I thank the committee for inviting us to discuss the findings of our report on the future of council housing. The opening statement sets out the objectives of the report, explains how it was researched and summarises its key findings and recommendations. The research was funded by two anonymous donors via the Community Foundation for Ireland and we are very grateful to these individuals and to the Community Foundation staff for their support. The project was inspired by the severe shortage of social housing in Ireland currently, and the problems regarding housing affordability and homelessness which this has caused.
In the past local authority-provided council housing would have been used to meet these needs but the past three decades have seen a significant reduction in the traditional role of council housing as the main source of accommodation for low-income renters. In 1994 council housing tenants accounted for 73% of the low-income renting households in receipt of Government supports but this had fallen to just 53% by 2016. In part, this development reflects the decline in housing output following cuts in funding after the economic crisis of the late 2000s. Total public funding for new council housing fell by 94% between 2008 and 2013. It also reflects longer-term issues such as the long tradition of selling council housing to tenants, which dates back to the 1930s. However, fundamentally, it reflects a redirection in housing policy and increased emphasis on using other housing supports for low-income households, such as not-for-profit sector approved housing bodies, AHBs, and Government subsidies for private rented housing, such as rent supplement and housing assistance payment, HAP.
The various housing policy statements which have been published since the 1980s flag several reasons for this increased reliance on alternative means for accommodating low-income households. Among these, the affordability of funding the sector for the Exchequer and the value for money achieved for this investment are the most intractable problems raised.
These funding challenges raise questions about the capacity of the Government to fund the delivery of sufficient additional council housing to accommodate applicants for social housing and homeless households, as envisaged in Rebuilding Ireland. They also raise more fundamental questions about the financial sustainability of the council housing sector, its decline since the 1980s and whether this decline can or should be reversed. The research aims to answer these questions by assessing the financial sustainability of council housing and generating recommendations to increase its future financial sustainability so that the supply of dwellings in this sector can be increased in a way which is affordable for the Government and provides a high quality and affordable housing service for tenants.
To implement the research, we carried out an extensive series of interviews with housing policymakers, together with case studies on the funding, management and maintenance of council housing in five local authorities. These case studies examined spending on council housing provision, management and maintenance issues, allocations policy, rental income adequacy, sales of dwellings to tenants and associated policies and procedures. We acknowledge the invaluable contribution of the five local authorities that participated in the study and are grateful for their time. We also held a half-day seminar, hosted by Dublin City Council, at which we debated the preliminary findings of the research with council officials from around the country.
I will now outline the conclusions of the study for the committee. The study indicates that council housing plays a critical role in housing low income groups particularly in urban areas where rents are high, housing supply is limited and subsidies for private rented housing such as rent supplement and Housing Assistance Payments, HAP, are difficult to operate. Approved Housing Body, AHB, social housing provision also plays a valuable role in housing low income households but homelessness cannot be addressed successfully without higher rates of council housing output. The central and local government officials interviewed for this study agreed that funding for new council housing provision had been cut too far during the economic crisis of the late 2000s and was increased too slowly as the economy and public finances recovered afterwards.
The report flags strong concerns about the financial sustainability of the current model used to fund the capital costs of council housing provision. This is currently done using central government grants, which cover the full costs of building or buying council housing upfront in a lump sum. This model is challenging for the Exchequer to afford, particularly when the public finances are under strain. As a result, council housing output has also been strongly pro-cyclical in recent decades. It has increased as the economy and the housing market has boomed and declined radically during periods of recession. This is inefficient from an economic perspective because investment in council housing reinforced rather than counterbalanced the building bust in the late 2000s. It also achieves poor value for money because spending is concentrated at the peak of economic cycles when land and construction costs are likely to be higher while during recessions, when costs usually fall, funding for council housing provision also declines. The boom-bust pattern of central government investment also generates staffing inefficiencies because many local authorities radically reduced staffing in their housing delivery and design departments when funding for council housing output was reduced in the late 2000s and had difficulties in increasing their staffing again when funding increased during the economic recovery.
A large number of interviewees from the local authorities expressed dissatisfaction with the Department of Housing, Planning and Local Government's speed of payment of capital grants for council housing provision and the extent of its scrutiny of funding applications. They also questioned the value of this scrutiny. However, the Department representatives we interviewed argued that these controls were necessary to ensure adequate oversight of Exchequer investment.
Despite the severe shortage of council housing in many parts of the country, local authorities are still obliged by central government to sell council housing to tenants at a discount of up to 60% of market value. The study highlights a significant dependence by local authorities on income from sales to fund council housing management and maintenance. Local authorities have a perverse incentive to sell council housing on at a loss. In accounting terms, the costs of selling houses to tenants are also disguised because the market value of council housing is not recorded on local authority accounts and the proceeds of sales are recorded as revenue. This system conveys the impression that sales generate a profit whereas the sale price rarely covers the cost of replacing these dwellings.
The revenue costs of council housing management and maintenance are funded by rents paid by tenants which are determined on the basis of their income. This model has significant equity and anti-poverty benefits, particularly in view of the low average incomes of tenants in this sector. However, it is problematic from the point of view of the efficiency of the housing service because there is no guarantee that revenue funding from rents will be sufficient to fund the management and maintenance of dwellings. There is no relationship at all between rents and the costs of providing social housing. The evidence presented in this report indicates that rents do not generate enough money to maintain council housing properly. Almost all of the rental income received is devoted to response maintenance, that is, responding to tenants’ maintenance requests. There is under-investment in planned maintenance, that is, the repairs and upgrading that are necessary to protect the fabric of dwellings and improve standards. There is an over-reliance on central government funding schemes for estate regeneration, refurbishment of empty dwellings and to fund repairs to dwellings that would usually be carried out as part of planned maintenance programmes. This is an inefficient and costly approach because the costs of deferred maintenance do not simply accumulate; they multiply. Dwellings that have not been maintained for long periods require much more spending to upgrade than dwellings which are regularly maintained. Arrangements for funding the revenue costs of council housing provision have played an important role in shaping these inefficiencies. The low level of rent charged to council housing tenants and the disconnect between the rents charged and the costs of the housing service means that local authorities have neither the resources nor the incentive to maintain dwellings efficiently or to ensure they are swiftly re-let when they become vacant.
There was also a strong consensus among the council officials interviewed that there are significant regional differences between the needs of urban and rural local authorities. In the case of authorities with rural operational areas, price pressures were lower, housing could be procured from the market reasonably efficiently and subsidies for private renting households such as HAP and rent supplement operate reasonably effectively. In urban areas, by contrast, the costs of council housing provision and maintenance were much higher, affordability problems for households were much more acute, the subsidies for private renting households were difficult to operate and demand for council housing was much stronger. However, the model for funding council housing is the same in both urban and rural areas, which many interviewees felt was inappropriate. Some representatives of rural authorities felt a more efficient and less intrusive version of the central government grant system would be adequate for their needs in delivering adequate council housing supply. Urban local authority representatives complained that the property tax system redistributes income raised in urban areas to rural areas, which, in practice, means that revenue is redistributed from areas of high housing need to areas where housing need is lower. They argued that urban local authorities should be allowed keep a higher proportion of property tax revenue if it is spent on council housing provision. Some interviewees suggested that together with rents which reflect the costs of housing provision, revenue from property tax could be used to service loans to build council housing. This would approach would help to smooth out the peaks and troughs in investment in this sector and higher rents would incentivise local authorities to ensure their dwellings are quickly reoccupied after tenants leave.
The report sets out a comprehensive suite of recommendations intended to strengthen council housing's financial sustainability in order that the supply of dwellings in this sector can be increased in a way that is affordable for Government and provides a high quality and affordable housing service for tenants. Some of the recommendations address relatively minor administrative and management changes such as requiring local authorities to ring-fence income from rents to spend on council housing, which is not done currently, removing maximum rents from council housing rent determination schemes; and allowing for the compulsory deduction of council housing rents from social welfare payments. The report also recommends that local authorities regularly conduct comprehensive condition surveys of their housing stock and that the local government accounting code of practice be reviewed to bring it into line with international standards of transparency and disclosure for councils' housing operations. It further recommends the valuing the council housing stock and the recording of valuations in local authority accounts as well as the condensing and streamlining of the Department's approval process for new council housing developments.
In terms of more radical reforms, the report suggests suspending the tenant purchase scheme for council housing at least for the duration of the current shortage.
It also suggests removing the availability of successor tenancies, that is, the ability of a council housing tenancy to be inherited between parent and child, building smaller council housing units to enable tenants to downsize and free up larger dwellings for larger families, enabling urban local authorities to keep more property tax revenue to spend on council housing, and using income from property taxes on council housing to enable councils to establish sinking funds to fund long-term maintenance. Extending the shared services model was also mentioned. That has been used to reform some local authority services and to organise some council housing services on a regional basis.
There is also a set of more radical suggestions in the report for restructuring of arrangements to fund council housing. These include linking the rents of council housing to the cost of housing provision and not to tenant incomes, making HAP available to council housing tenants who cannot afford pay cost rents to ensure affordability is protected, and enabling local authorities to borrow some or all of the costs of council housing provision and to remunerate these loans using cost rents and the proceeds of property taxes.