Tuesday, October 20, 2009

Why MakeRoom are Wrong on rent subsidy cuts

It was interesting to hear the "news" about a number of different housing NGOs creating a "new" coalition called MakeRoom. Actually it transpires that this has been quietly going for a while. One thing I have consistently foud problematic about NGOs such as Threshold, is while they largely emphasize services for the homeless community, who in Ireland make up a figure of anything between 4500 and far more. In reality the true figure isn't really known, and it doesn't include a massive community of people "at risk" or in genuinely substandard housing (which probably includes the vast majority of people living in Victorian conversions, which are especially notorious for extraordinarily low housing standards). This figure I think runs into tens of thousands. Then the proportion of people on low incomes paying more than 30% of their after tax income in rent. And finally, a large group, currently managing ok, who would not qualify for rent subsidy in the event of loss of employment, because their current rent exceeds rates payable.

In fact it turns out that MakeRoom has existed since 2001. (Strange we're only hearing about it after 8 years). Their current campaign is to stop the policy of reducing rent supplement limits to welfare recipient tenants (who are subsidised) and I presume also, increasing the level of contribution from the tenant, which has also gone up.

The real problem is, however, that even now, a single person whose only realistic employment option in the event of getting a job is a low paid minimum wage job, is entitled by law, to a subsidy of up to 115 euros per week towards rent. This effectively means that the cumulative value of rent subsidy plus dole payment of 295 euros per week (as well as entitlement to a full medical card). If the same person gets a 37.5 hour job on the minimum wage, they take home the princely sum of €302.02 per week. What this effectively means, is that rent subsidies either a) inflate welfare tenants "package" to above that of a full time worker and more critically b) it also inflates the value of the package to a level they may have real difficulty in achieving in the world of work. To top it off, it effectively "entitles" single people to a type of living they realistically in most cases will not be able to afford unless they remain on welfare in perpetuity. This is not a welfare trap, its giving people a package that is not necessary and not based on real needs.

Because the reality is, that the vast majority of low earners bringing home the modest sub 17k a year earnings that the minimum wage will bring home, will not see themselves as able to afford a place on their own. They will share a place until their income increases to such an extent that they can either afford to buy or rent a better place. They do not see an entitlement to individual living. And in reality there is huge evidence to suggest that entitling vulnerable and often transitory people to single units is not only harming those people themselves in terms of societal alienation, its condemning them to slum households, with little or no supports.

The reality is that rent subsidies are nothing but a sticking plaster for the real problems of housing needs. A large proportion of the homesless community are effectively unhousable outside of sheltered accomodation due to addiction problems or mental health issues. In the US, the Nation suggests that there is a large correlation between "off grid" living and homelessness as a means to evade legal detection, often for relatively minor infractions. As a result, rent subsidies are not going to people who might otherwise be homeless. Indeed, until a few years ago there was no requirement to have no other housing options to qualify, and this was not checked, with the result that people who could have easily lived with family who had plenty of space were given housing subsidy, and many will still be in the system. This was changed in 2002 in response to escalating rents. Only at that point did "needs" requirements come into place. But people already getting the subsidy continued to receive it regardless of whether or not they would have qualified under the new arrangements.

Secondly, there is no reason why an adult without dependants should automatically qualify for a whole unit. If this entitlement was removed (and back checked, so that those currently getting this without a proven need would be forced to move to shared accomodation within a reasonable timeframe), the amount of individual units freed up would force massive drops in rents and force these units to the standard requirements of the open market in order to compete.

Because this is the fundamental problem with rent subsidies. They have effectively acted as an artifical floor for rents since the end of the 1990s. Landlords who accept it automatically charge the highest possible rent payable in order to maximise their profit, as they can always be sure of getting a desperate tenant, regardless of how much of a slum the place actually is. The unintended consequences for this is not only much higher rents for everybody, but especially those who can least afford it, but total statis in rent falls in this sector and appalling substandard levels in this segment.

This is why the payable levels are being cut - there is real evidence that this subsidy has massive helped inflate market rents. And it has caused far greater levels of hardship amongst working tenants, who are as a result often on much lower real incomes due to credit obligations and the costs of working. It has also created a ludicrous situation where a large proportion of the population are better off on welfare than working. This has diminished real choice for large segments of the population.

The only other time in history when rents have fallen historically was 2002.

Why was this?

That was the year in which rent subsidies were frozen, the qualification requirements restricted and real needs taken into account. Of course the anti poverty industry cried out in anger, but there has been little evidence since of massive increases in homelessness directly related to this.

That year, rents, which had been escalating at a rent of 200% every 3 years, suddenly stayed level.

They started increasing a year later.


Because the government stupidly started increasing rents "in line with inflation" again. Landlords responded by taking the extras for themselves. And continued to do so every increase since.

Now there is a real problem at stake. The big issue is that the "arrangement" is not between the state and landlord, its between state and tenant. So the sudden decreases in subsidy and increased payments are directly hit at the tenant. They can ask landlords for reductions, but many will be on leases and not entitled to it, and landlords are perfectly within their rights to refuse them (knowing full well that they may not leave).

On the other hand, a lot of landlords who previously refused welfare tenants as a high risk (rather than as a way of evading detection for not declaring taxable rental income) are suddenly accepting welfare tenants, however reluctantly. It would be very interesting to see how this pans out.

I would suggest the following:

A real commitment to proper sheltered facilities for current homeless who in reality are in many cases in need of supported living
An end to using rent subsidies as a sticking plaster solution - restrict time on it to 12 months and serious reviews in place after that to assess if the tenant is genuinely seeking work
Housing for disabled and those with mental illnesses (no not depression, thats generally a scam) to be a priority, especially for families
Long term leases of vacant unsold properties currently under the NAMA remit for public housing - this would hugely reduce waiting lists
Better standards for existing properties in the social housing system - these are shockingly grim at present
Here's a good one - end entitlement for non disabled single tenants to subsidy on a single unit - but compensate for this by increasing the maximum rent for sharers
In order to facilitate this, make section 50 properties available also to people on rent subsidy - increasing potential tenant pools and more choice for tenants, not to mention way better standards
Encourage the formation of housing co-ops for low to middle income tenants who are shut out of home ownership
Prioritize housing for vulnerable groups such as lone parents, with appropriate supports such as access to education and childcare
Regular assessment of needs in line with changes in circumstances, but please don't even think of the appalling idea in the McCarthy report of removing social tenants just because they got a job - better living standards for tenants will lift the standards of the entire area

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