Department of Housing officials had concerns that expanding eligibility for cost-rental homes to better-off renters could disadvantage those on lower incomes, show internal documents.
Officials recommended issuing guidance to housing charities to try to make sure that doesn’t happen, and to track whether it does, show documents released under the Freedom of Information Act.
They’re also looking at whether particularly vulnerable groups of renters should be prioritised for some homes.
In July last year, Housing Minister Darragh O’Brien, the Fianna Fáil TD, changed who could apply for cost-rental homes, to include more renters.
In Dublin, households earning up to €66,000 after tax can now apply, replacing a lower limit of €53,000.
“The increased thresholds recognise that prevailing rents in the private market have increased significantly in recent years and a large cohort of private renters are experiencing severe affordability challenges, particularly in Dublin,” said a department statement at the time.
But the change was driven as much by concerns from housing charities that schemes weren’t viable as by the desire to accommodate more people struggling with rising market rents, suggest Department of Housing documents.
Rents in cost-rental schemes are set based on the cost of financing, building and maintaining properties – and, in Ireland, can include a bit of profit. They have to be 25 percent lower than market rents. Another parameter is that households can’t usually spend more than 35 percent of their net earnings on rent.
Upping the income limits means approved housing bodies (AHBs) can spend more to build or buy homes, as higher-income renters can pay more rent to cover those costs without tipping over the 35-percent line.
A concern is that it then risks leaving out renters who have just a little too much income to have a shot at a social home or the housing assistance payment, but not enough to qualify for cost-rental.
John Hannigan, the CEO of Circle Voluntary Housing Association (VHA), said he doesn’t think AHBs have seen any squeezed-out cohort emerge yet.
Circle VHA has quickly filled its developments, and he hasn’t heard about people on lower-incomes being shut out of schemes, said Hannigan, although further house prices rises could mean it’s a risk.
Spokespeople for other AHBs said the same. But figures for recent rounds of Land Development Agency cost-rentals suggest a gap has been emerging.
And department officials have been working on guidance to AHBs to make sure they offer cost-rental homes to those on lower as well as higher incomes, and to monitor with anonymous data who gets the homes.
They are also considering whether, after more policy work, the minister might introduce in law more rigid rules to direct AHBs to prioritise particularly vulnerable cohorts – but who might be included under that is redacted.
A spokesperson for the Department of Housing said that the minister, O’Brien, has approved the proposal to issue guidance around selecting tenants.
That guidance is currently being drawn up, based on engagement with cost-rental providers, said the department spokesperson. “It’s important to note the guidance has not yet been finalised.”
Setting up mandatory reporting to see how well the guidance shapes who gets picked would take secondary legislation, the spokesperson said. “The Department is working to assess the scope of necessary legislation. It has not yet been put in place.”
Where is Dublin’s cost-rental?
While cost-rental schemes have been built or bought in Dublin’s suburbs, they’ve been slow to appear within the city.
A Dublin City Council report from March counts a pipeline of 3,360 cost-rental homes in the city. But just 137 of those are scheduled to be done by the end of 2025, it says.
Viability has been under pressure for cost-rental homes in Dublin, suggest government briefing papers. Viability means being able to build the homes at a cost that would be coverable by the rents that cost-rental landlords are allowed to charge.
Capping eligible household incomes at €53,000 – which had been unchanged since December 2021 – had meant rents in cost-rental could go up to €1,546 a month, said a paper for the minister on 7 June 2023.
But “as capital costs of acquisitions have risen, and the interest rates on new [Housing Finance Agency] loans have been increased, cost-covering rents have crept up towards this €1,546 figure, particularly for larger, more costly units in Dublin”, it says.
And even if there are in theory tenants with incomes at the top of the eligible cohort who can afford the charged rents, the size of this pool of tenants has shrunk, it says, “undermining the essential element of AHB confidence that non-payment or voids can be kept to a minimum and any vacancies swiftly filled”.
Also, it says, the value of the €53,000 income limit has been eroded by consumer inflation since it was set in December 2021.
And, “the department has a clear view that the current challenges for private renters are very severe, with the income cohort that are dis-advantaged by market rents growing all the time, with the immediate and resulting need to address these affordability challenges”.
To ensure the viability of the Cost Rental Equity Loan (CREL) scheme, which is the main funding scheme for AHBs – and of future LDA and private-developer projects – the state needs to increase the income threshold, it says.
Raising the threshold to €62,000 would free cost-rents to rise to up to €1,808, it says. (In the end, it was raised further than that – up to €66,000, allowing cost rents in theory to rise up to €1,925.)
“One of the reasons for needing the higher threshold was that the costs of some of the housing was going up quite significantly,” said Hannigan, the CEO of Circle VHA last week.
Circle VHA hasn’t seen an issue yet with a gap between their cost-covering rents and what cost-renters can pay, but it was a future risk, he said.
And, if you take a single mother with two children for example who might need a three-bed home, to afford that, the income level or a 35 percent threshold could easily get eaten up very quickly, he said.
Part of the solution has been to lower the costs of delivering the homes, he says.
That was behind changes like increasing the percentage of capital costs that AHBs get through the CREL funding scheme – up to 55 percent from 45 percent, he said.
But the other side of the equation has been to open up who can apply.
Who should be targeted?
Hannigan said the lottery system they use to allocate cost-rental homes wouldn’t allow them to cherry pick higher-income renters. Spokespeople for other big AHBs said the same.
“If you have the basic qualification criteria, you are in the lottery regardless,” he said.
A concern, though, raised in the June 2023 note to the minister, is that allowing those on higher incomes to apply could pave the way for cost-rental landlords to structure their whole financial models on the assumption that all applicants will have incomes towards the top of the cohort.
In other words, only those on higher incomes would be eligible to be in that lottery in the first place.
One brake on that would be to issue guidance on selection that includes allowing those on lower-incomes to spend more than 35 percent of their income on their rent if they’ve previously shouldered a higher rent, says one department discussion paper in May last year.
A spokesperson for the housing charity Clúid says they have some flexibility already around that.
“If applicants earn less than the recommended household income, we give them the option to evidence that, while on their current income, they have paid the same rent or higher for the preceding two years without defaulting,” they said.
A spokesperson for the housing charity Respond also said they recognise the diverse financial situations of tenants and are flexible towards those with a track record in paying higher private rents.
“This approach is complemented by our tiered pricing strategy within our cost-rental projects, which is tailored to accommodate a wide range of community members,” said the Respond spokesperson.
Representatives from AHBs had differing views, though, on the possibility of being directed to target particular renters at risk of higher deprivation.
Hannigan, the CEO of Circle VHA, said he would be worried extra targeting would bring bureaucracy. “Anything that puts more conditions into it makes it more difficult to do.”
And it would add in admin costs, he says, which could feed into higher rents.
Longer-term, Hannigan imagines them scaling up to add so many cost-rental properties that they won’t need a lottery system at all, he says. Instead, it would be first-come, first-served.
A spokesperson for Respond said they would be open to prioritisation. They recognise that certain groups face more barriers to housing stability, they said.
“Prioritisation mechanisms can play a crucial role in ensuring that our housing efforts reach those most in need, and we are very open to considering policies that facilitate this approach,” they said.
Hannigan says that cost-rental has been really successful as a tenure to date. “Anybody who has gotten into it so far, their homes have been let very quickly.”
He thinks you can already see in Waterford a dip in market rents because of cost rentals built there, he said. “We see it in what’s being asked.”