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For a while now, Fine Gael and Labour have been under pressure to raise rent-supplement rates, as more families have been falling homeless because they can’t cover their rent, and others have been struggling to climb out of homelessness because there’s nowhere affordable for them to move on to.
The government’s failure to raise the rent supplement “has played a massive role in creating the current family homeless crisis”, said Focus Ireland in a statement on 14 August. (It suggested that a raise should be done along with measures to bring “rent certainty”.)
So far, a rent supplement increase has not been a popular play with the government.
Labour Minister Alan Kelly’s response to RTE Radio’s News At One sums up its thinking. “If we just dramatically increase rent supplement across the board, you and I both know that that’s going to have an impact on increasing rents,” he said.
That caught our eye because, well, we didn’t know whether or not it would push up rents. So, we wondered whether this was true and what factors play into any potential increase.
We cast the net wide and spoke to three experts on housing economics: one in Australia, one in Canada but from a Scottish university, and one in Northern Ireland.
All told us pretty much the same thing, while stressing that there are different housing markets and benefit models: there is a relationship between rent supplement levels and private rents.
If rent supplement levels are higher, landlords know that they can charge more. And it’s worst if there’s a fixed supply of private rental stock, with little “elasticity”.
One of the most extreme examples of that kind of pressure on rents in action is in mining towns in oil regions of Canada, said Duncan McClennan, director of the Centre for Housing Research at St Andrew’s University in Scotland.
More and more workers moved in, found it difficult to get accommodation, and more people started to pitch for some kind of subsidy either from firms or the government, he said. But no more homes were built, so this just jacked up rents.
But that’s one extreme and the opposite extreme is a context in which there is a plentiful and responsive supply of private rental housing, he said. “You might get some rent increase but you’d also get more accommodation.”
Context is key, agreed one of the experts we asked, Dr Nicola Brackertz, the research consultancy manager at the Australian Housing and Urban Research Institute (AHURI).
AHURI recently did a study to try to work out the extent to which housing allowances are “captured” by landlords through rising rents versus improving the material living standards of subsidy recipients. It looked at evidence from four countries: New Zealand, France, Finland and the UK.
“How large the effect is depends on the characteristics of the housing market and the elasticity of housing supply,” said Brackertz.
For the studies she looked at, estimates of “landlord capture” ranged from 30 percent to 78 percent of any increase in subsidy.
It’s hard to pin down exactly what’s behind that variation and whether it’s the context of the housing markets or the modelling used by researchers, said Brackertz. (All of the studies used different modelling, with assumptions, and had to make up for gaps in data sets.)
When rent-supplement rates increase in an inflexible housing market, it’s low-cost housing that gets more expensive to rent, not higher-end homes, she says.
How Long for Inflationary Impact to Hit?
So, is there a grace period during which rent supplement goes up, but the knock-on effect on other private sector rents has yet to be felt?
That depends on how often landlords are allowed to put up the rent, and by how much, said Brackertz. In France, for example, where the landlord can only put up the rent a significant amount when a new tenant is coming in, there would be more of a lag in the effect of any rent-supplement increase.
“When the landlord gets the opportunity, they’re likely to put it up,” Brackertz said.
Also, the way in which the rent supplement is delivered makes a difference, said Brackertz. In one country she looked at, landlords were oblivious to whether or not their tenants received housing benefits, which arguably limited the effects of any rent supplement increases.
“If you’re a tenant and your landlord knows you get the rent supplement, and the landlord knows that there’s been an increase in the rent supplement, logically, they’re going to say ‘I’ll increase it by whatever,’” she said.
That’s perhaps why the government has said it’ll only increase rent supplement on a discretionary basis at the moment.
Short-term Versus Long-term
In the long-term, though, what determines rental rates are house prices and supply, said all our experts.
“So while an increase in the rental supplement, or the housing subsidy or whatever you call it, will have an effect in the short-term and will push up the rents and a certain amount will be captured by the landlord, it’s not the determining factor that sets the rent in the long-term,” Brackertz says.
Deciding whether or not to increase rent-supplement rates is a delicate public-policy question, says Justin Cartwright, the policy and public affairs officer at the Chartered Institute of Housing Northern Ireland.
It’s a balancing act between “not wanting to push up private rents or subsidise the profits of private landlords, and not wanting to cut off access to affordable, decent quality private rented homes for people on lower incomes”, Cartwright said.
“Increasing rent supplement levels might help in the short-term, but in the long-term, the best way of making sure people on lower incomes can access a decent home at a price they can afford is to build more homes,” he said.
Bottom line: in the current scenario, raising the rent supplement here in Ireland would likely to lead to an increase in rents for lower-cost housing.
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Really good article, I think the next question to be dealt with is supply of housing and how to increase it? Public vs private – apartment vs house – city centre v the burbs????
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