Lorcan Sirr: "Social housing the next bubble?"

[Brendan Burgess]

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.

 

[Brendan Burgess]

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?

 

[Brendan Burgess]

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.

 

[Towger]

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.

 

[The Horseman]

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.

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.

 

[Sister Sara]

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.