buildings are in place. The infrastructure, the street lighting, the schools and the public transport are all in place. In a small town or village, if a young family with two or three children, or even three families, arrived, they would breathe much life into small villages. There is no major outlay for the Government but whatever incentive is put in place should be geared solely for the owner-occupier. It should have nothing to do with any investors or foreign funds coming in. These properties can be picked up all around the country from €30,000 to €100,000. There is a huge supply of them. They are not even going on the market because there is no market for them at the moment. If there was a market, they would be on it.
Mr. Patrick Davitt:
I refer to Deputy Durkan's question on the cost of the one third, one third and one third and also the Housing Finance Agency loan scheme. We do not believe the cost of building is 50-50; 50% on the cost of the house and 50% on the cost of the charges that go with it.
We do not believe that is the case and have seen no proof it is, despite the fact we have been asking for this information for some time, even from the Government.
On the day I mentioned when I questioned the Minister for Finance, Deputy Noonan, he told me openly that he had a friend in Cork who builds 50 houses every year and that the cost of building them was not even €100 per square foot. We believe that. We believe builders can easily build for €50 per square foot if they want, because builders in different towns have told us they can build for less than €100 per square foot. There is no backup for €100 per square foot, other than from small builders. They are the only ones who have come up with that.
We believe the capped building scheme, at €100 per square foot, would be a reasonable and well-paid scheme for small builders. We believe that where costs are stated to be €100 per square foot, those costs must be explained by somebody in the know. We are not professionals in that area; we are auctioneers. Builders can show what can be done, but we need to take a toothbrush to that. We need to ask how much it costs for each part of the building process. We cannot just say that is it and take it from there.
Years ago, in 1978, I built my first house with a loan from the county council. It gave me a loan of £7,500 at an interest rate of 12.5%. At that time, interest rates on loans from the county council remained the same for the term of the loan and the only way one could get out of that arrangement was to get a bank to give a loan at a cheaper rate and the money could go back to the county council. Those were very good schemes and were badly needed at the time. They are needed again now. Building could be done by county councils now and finance could be provided by the councils or finance agencies. We would agree with that.
My first question is about the vacant site levy and the suggestion in the presentation that it needs to be reviewed. What does Mr. Davitt mean by that? The levy is currently 3% and I understand from the Minister that it was on the advice of the Attorney General that the date was set for 2019 and could not be before that. Can Mr. Davitt clarify what he meant in that regard?
We share the institute's concerns regarding NAMA's policy of selling to vulture funds as this could have disastrous consequences down the line. What would Mr. Davitt suggest to ensure there is some control in that area and in regard to those that have already been sold? Mr. Davitt mentioned smaller builders and I agree there should be a role for them. He said there should be an agreed price scheme for building, but as the Chairman stated, it has been difficult to get clarification or agreement on exact building costs. Is there a role for rural resettlement schemes also?
I represent Dublin Central where there are some appalling standards in regard to rental property. Dublin City Council conducted a review which found that 97% of rental properties were unfit for habitation. What is the role of IPAV in that regard?
I thank IPAV for its presentation. I concur with much of what has been said and on the initiatives IPAV would like to see in place in order to revitalise the sector and help those who cannot get onto the property ladder.
Deputy Funchion asked a question about the rental sector, but I did not hear an answer to it. The question concerns the rental sector and landlords. I understand IPAV represents many of them but that it cannot speak for all of them. As public representatives, we hear all too often that landlords will not accept tenants on rent supplement or in HAP programmes. The immediacy of the current problem is such that it is dependent on and expects that the Government will increase rent supplement, which needs to be increased in an abnormal market. That is my contention and I have the support of many on this, including stakeholders at the coalface. Rent supplement needs to be reviewed on an ongoing basis to ensure it has the desired effect while the short, medium and long-term issues in regard to supply are being addressed. That is the reason this committee wants to make recommendations in that regard. It wants to ensure all-party agreement and in the context of the new Dáil and numbers game, we hope to achieve that.
This begs the question as to whether if that improvement is made, IPAV can give us an assurance as public representatives that we will not continue to hear the complaint of the failure to accept rent supplement from those we have the privilege to represent and are trying to assist.
It is soul destroying and sickening to listen to the stories of people who are exasperated, who are on the brink financially and who have huge social issues as a result. We hear them say that the private sector - the landlords - will not accept rent allowance supports and yet here we are on the cusp of improving that funding stream. Can the IPAV representatives give any commitment today that their organisation will seek to have that situation addressed? We see increased funding to that area in the short term but what other measures can help the supply issue?
I thank the witnesses for their presentation. I totally agree with the concern about the HAP because I do not believe that people really understand it enough and there is a responsibility to promote it more, especially on the part of the local authorities which do not seem to promote it very well. I was reared in a local authority council house, like most people around me, and at that time Dublin Corporation - as it was - built the houses. However, that does not seem to happen now and local authorities have reneged on building. They have become rental and maintenance organisations for properties. If the truth is to be believed, we had representatives from the construction industry at this committee earlier and they spoke about building. However, I do not think they are interested in building social housing. They are more interested in building big private estates rather than anything else. If that is so, what does the IPAV believe will happen in the future with estates where many houses are currently being rented and which will continue to be rented if we do not start building again, particularly if local authorities do not start building? What kind of role does the IPAV believe auctioneers would have with the county councils in encouraging them to look again at developing sites themselves as local authorities, even if this means bringing in direct manual labour - as was done in the past - and not contracting out the building work? Does the IPAV see any possibilities in that regard?
Just before the witnesses answer, Deputy Funchion referred to the rental sector and the landlords and Deputy Cowen reiterated the point in that regard. I will be specific. There are areas outside the IPAV's control and there are areas very directly within its control. I have a fair degree of experience in the Dublin context. There are quite a number of landlords who have one rental property and for many people that is part of a pension plan. It might be their only pension provision. Invariably, when these individuals let their properties through estate agents or auctioneers, they act on the advice given to them. They do not cherry-pick and ask whether it should be A, B or C. In the context of advising the landlord, it is the role of the auctioneer, having shown the property, to outline who might be a suitable tenant and to provide advice on rent payment schemes. For example, how a scheme with a local authority would mean the rent payments are secure, etc. It is the auctioneer's role in that context that the committee is trying to ascertain. Obviously, if an individual landlord is renting his or her property, he or she will pick and choose. When properties are let through IPAV members, however, it is they who advise landlords on whether people are suitable tenants. This is the context in which the committee members are asking how is the IPAV proactively supporting the various schemes such as HAP, RAS, etc.
Mr. Eamon O'Flaherty:
In our office, and in other offices in our area, we have people who come in every day who are on the HAP scheme. They come in with excellent references and one can say to the landlord "Look, here are people on the HAP scheme and here are people who are working." Both want to rent for a period and we give all the details. It is about education of landlords - they need to be educated more about the benefits of the HAP scheme. When they hear about the scheme, they say the tenants come from X or Y location, from other social areas, from wherever and refer to the issues relating to that.
Landlords should be made more aware of it. I strongly recommend that all local newspapers and so on carry more on it and that their websites and those of local authorities be up to date. The benefits of the schemes should be highlighted. Our offices have let to many people on the HAP scheme and we never have any real issue with them. No matter from where people come, there will always be issues with some tenants, but for the vast majority of agents, as long as references and such are tidied up and everyone is happy enough from that point of view, there really is no issue in renting to people on the HAP scheme. The main thing is to communicate the benefits of the scheme to landlords. However, this goes back to the current lack of supply. If 30 people line up to view a two-bedroom apartment or a three-bedroom house, invariably only one party will get it and there will be 29 others who will be disappointed. Blaming the agent or the landlord is not the answer. Part of the solution to the problem is to have more supply to the market. That is what it is all about.
Mr. Patrick Davitt:
On housing in the city, my family had a council house, which is what we call them down the country. That is where I was born and bred. It was a two-up, two-down council house. There were ten of us in the family and we had one of these houses when I was growing up. In the country it is the same as it is in the city, presumably, from that point of view. County councils should continue building and should not alone build social housing but should also be able to give moneys to young people who want to buy houses in their areas. That should happen again. We do not see why it was stopped. County councils, like banks and everyone else, state many people have not repaid those loans. I do not know if that is the case.
On housing and landlords, as referred to by Deputies Barry Cowen and Kathleen Funchion, I carried out training with a county council on the scheme. Its concerns was how it was going to get auctioneers to talk to it, get it clients and ensure its schemes would be known to landlords. I was to undergo the training one particular morning and ten people were supposed to show up. Only seven showed up. I underwent the training and thought they would find it very relevant. I agreed to send an e-mail to all of our members in a particular area, in which I told our agents that the people concerned would be in contact with them at a particular time. I asked them to look at renting to these categories of people, as that would be perfect. I even told the attendees to come into our office on 1 January, when our diaries came out, and that I would give them ten diaries in order that they could speak to all of our members. I have not heard from them since. This is a two-way process. It is not all to do with auctioneers and to whom they want and do not want to rent.
We do not represent landlords. Therefore, I do not believe Deputy Barry Cowen expects us to assure him that landlords would do X, Y or Z. However, from the point of view of auctioneers renting properties, we are bound to get the best price possible for landlords. That is our job. We cannot tell a landlord what to do. If a landlord can get €1,000 by renting the property to someone with and without social benefits, at the end of the day, that is his or her choice. All we can do is take the references and pass them to the landlord who must make the decision. If he or she does not make the call and the auctioneer makes it and something happens, God be with him or her.
Given the immediacy of the issue and the problem in the rental sector, the stakeholders at the coalface such as those in the Peter McVerry Trust and the Simon Community, to name but two, have for the past two and a half years been calling for State intervention and an increase in rent supplement. If that is adhered to by the new Government, under pressure from many others, one has to accept that that is an interference in what is an abnormal market. It is seeking to close the gap between an auctioneer and a landlord in making a decision because of the principle that "money is king". We have to interfere in order to increase the State subvention to allow the people concerned a greater opportunity of achieving properties or to keep them in their existing properties. All I am saying is that we all have a role to play in appealing to the goodwill of those involved in paying reasonable rent as the aim is to have people on a level playing pitch.
Of course, there are exceptions in every walk of life. However, these people need to be shown equality and parity of esteem. I hope that the IPAV, ourselves and everyone else in the sector recognises that. In particular, I appeal to those involved to recognise the situation in the context of short-term increases in rent supports and what this means, rather than proving the Government or the Department right. They have denied this for the past two years by saying it would lead to an increase and exploitation by those who are in receipt of it. That is the point I am making.
Yes, and I believe it is a crucial point. This is where the nub of the problem lies. The Department of Social Protection replaced the local authorities in providing homes for people who are now on the housing list. I strongly disagree with my colleague from an adjoining constituency, Deputy Cowen. Even it is only for the short term, it is only postponing from today what is going to happen further down the road. When the transfer took place, I spoke publicly about it. I said that it would never work and that it was an abdication of responsibility on the part of the Department of the Environment, Community and Local Government and the local authorities. The responsibilities of both were of a first-hand nature, at the coal face. For the life of me, I cannot understand how any increase in the rental would improve that situation other than to use Government funding from another source or Department to patch up a problem that exists and that requires urgent treatment.
I wish to comment on the housing assistance payment and rental accommodation schemes and why people try to rent under them. The answer the IPAV representatives provided does not quite address the issues raised. The Government housing strategy was to deliver 100,000 social houses and was based on 80% of these units coming from the private sector. Obviously, and I think we all agree, that is not now going to happen.
I will set out some examples. Last week, we had people in our office in Limerick looking for a house. They had been to the housing officer in the local authority and the advice from Limerick City and County Council in recent months has been to the effect that there are no houses and that people should rent privately and get on the HAP scheme. People have returned to our office having been to all the auctioneers in the city and informed that the latter are not dealing with HAP tenants. The IPAV deputation said it would be down to the landlord but these people are not even getting to apply for the properties that become available. They are being told the properties are gone even though they are still on the daft.iewebsite. We have rung from our office after certain properties were supposedly gone only to find out that they were not gone. The IPAV should talk to the people who are letting these properties and explain how HAP and RAS operate. The vast majority of these tenants are decent tenants who are simply looking for someone to stay. I understand there is a supply issue and that people will go for the biggest price. Perhaps auctioneers should say that to people rather than saying they do not take HAP or RAS tenants. That is what we are seeing. Although it runs contrary to the legislation, that is clearly what is being said by estate agents in Limerick. I can vouch for that much.
I wish to comment on the HAP scheme from the perspective of the Waterford constituency. The highest amount available in rent supplement in Waterford is €525. The dogs in the street know that it is not possible to get a house any place in Waterford city or county for €525. A person might get a place for €650 or for an amount heading towards €700. Prices are at the €650 or €675 mark. The HAP scheme is a win-win option if a tenant can get the landlord to take it up. In many cases, however, a person who is on social welfare is putting her hand in her pocket to make up the difference between €525 and €675. This has not been spoken about, it has been brushed under the carpet. Up to €150 comes out of their earnings for the month and the majority of these people are on social welfare. I imagine this is happening in other constituencies as well. These people have to come up with €150, sometimes a little more and sometimes a little less. This is a major issue but it has not been addressed. It is a little part of the black economy.
I would support the conversion of non-viable commercial buildings especially in rural areas but also in cities because there are plenty of shops all over Dublin, Cork, Waterford, Limerick and Galway with premises downstairs but the upstairs is not in operation. Do the witnesses see a role for the local authority to come on board in those instances?
Mr. Eamon O'Flaherty:
In response to Deputy O'Sullivan’s point about rural resettlement, that scheme was originally intended for people to sell a property in Dublin and move down the country. The scheme we envisage would be for first-time buyers, people who have no house at the moment. A tax incentive could also apply to people who want to move out of the city and down the country. This scheme could be adjusted accordingly. The scheme we would promote or envisage would be for people in need of housing, primarily first-time buyers.
In response to Deputy Butler, I do not think the local authority would be involved in it. This is more for the private sector and people who want to purchase a property for less than €100,000. There is a huge market and the properties are there but to make them attractive and appealing to young families, investment will be required. There will be work for local tradesmen, and the local hardware merchant will hopefully get a spin off as well and bring more money into that economy.
Does the IPAV engage with the room-for-rent scheme, whereby a person living alone has a room to let? It is not done under a lease or a legal agreement in the usual sense of the word but the person can get up to €12,000 per annum tax free and the rent the tenant pays is written off against his or her tax.
Mr. Eamon O'Flaherty:
We welcomed that when it was increased to €12,000 in the last budget. I live in Maynooth, Ireland’s only university town, and a lot of people there benefit from that scheme because they can take a student in for four or five nights a week. Most people using that scheme do it privately. They do not generally go to an agent.
Is it the IPAV’s experience that many do not actually know about it? I know it is usually an individual but even couples whose families have flown the nest have significant room available that they could rent out in this manner. There could be more of this, which would be part of the solution.
Mr. Eamon O'Flaherty:
I agree. The Deputy is referring to what we call the "empty nesters". As with the HAP scheme, it is a question of education to make people aware of these schemes. Some people are aware but some are not. From a security point of view and the social interaction for someone living alone, they are great. It is a very positive initiative and we welcomed it at the time but it should be promoted more. It is not something for agents to promote actively. It is done privately.
The space is there. If the right client is found on both sides it can work to everybody’s benefit. It could have a significant impact, particularly on single people. It could be a useful option. We do not push it enough. That refers to all of us. It is a collective issue.
Mr. Patrick Davitt:
On the point made by Deputy Butler, the same happens throughout the country. In Mullingar, where I live, a person gets €390 to rent a property but the rent is €500. The person can make up the money or not get the property because somebody else will pay that amount of money. Even when the landlord chooses the tenant he or she has to come up with the extra money. The scheme to increase that rent is good.
That could be down as an extra part of the rental to the local authority or to the health board in the area or whatever the case may be.
I do not know whether an increase of the rental allowance on a full-scale basis is very helpful. As auctioneers, we might not see that it is all that helpful. It is certainly helpful in the areas that Deputy Butler talks about, in which lot of the moneys really are too low. As for the black economy, I do not know where the money goes, if the landlord takes it or what he does with it. That is really the landlord's own concern. There is no doubt that people do have to pay it.
As is stated in our submission, the landlords as we know them - the typical landlords who have one or two properties - have been the cornerstone of these properties and of supplying these houses for years. Many people talk now about the professional landlords coming to Ireland in the form of these vulture funds. We do not believe those professional landlords are the correct way to go. Not too long ago in the newspapers they wrote about one particular Canadian fund's AGM at which they discussed how they had increased the rental prices of houses in Ireland by 22%. When they increase the rent by 22%, everybody follows on. If one big company here with maybe thousands of apartments does this, the next thing that happens is that Mary Jo and Jackie Joe and everybody who comes in to the auctioneers wants to increase the price. Auctioneers have a problem with this as well but it is not a problem that auctioneers can solve.
We believe that a landlord with one or two houses should get an allowance like the one landowners get. If a landowner over 40 or 50 years of age gets €10,000 or €20,000, he or she can write it off at the end of the year. Deputy O'Dowd mentioned the rental scheme. Someone renting out a room can write off €12,000 tax free. Why do they not offer the same for landlords?
I do not represent landlords, incidentally. I am just talking about this because as auctioneers, we speak and hear about this all the time. I and Mr. O'Flaherty were talking at the weekend to an individual who lives in Maynooth. He has two people living in his house and earns €10,000 tax free. If he was a landlord and he was getting €10,000 for one house, he would have to pay the 50% tax on it. Why would there not be a scheme in place such that if he rents his house for five or ten years, he would be given a tax allowance for it? That is what they do in conacre land renting and now they have tried to move into long-term land renting. Why do they not offer landlords those breaks? Why can the county councils not take some of these people who are on social and the like on a long-term basis? The landlord would get his break. He would happy enough to rent on the house again to whoever the county councils want and everybody would be happy. That is not the way at the moment.
The landlords with one or two houses are practically being priced out of the market by the professional landlords who are coming this way. Professional is the word. The more properties they get their hands on, the further the rental prices are going to go. Somebody who owns one block of 100 apartments can put the rent up by 10% at the stroke of a pen. Everybody's rent then goes up. If there are 50 landlords in that building, the chances are that some of the apartments will be under-rented. Many landlords will under-rent properties because they are happy with their clients. Some landlords are never going to go back to their tenants and put the rent up because they have a very good relationship with them. As we stated in our submission, we believe that professional landlords who come into Ireland should offer something in the way of new housing. For them to buy these houses from NAMA at an under rate and to come in here and start pushing up the rents is wrong. If they buy 100 houses here at under value, they should build 100 houses to go with it.
I want to ask about the vacant site levy and, going back to the rented accommodation, I want to ask about standards. While I am not tarring all landlords with the same brush, there certainly are landlords who are looking for increases in rent when it is reductions they should be getting because of the poor standard of accommodation.
Mr. Patrick Davitt:
We were among the first bodies to support the vacant site levy of 3%. Many of our members did not want us to support it but we did. We supported it through the Lord Mayor of Dublin and we supported the whole system of executing it. We feel there are too many sites in Dublin that are not in production and that should come into production. One of the most important things about the site levy is that it keeps investors out of the market. If the levy is big and strong enough, investors who want to buy these properties will not be able to buy them because they will have to pay the levy every year.
If it is 3%, 5% or whatever, they have to pay it, which means that the chances are an investor will not buy it because there is no surety about when it will happen. They do not know if it will happen in one, five or ten years time. They have to keep paying the levy.
The site levy does two things. It brings land into production and makes sure that when builders buy it they build on it rather than hoard it. The levy needs to be considered because, based on the advice of the Attorney General, it cannot be introduced until 2019, which we feel is wrong. Money should come into the economy in 2018. We do not know whether 3% is the correct figure. It is a small figure. The first part of any building is the land, and if its price goes up, so too do house prices. If only builders buy and use land, that means prices will remain at building rather than investment levels, and it is to be hoped builders can achieve a profit at a later date.
On the condition of rental housing, a law covers this area. County councils have engineers who inspect all such properties. We recently received a letter from a county council which asked us what we could do. There is very little we can do. County councils have the law on their side and engineers to carry out investigations into houses. If they are not up-to-date, landlords should be told they cannot rent them until such time as they are brought up to date.
It is very difficult for an auctioneer to tell somebody there is something wrong with his or her house. A landlord would respond by saying he or she will rent out the property himself or herself. If an engineer from a county council, who had the law and authority behind him or her, visited a house and told a landlord he or she needed to do certain things before he or she could rent our his or her property, the work would be carried out.
Some councils are doing that, which is good, but unfortunately some landlords are using the process as an excuse to get rid of tenants. They can then do a certain amount of work, increase the rent and find different tenants. The original tenants are then placed on the homelessness list.
Mr. Patrick Davitt:
That might be true, but as I say, I do not represent landlords. Many properties in the country are under-rented, whereby landlords are not charging the proper rent for their houses. There is a lot of discussion about the price of rent in the cities, something of which everyone is aware, but many landlords are happy with their tenants who pay their rent every month, whether they are there for one, five or ten years. In many cases, landlords are, believe it or not, embarrassed to look for more money.
I am also aware that many are over-rented, but the recent legislation outlawing rent increases for two years spooked many landlords. While it is a good scheme which we support, it led to increases in rent because there was a two-year window. Hence, the property price register showed an increase in rents. We understand that prices are now at 2007 levels, and in some cases above that level.
Most members have completed their questions. IPAV is not directly responsible for bedsits, but it may have some experience of the market. New guidelines were issued a number of years ago. Has there been a reduction in the number of bedsits on the market? Do the witnesses have that information? I ask for an honest answer.
Mr. Eamon O'Flaherty:
I imagine there has been a reduction. Some agents would deal specifically with bedsits. They are located primarily on the North Circular Road and other such places in the inner city of Dublin, as well as in Cork and Galway. There has been a drop in supply, but some are still in existence. It is a specific question for people operating in specific areas.
Mr. Patrick Davitt:
I wish to make a final comment. We represent auctioneers. The committee can see from our proposal that some are way out of line. We want to be part of solving the problem and to be stakeholders. We are happy to talk to the committee or any other committee at any time. We are happy to be part of the property council and to provide any support we can to the committee. The committee is fantastic and will do very good work. We have called for such a committee for a long time. We happy to support it in any way we can.
I thank the witnesses for their attendance and answers.
One of the common themes that emerged today was trying to determine the cost of construction and other related costs. It is interesting that it came up again with this group of witnesses. That is something we will probe further as a committee. I thank the witnesses for the documentation they supplied. Members of the committee have it and it will also be on the website.
That concludes the business for today. The committee is adjourned until Thursday, 5 May at 10.30 a.m.