The Homelessness Crisis and Affordable Housing

Solving the problem of homelessness isn’t simply about making housing more affordable. There are different types of homelessness and if we really want to end homelessness in our lifetimes then we need better mental health services, more effective ways of tackling addiction and better emergency housing for those in need. That said, the current homelessness crisis is so bad because of the lack of affordable housing.

Am I banging on about affordable housing again? Yeah. Sorry. I’m even a bit embarrassed about it at this stage – it seems kind of pointless to post ideas for helping ease the housing crisis on a food blog. A food blog that doesn’t even get much traffic. I am beginning to wonder if I should set up a different site to post these on. One that’s more serious. One where I don’t break off in the middle of writing about whatever to talk about how I feel writing about whatever.

In Ireland this week there were three different stories in the news about individuals in homeless situations died; a woman in her 30s living in a tent in Cork, Jack Watson who was sleeping on the streets in Dublin, and a 26 year old mother living in emergency accommodation in Kildare.

We all know that solving homelessness is about much more than making the cost of renting and buying houses more affordable but the reason why homelessness is at such a crisis point at the moment is because a lot of people have found themselves having to register as homeless because either they couldn’t find accommodation or they couldn’t afford to pay their rent. Rents have risen sharply over the last few years. The same increase has not been seen in households generally.

I’ve made it clear a few times now that I think we need more social housing to be built and I think it would be foolhardy to expect the private developers to build high-quality, low-cost housing – where are the incentives – or more importantly the necessity – that would cause them to do this? I believe that high-quality, low-cost public built housing would cause private developers to up their game, to ensure that the highest building standards are adhered to and that they are delivered at the most competitive rates possible.

But that is not what I want to talk about here. I’ve briefly mentioned some ideas that I believe would cause more rooms to become available to rent at cheaper rates and these ideas don’t involve building or any expensive measures by the government – in fact they are cost saving or revenue generating – and they will encourage the market to move towards more affordable rents. Increasing the supply alone is not going to fix the problem, we need policies which actively encourage more affordable rents. The knock-on effect that affordable rents would have on not just on sales prices but also on deflating demands for higher wages is essential for the long term stability of our economy.

Three ways to free up rooms and houses:

1. Change the Rent-a-Room policy so that the amount of tax-free income allowed is based on the number and type of rooms being rented and have the rates linked to rent thresholds set by HAP.
2. Allow social welfare recipients who are homeowners let rooms in their home where they can keep 50% of the rent per week, up to a max of €50 per lodger (max two lodgers allowed), without it affecting their social welfare payment.
3. Allow homeowners availing of the Fair Deal scheme to sell their home. The HSE would get 22.5% of the sales price but the rest could be kept by the homeowner and does not affect their means test for the Fair Deal Scheme.

Change the Rent-a-Room Policy

Currently if you rent out a room (or rooms) in your home to private tenants, the rental income you earn will be exempt from income tax, provided this income does not exceed €14,000 per year. In 2014 the amount of tax free income allowed was €10,000. It was increased in the hopes of encouraging homeowners to rent out more rooms. It is not clear that it has had this effect and unfortunately it may have turned into yet another inflationary force on rents.

HAP, the housing assistance payment, has rent thresholds, these are the maximum amount of rent you should be paying in order to be eligible for the scheme. There is some flexibility with these thresholds because sadly, in areas of high demand – like Dublin, it is next to impossible to find anything for rent at the threshold prices.

In case you are wondering how I came to that conclusion – well, take a look at the prices for yourself. Searching on daft.ie I can find 1,639 adverts for renting rooms in owner-occupied properties in Ireland and 932 of those are for rooms in Dublin city and county. For the properties in Dublin if I set a max price range of €600 per month that number falls to 561. Of those, 100 properties are advertising rooms on a Sunday – Friday basis. Of those 100 properties, if I set a max price range of €450 per month the number of those listings falls to 28.

By the way I’m not proposing that this type of accommodation be made cheaper so that it’d be more attractive to people eligible for HAP. It is possible to get HAP in shared accommodation but obviously HAP is better used for more long-term housing with more secure tenants rights. The reason I am suggesting linking the amount of tax-free income allowed to the HAP thresholds for singles and couples in shared accommodation because this would encourage homeowners to let their rooms at these rates, which should in turn have a deflationary – or at least stabilising – effect on all rent prices in the market.

Obviously if homeowners wanted to rent room at higher rates they would be free to do so. They would just have to pay tax on the amount above the tax-free limits set.

So let’s get into the nitty-gritty of how the tax free limits would work. If you were to out a room (or rooms) in your home to private tenants, the rental income you earn per year that would be exempt from income tax would be based on your locality and on the type and number of rooms you let as follows:

There are currently no measures in place which use taxes to encourage more affordable rents. We have a housing crisis. Using the system above, homeowners would be able to earn a couple of thousand tax-free each year to help with bills. There wouldn’t be anything forcing them to rent at these rates but whatever they earned above these rates would be taxed and those taxes could be very useful in dealing with the housing crises – or even with unexpected crises – like the crazy floods in Donegal. If we want to stop rents spiralling up we need policies in place which actively encourage this. Changing the rent-a-room scheme as outlined above seems like it could be a relatively easy measure to introduce. I know that some homeowners will have budgeted for next with the current amount of tax free income but I think (I hope) there is enough awareness of the terrible impact the housing crisis is having on people’s lives that people would be willing to have this policy introduced in the next budget. Also remember that homeowners will not lose all the rental income, they will just be paying tax on the amounts above the tax free limits. Pretty easy to implement and it could help a lot.

To make for an even smoother implementation you could have a lower rate of income tax on rental incomes that were less than €14,000 – for home-owner occupied situations only. It would still be an incentive but one that would be easier for households that have budgeted with a greater amount of projected income next year.

Allow Home-owner Social Welfare Recipients Keep Some Income from Rooms Let in their Homes

Allow social welfare recipients who are homeowners letting rooms in their home keep 50% of the rent per week, up to a max of €50 per lodger (max two lodgers allowed), without it affecting their social welfare payment. I’m not sure that my explanation there is clear enough. Also when I suggested this idea in an earlier post I thought it should only roll out in area that are designated as Rent Pressure Zones. After reading about problems for tenants in Limerick city and finding out that Limerick is not an RPZ it would be great if this could be implemented throughout the country.

This idea came from one of my colleagues. I came up with the €50 weekly rental and a max of two lodgers and my reason for picking these figures was based on the few conversations I’ve had with social welfare recipients who are having trouble meeting mortgage repayments. It could make all the difference to some families.

It should go without saying but the examples I give below are purely hypothetical. They’re realistic but not based on anyone real.

How exactly would this work?

OK so very simply imagine Jack owns a 3-bed house which he inherited after the death of his mother. He is on Disability Allowance and his income is €193 per week. He lives alone. If he were to rent out rooms in his house his weekly DA payment would be cut euro-for-euro by whatever his rental income would be. But let’s say he was allowed keep up to two lodgers and keep 50% of the rental income up to a max of €50 per week, this could prompt him to let either one or two room in his home, each being let for (at a max) €100 per week. So Jack if he decided to rent out one room for €100 per week, he would get the €100 from his tenant, his DA payment would only be reduced by €50 to €143 per week and his lodger would have a room to rent at a reasonable price.

Or imagine Jill who owns a 4-bed house which she and her then partner bought 12 years ago. She and her ex have split up and she is now paying the full mortgage. Her ex is currently in treatment and not making any maintenance payments. She is the primary carer of their two teenage children. She was let go from work last year. She used the lump-sum redundancy payment to pay off part of the mortgage but she still has payments to make. She is quite stressed and finding it difficult to find work. She is thinking about renting out a room to help pay the mortgage. She gets €193 Jobseekers Allowance each week. Under the current rules if she were to rent out a room for €100 or €150 each week her JA payment would be reduced by that amount. She knows she would not get more than €193 per week in rent from a lodger so she is better off staying on social welfare. If she could rent out a room for €100 each week under the system proposed her JA payment would reduce to €143 (but she would have €243 rather than €193 each week), she would find it that bit easier to pay her mortgage and the person renting the room would have a room at a reasonable rate.

There are issues with implementing such a policy. For example it means that welfare recipients who are home owners are at a much greater advantage (income-wise) than those who do not. Which I personally would think was a terrible situation. But if this were to be introduced for the next 3 years as a temporary measure in order to ease the housing crisis – it would make rents more affordable, free up more rooms, it would be a great way to reduce costs for the Dept of Social Protection and it could help people who are having trouble paying their mortgage.

In 2014 the Mortgage Interest Supplement payment was quietly closed to new applicants. This measure would be a great substitute for those who suddenly find themselves unemployed with a mortgage to pay. It happens. Could be ill-health or just the business people are in. If there was something like this in place – just for the next 3 years till we see how it works in practice – it could be really great – and it saves the government money.

Allow Homeowners Availing of the Fair Deal Scheme to Sell their Home

The Fair Deal Scheme (Nursing Home Support Scheme) allows people to make a contribution toward the cost of their care based on value of their income and assets and the state pays the rest. You pay 80% of your income and 7.5% of the value of your assets. Your home is included as part of your assets but you only pay 7.5% of the value of your home for the first 3 years of your care – so the amount that you pay based on the value of your home is capped at 22.5%. I hope I’m explaining alright. Many people decide to defer payment of this 22.5% until it can be taken from their estate – that is the part of the Fair Deal scheme know as the Nursing Home Loan.

What I am suggesting isn’t going to be suitable in all cases – in fact it might only work for a small number of cases but allowing the homeowner sell their home, the HSE taking the 22.5% of the sales price there and then and then not including the rest of that money in the means test would mean the HSE, in those cases, would immediately have access to those funds, and the person in care would have the peace of mind that they still have a nice lump sum to take care of things. I think this makes sense for families, for the housing market and for the HSE.

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It’s not enough to increase supply, we should be actively encouraging more affordable rents through taxation and other policies. None of the recommendations above require any new departments or agencies to be set up. There are no obvious costs and there are some very obvious savings.