Lorcan Sirr: "Social housing the next bubble?"

Brendan Burgess

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Some interesting stuff in this article

Lorcan Sirr: Could social housing be the next property bubble?

High costs, high borrowings, high risk, high exposure: it’s all very 2006
www.irishtimes.com

There are a lot of numbers in it

Since 2017, councils have added 18,889 houses from various sources to their stock (now 150,224 dwellings) but have sold almost 4,000 or one-fifth of the quantity they have added. Each year many councils also buy thousands of second-hand houses to supplement their supply. Often former council houses, the State now pays twice for the same house.

The housing waiting list is 58,824 households.

For the last seven years, councils have accounted for just 32 per cent of all social housing output. The balance has been delivered by approved housing bodies (AHB), nine times out of 10 using turnkey acquisition (buying new housing from developers before construction or when built), which was more than 4,000 units in 2023. Councils and AHBs are acquiring so many new apartments for social housing from developers who say they can’t afford to build them for private clients, the State is effectively propping the sector up to the tune of a children’s hospital, or nearly €2 billion, a year.

AHBs now control more than 61,500 houses, or about €8.3 billion of housing stock with €7 billion debt, a highly leveraged, high-speed, high-risk expansion from €2.8 billion worth of stock in 2021, and all on the State balance sheet. At this level of borrowing (84 per cent average, with some undoubtedly more leveraged), a small fall in property values would see many AHBs owing more money than they have in assets; negative equity, in other words.
 
I don't really get the comparison with the housing bubble of the 2004 to 2008 period.

So what if the value of the houses owned by the AHBs fall 30% pushing them into negative equity?

They will still be able to repay their cheap loans. Don't they get their income from the local authorities or the Department of Social Welfare?

If an AHB has property worth €500m and loans of €600m, will that prevent them from borrowing more money from the Housing Finance Agency? Maybe the HFA will not be able to lend to them if their assets have a market value less than their lending?
 
The sale of social housing to tenants is a really difficult issue.

The fact is that social housing is a financial liability for the council. It costs them more in upkeep than they collect in rent. So it makes financial sense if the tenant buys the house and pays for the maintenance themselves.

But the solution is probably to stop giving social housing for life but for 5 year tenancies. If a person can afford to buy a house or rent a house privately, they should lose their council house so that house can be allocated to someone in greater need.

Or else, charge the tenant a market rent for the house so that they might move on.
 
The article missed the point that social housing is not a financial asset, if it to provide state accommodation for people to live. The author seems to think of the cocos, AHB and other government housing guanos as property investment companies.

Something needs to be done about the rent levels paid for social housing. A proper collection system, with real enforcement. Dublin City Council were owed almost 40 Million a few years ago, probably 50 by now. We also need, as you say, proper rent reviews. There are plenty who can afford to pay full market rates. I believe there is no point in kicking people out who can afford to rent at full market rates, it is just playing musical chairs. If they are paying full market rates, they are more lightly to move on their own volition to a 'nicer' house/area. Another other issue is the ability to pass the house down to the next generation, but if full market rates are payable by those who can afford then it resolves it's self.

The end goal is to provide more income to the CoCos, which in turn invested in providing (building) more housing.
 
There are benefits to selling these properties. The reduction in maintenance costs to the State, owners have an asset they can sell to fund nursing home care (if needed). Owners have security of housing and can become part of the community.

Some of the negatives are people may not better themselves if they have to pay a higher rent. No consequences for non payment of rent.

Perhaps a hybrid model of the above would be better. A rent to buy model where a person can pay a rent towards the purchase of the property. An example might help, assume two properties next door to each other and both properties are worth €200k each today.

The tenant in property A pays €50k in rent over 25 yrs and B pays €100k in rent over the same period. So in 25 yrs A owns 25% of the value of the property and B owns 50% of the value of the property. They can either sell their share to the State or leave it to their family.

They are incentivised to maintain the property, add value to it and better themselves to pay a higher rent and thereby increase the share of their part of the property.
 
Hi all,

I do think that social housing is a financial asset for councils. It is property, habitable property.

Social housing where my parents lived were built in 1950's. They are mostly private property now and, outside new-builds, attract some of the highest prices in the country. Ergo, these 75yr old houses, presumably have another 75yrs plus of comfortable habitable living (otherwise why pay such a high price?)

It also provides a stable, functioning, long-term housing market. Critical to any civilised society.

Private market housing requires a full return on investment plus profit, within the lifetime of the private investor.
At which point, the property is then re-cycled into the market to extract another full return on investment plus profit, within the lifetime of the investor.

Im not against private investment in property, and profit, just pointing out that social housing built for low-income earners provides generational stability and helps to keep societal cohesion.

That is an asset, for everyone.

Thank you,
Sara.
 
Not only that but most of these schemes are collateralized via the securitization of the assets themselves. That is why they are able to offer up to 100% finance to tier 2 housing bodies and related bodies. More here. Its expensive, but its not a "bubble" as there is no competition among AHBs to get loans. If they qualify and have a project that qualifies, they get financed. Its debatably overvalued given that rents on many of these properties are loosely linked to differential rent scheme, but part of the reason for offloading to AHBs in the first place is because they are not bound to the differential rent scheme which councils are, by law, and so can increase rents beyond what councils are permitted to.
 
The issue is that since the early 1960s, by law, all councils are bound by differential rent scheme. And councils have on the whole not updated differential rents in line with rising incomes, meaning that many social tenants (including various rent subsidy schemes) are charging a lower proportion of social tenants incomes in rent than they did, say, in 1969. But its also true, if you follow back to Prof Michelle Norris's paper on financing social housing from a few years ago, that councils etc sell far fewer homes to tenants than they did in the era from 1921 to 1969.
Perhaps then, the best answer - though I'm sure, not one which Lorcan Sirr would endorse - is to remove the differential rent scheme entirely, and allow councils to charge location and tenant appropriate rents.
 
Also there's lot of factual inaccuracies in Sirr's article - his figure on social home sales are is a distortion.
Sirr claims that "By the mid-1990s two-thirds of the 360,000 council houses built since 1922 had been sold at significant discounts to their tenants." He's missing some significant factors there - that sale had occurred by 1966/67 - Norris says in p15
"by 1966/67 76.8 per cent of all the rural social housing built by that date (68,444 dwellings) had been purchased by tenants (Department of Local Government, various years)". Norris' figure is cited in Dept of Local Govt papers. Since rural social housing was established long before urban housing, was proportionately larger, and the local loan scheme disbarred Cork and Dublin corporations, this explains - and not the political reasons Sirr insinuates - why urban buyers where offered the same terms to buy out social rented homes.
Furthermore, as Norris also points out, the two large city corporations had significant borrowings from the private sector and were constantly under pressure to repay commercial loans advanced to build these homes.

Also, he doesn't explain why rural labourers had been enabled to buy out their tenancies in the mid 1930s in the first place - Norris does - Fianna Fail cut by half outstanding land annuities to tenant farmers who had bought out their farming tenancies under the late 19th century land acts, but this did not apply to local labourers who had laboured on rather than leased lands, and who had been allocated rural social housing as a kind of a booby prize. Their local representatives applied political pressure on the government to apply similar schemes to rural labourers - which Norris describes in p14-15 of same paper. Furthermore, she mentions how these were calculated and that sales didn't properly take off until the 1950s when these annuities were cut in half.

Discounted sales were not afforded to urban tenants until the 1960s because of the financial pressures this brought on central government, but could not be blocked by 1966 Housing Act where the differentiation was lifted between the two different types of social housing: rural "Labourers’ Acts" and urban, "The Housing of the Working Classes Acts" housing. She also mentions on the same page that even in the 1930s labourers rent income only covered 37% of cost, the rest being subsidised by central government grants, and domestic rates. Some of the rationale for this might be explained by the fact that act also extended the differential rent scheme which was originally created in Cork by the academic Philip Monahan, who write a paper in 1947 tried to explain that the model would enable higher rents paid by better off tenants to subsidise the system - which was entirely incorrect (p14).

Furthermore, Norris points out that the concept of tenant sales were established under the terms of 1914 housing act, but discounting didn't begin until the 1930s, and only in urban areas in the 1960s. Norris mentions also the series of rent strikes and rates strikes, and consistent political pressure to reduce the former and reduce and abolish the latter, not to mention deferrals of rates for new buyers that persisted from very early on. Furthermore, all AHB loans are ultimately secured against their borrowings and explicitly for build of social/affordable housing. The AHBs themselves (the "approved" means something here) cannot merely use homes as they wish but are obliged under their own corporate obligations to use their resources for express purposes only. So the idea of them selling off after 40 years is highly unlikely, as they would have long term tenants they have obligations to.

What AHBs are allowed to do is by pass the differential rent schemes. They are also not subjects to the whims of local councillors and their political machinations (think of a certain party proudly promoting Dublin city PPP schemes while it was the largest party on the council, only to reverse its position once it was reduce to 8 seats in the following election).

Social home sales are a direct result of the Land Acts, which enabled tenant farmers in the 1880s to buy out their leases over a long period, and created the initiative for similar schemes to be introduced once the concept of social housing came into place post world war 1. The idea that the state cannot or should not provide a subsidy is perhaps a bigger argument, since even the current practice of waiving developer contributions is an effective levy, as was, in the past, the waiver of stamp duty or LPT for new builds, not to mention the first time buyers grant of latter days. While there is a case to be made for reducing sales of public housing, it is surely currently at a low level, and largely around "affordable" schemes rather than typical tenant sales of the past. The article is nonsense.

Well worth reading Norris' piece on pre 1970s financing here, its a far more useful article than Sirr's polemic.
 
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