Few would argue with the benefits to society of providing affordable places to live. It doesn’t matter whether you are an owner or renting, affordable housing is good for society, for families and for the economy.
We can all read the stats on how house prices have gone up since the bottom of the crash and how rents have increased dramatically. However, it is only when you take into account people’s incomes that you get a clearer picture of what is happening at the very core of our housing crisis.
The ESRI decided to look at the whole question of affordable housing, both for renters and owners, with a view to determining how much it has changed since the boom and the bust.
Different measures are used to determine whether people are paying excessive portions of their disposable income on the roof over their head. One widely regarded measure is the 30pc rule. How many people and in what income brackets are forking out 30pc or more of their net income on a place to live?
The ESRI paper, ‘Exploring Affordability In the Irish Housing Market’, tells a lot about what has happened between 2006 and 2016.
If found that private renters living in Dublin and the surrounding mid-east, and low-income households are paying a significantly higher proportion of their incomes on housing payments.
Pretty obvious you might say and it has probably got worse since 2016. But the paper highlighted how the real squeeze has come on the bottom 25pc of income earners and especially in the rental field as measured by rent-to-income per month.
This places large numbers of families in very vulnerable positions when something goes wrong, resulting in whole families out on the street following a particular change in circumstances.
The fact that the lowest-earning 25pc have always been making higher housing payments suggests it is a structural problem rather than a cyclical one, the ESRI found.
It found that a previous study in 1999-2000 showed that 20pc of private renters had housing expenditure above the 35pc affordability threshold, compared to 1pc with a mortgage.
So, the boom was built on cheap credit as people took home more money on the back of falling income taxes. Yet during that period, one in five renters were forking out more than 35pc of their income to landlords.
The ESRI found that in 2016 the average mortgage-repayment-to-income (MRTI) was 21pc for homeowners, up from 17pc in 2006. But for the bottom quarter of income earners with a mortgage, it was 55pc in 2016.
The difference between the bottom quartile and the rest had widened since 2006.
When it comes to renters, the “share of households classified as facing high housing costs fell from 2006 through to 2013 but increased noticeably between 2014 and 2016”, the ESRI found.
The paper covers the period from the height of the boom (2006), through to the bottom of the crash (2013) and up to 2016. A look at the overall national figures in those 10 years suggests that maybe not that much has changed radically in the housing affordability stakes. But it is only when the ESRI looks very closely at particular groups and segments within it that the picture becomes clearer.
The ESRI can draw its own conclusions from all of this, but there are some very important changes taking place in the housing market which this data should inform.
Firstly, if renters are getting screwed, particularly in Dublin and the mid-east region, they will get screwed even more in the future. The population in these areas is growing rapidly and the supply of housing, never mind rented housing, cannot keep up.
Large numbers of rented properties are being bought up by large investment funds, which means more rented properties will become available – but at what cost?
The Government has failed to protect the growing number of people who are renting the place they call home.
Affordability for mortgage holders has been artificially boosted by a period of low interest rates. That could very easily get shot to pieces when interest rates begin to rise again.
The Central Bank lending rules, specifically aimed at preventing another boom/bust (and rightly so), are driving more people into long-term renting.
Since the crash, Government policy has incentivised large investment funds to build more houses. They are building but they see greater potential in building or buying to rent, especially apartments. By not protecting renters through properly functioning rent controls and tenant rights, many people have been left in very vulnerable positions.
The ESRI makes an important distinction when it talks about people paying very high costs for housing, such as 55pc or an even higher percentage of their income. It depends on what your income is.
Somebody who earns €250,000 a year could afford to pay more than half of their monthly earnings on their house (whether rented or mortgaged) and still have lots of money left over every week to live well. Somebody earning a fraction of that income who spends half of their income on a roof over their heads, does not have a lot of money left over.
The ESRI found that when it looked at households spending more than 30pc of income on housing and who were in the bottom 40pc in earnings, the majority of them are in “the private rental sector and have very low levels of residual income after paying their housing costs”.
While the ESRI paper does very well to take income brackets into account, there are some angles missing. The biggest is commuting and the financial, time and health burdens that can bring. If you look at the incomes of families in Longford or Mullingar versus the cost of a mortgage or renting, the metrics might look pretty favourable.
But what if the workers in those families actually work in Dublin, they have an enormous fuel and motoring bill, which completely skews affordability?
As more people move further away from where they work because of all the things highlighted by the ESRI study, they are also signing up to bigger commuting costs.
These challenges will only get worse unless there is a greater regional jobs spread.
The shift to renting isn’t just an Irish phenomenon. Between 2007 and 2017 the US added one million owner-occupier households, but 6.5 million renter-occupied households.
A recent article in ‘The Atlanta’ newspaper shows the impact.
Between 2011 and 2017 some of the world’s largest investors including private-equity and hedge funds spent $36bn on more than 200,000 homes in ailing housing markets across the US.
In one Atlanta zip code they bought 90pc of the 7,500 homes sold in an 18-month period. According to ‘The Atlanta’, big funds sought to cut the cost of running these residential properties by cutting their bills on repairs.
Colony Starwood cut property management costs by 25pc in 2016. The newspaper reviewed one Colony Starwood lease from 2016 which ran to 34 pages and specified that “tenants were responsible for landscaping, routine insect control, replacing air filters, air conditioning systems, repairing broken glass (regardless of how it was broken) and repair and maintenance of sewer and sink back-ups”.
Some companies insist that renters buy insurance to cover the property itself and even charge call-out fees if a repair person is sent out to fix something the tenants should have fixed.
Not everywhere is America. But if renting is the future, tenants need to be protected.