Renting forever: feasible or fallacy?
Posted on April 28, 2019: by Lorcan Sirr
There are many issues with the private rental sector (PRS) in Ireland, including: its use as de facto social housing through the Housing Assistance Payment (HAP) scheme; a low rate of independent inspections of standards; the lack of a definition of overcrowding in the Housing (Standards for Rented Houses) Regulation 2017 at a time when overcrowding in rented accommodation is becoming prevalent; the absence of a deposit protection scheme despite one having been in the legislation since 2015; and indeed, the lack of a definition of a deposit itself, permitting landlords of demand any sum they see fit as security.
These are serious issues although mostly ones that could be addressed with relative ease. The issue of using the private rental sector as social housing might take more political resolve to physically resolve, which means it might be with us for a long time yet.
The biggest issue in the private rented sector right now, however, is its broader role in the Irish housing and welfare system.
Aside from it being usurped by the state to make up for the housing it has failed to build over the last two decades and more, the private rented sector is becoming home to an increasing proportion of Irish households. At the last census in 2016, over 20 percent of households lived in the PRS. At the end of 2018, the numbers were about 339,000 tenancies housing 708,000 tenants in properties owned by about 173,000 landlords. Ireland has gone from a high of 42.7 percent of households renting when the CSO started counting in 1946, to a low of 7.98 percent in 1991. We are now back at levels last seen in the late 1950s.
At the same time as numbers in the PRS rise levels of home ownership have fallen from a high of around 80 per cent in 1991 to 67.6 per cent in 2016.
With numbers of those owning their own homes falling, a new mantra has crept in about the need to rent for life
Outside of local authority tenants, the PRS has traditionally been a temporary stop-gap. It is a place to reside temporarily on the way to the ultimate purchase of one’s own home. With numbers of those owning their own homes falling, a new mantra has crept in about the need to rent for life. It is no coincidence that this has happened at the same time as a new typology of housing has emerged – the ‘build to rent’ sector. This is purpose-built, high quality, high cost, rental accommodation, run by professional landlords who will typically own hundreds, if not thousands, of such properties. The message is that renting is not necessarily a temporary stop-gap on the yellow brick road to home-ownership, but an option for life. Legislative changes to the Residential Tenancies Acts to provide greater security of tenure (ostensibly, if not always in reality) reinforce this message. A significant gap between incomes and house prices, pushing house purchase out of reach for many, has further nourished the germ of the idea that renting forever is perhaps something to consider.
The real reality is, though, that renting can only ever be a temporary option in Ireland; renting long-term, whether provided for by legislation or not, is not a financial option for most people. Here are three reasons why.
Firstly, despite changes to legislation, security of tenancy is still an issue. There are still myriad reasons whereby a landlord can legally ask a tenant to leave, including requiring the property for the use of a family member, and requiring the property for refurbishment. Although the former reason is unlikely to manifest itself with a professional landlord, there is still no guarantee with any landlord of being able to remain in one’s rented property indefinitely. A tenant’s right to remain is effectively at the whim of the landlord.
Secondly, upon retirement the likelihood is that a person’s gross income will drop, perhaps by as much as half. Unlike with home-ownership where a mortgage is timed to be paid off by retirement, and thus as income falls there are no longer mortgage payments to be made, in the PRS the rent is an ever-present obligation, regardless of income.
Thirdly, the Irish socio-economic system of ‘asset-based welfare’ means that households are expected to have an asset of some form which they can then use to fund other necessities (e.g. children’s education). The ‘asset’ in the Irish case is nearly always the home. We are each worth about €140,000 and half of this wealth is tied up in property, which is partly the reason many home-owners like to see house prices rise. Price inflation also reduces the ratio of debt to value and allows for the potential release of equity. The Fair Deal scheme where the state funds nursing home care and then recoups the cost from the person’s estate on their death is predicated on having a debt-free asset which can be sold to repay the state. But what asset to renters get to accumulate and how does this impact on their ability to access what should be considered basic services?
A functioning rental sector is a crucial component in any housing system. But in the Irish context, unless there is a radical reformation of the way we view the relationship between housing and welfare (which would invariably mean higher taxation to pay for services the ‘asset’ is intended to pay for), home-ownership remains the only game in town. Shiny new (and very lucrative) baubles such as build to rent should not distract from the reality that in the long-term the rental sector as it currently stands can only be a stepping stone to the safe(r) grounds of home ownership.