Affordable Housing – What is it?

In the midst of the current housing crisis in Ireland, it is becoming increasingly apparent that housing affordability is of huge concern for many households. Currently, house prices in Ireland are growing at the fastest rate in Europe, with prices set to continue to increase by 8% in 2019, 7% in 2020 and 6% in 2021. We have seen an increase of 81.1% in house prices nationally since their lowest point in 2013. In Dublin, with house prices having increased by 94.5% since their 2012 trough, the issue is even more pronounced. Rents, too, have seen dramatic spikes, with the latest statistics from Q2 of 2018 indicating a 12.4% annual increase nationally, having increased 75% from their lowest point in 2011. Again, Dublin has borne the largest increases, with rents now 34% higher than their peak in 2008. However, wages, across the country, despite growing at the fastest rate in Europe, have failed to keep pace with such increases, having increased by 3.3% between Q2 2017 and Q2 2018.
A number of ways of determining housing affordability exist, including the housing cost to-income ratio, the mortgage repayment burden, the rental payment burden, the price-to-rent ratio, the user cost of capital approach and the concept of residual income (i.e. the ‘minimum income required to meet non-housing needs at a basic level after paying for housing’. While there is plenty of debate on it, the housing cost-to-income ratio, whereby housing costs should make up no more than 30% of net income in order to be defined as affordable, is probably the most commonly used approach. With regard to Government policy on housing in Ireland, the concept of housing affordability is outlined in Part V of the Planning and Development Act 2000 (Act), where eligibility for affordable housing is defined on the basis of a ratio of mortgage payments to net income – over 35%. The former Local Authority Affordable Housing Scheme was rolled out on this basis, but the scheme was stood down in 2011.
However, it is clear that the issue of housing affordability is becoming increasingly relevant in the Irish context. Recent research from the ESRI found that 16% of households spend more than 30% of their net income on housing, with this figure rising to 70% for the lowest quartile of the income distribution. The study also finds variation in affordability regarding age group, region and household formation. In social and economic terms, lack of access to affordable housing has been found to impact on family life, household job prospects, household finances, fertility behaviour, and national competitiveness and growth.
Plenty of initiatives exist across Europe with respect to housing affordability. In the UK, for example, affordable rental housing, as provided by housing associations, was defined in 2010, following the October 2010 Spending Review, as making up up to 80% of market rates. The initiative sits within the 2015-2010 Affordable Homes Programme. The take-up of the scheme from housing associations has been high, with affordable housing constituting 58% of new housing association supply from 2016 to 2017. Additional income generated from the initiative has allowed for greater reinvestment in social and affordable housing. However, there has been considerable debate on actual affordability for tenants. As recently as May 2018, the housing association Peabody made the decision to convert 4000 of their Affordable Rent homes to the London Living Rent initiative, on the basis that rents of up to 80% of market rates were, in the current context of rising rents in the UK, unaffordable and unjust for their tenants. The organisation has publicly stated that the Affordable Homes Programme has ‘pushed up the housing benefit bill and undermined public trust in the very idea of affordable housing.’ In other European countries including Austria, France and Finland, rents within affordable or cost-rental schemes are directly linked to cost of the property or development itself, with any shortfall in terms of affordability for tenants covered by rent supplement.
In the Irish context, ‘Rebuilding Ireland: An Action Plan for Housing and Homelessness’ promised the rollout of an affordable rental scheme by the end of Q3 2016. However, this did not materialise. Nonetheless, efforts are currently underway on two cost rental pilot schemes: Enniskerry Road, Sandyford, Dublin (50 cost rental units), and on St. Michael’s Estate, Inchicore, Dublin (330 units). It is also important to consider the potential impact of the new Land Development Agency (LDA) in the delivery of affordable housing, as State land developed by the Agency will include 40% social and affordable homes to purchase or rent. We are therefore at a crucial point in shaping the future of affordable rental in Ireland – let’s keep the concept alive