Cian O’Callaghan: State’s over-reliance on leasing to address social housing crisis is dangerous

Locking local authorities into long-term leasing arrangements benefits investors but makes little sense for the government

30th April, 2021
Cian O’Callaghan: State’s over-reliance on leasing to address social housing crisis is dangerous
The state’s own social housing construction has all but ground to a halt. Picture: RollingNews.ie

In a letter to Fine Gael members announcing his resignation from the Dáil this week, Eoghan Murphy noted that, as minister for housing between 2017 and 2020, he had achieved “the largest spend on social housing in a decade”.

When it comes to social housing provision, our aim should not be to spend the most but to achieve better outcomes. If Murphy and his successor, Fianna Fáil’s Darragh O’Brien, wish to assess their performance, there are two important metrics: how many households have their housing needs met and how secure are their tenancies?

There are more than 140,000 households on waiting lists for social housing and living in insecure HAP tenancies. More than 8,000 people, including 2,000-plus children, are homeless and living in emergency accommodation.

In its efforts to address this crisis, the government has opted to turn it into an investment opportunity. Increasingly, social housing provision is being commodified, with investment funds pouring money into developments which are then leased to local authorities for up to 30 years. When the term of the lease ends, the developer retains full ownership of the home and the tenant is at risk of eviction.

Even Part V of the Planning and Development Act, under which local authorities purchase 10 per cent of new developments for social housing, has been amended to facilitate long-leasing.

Since 2015, developers have been able to offer long-term leases, instead of acquisitions, to meet the Part V requirements of the Act. Until recently, the number of Part V leasing arrangements concluded had been very low. There is evidence, however, that its popularity is dramatically increasing.

Analysis by the Business Post earlier this month of 11 pending Part V lease deals found 384 homes would be leased, for terms between ten and 20 years, at average rents of €20,334 per unit a year. This translates into an annual rental cost of €7.8 million or €181.6 million over the term of the lease.

Meanwhile, documents released to me under Freedom of Information show Dun Laoghaire Rathdown County Council signed a multi-million-euro lease deal for 25 years with a developer without undertaking an independent valuation of rental cost. In that instance, the local authority agreed to monthly rents per unit of €2,300 – significantly more than the standardised average rent for the area of €1,800 per month.

The government may claim these measures are designed to meet a chronic housing need. But what they have created is a perfect storm of lax oversight and developer-centric deals which are driving up housing costs – and denying the state the opportunity to add to its permanent social housing stock.

Leasing, as a panacea to the housing crisis, is a policy that is openly championed by this government. As well as the Part V leasing provision, there are a multitude of other leasing schemes that developers can use to supply social housing.

With rents having increased by 62 per cent over the past ten years, compared to an average increase across the EU of just 14.9 per cent during the same period, there are no prizes for guessing why social housing is suddenly big business.

Last year CBRE, the commercial real estate company, noted it had seen “increased demand for investment in social housing with investors (domestic and international) keen to acquire residential units and schemes let to local authorities on long-term leases”.

Meanwhile, earlier this week, a social housing portfolio of properties in Finglas, Tallaght and Blanchardstown was guiding at €21 million – a price informed by an annual gross rental income of €952,000 per annum.

Locking local authorities into long-term leasing arrangements, when rents in Dublin are more than 30 per cent higher than their 2008 peak, may make sense for investors seeking a good return but it makes little sense for the state.

This is not just my opinion. It is also the view of a report from the Department of Public Expenditure and Reform which concluded that entering long-term leasing agreements, given the current rental market, was bad value for money.

While the state rushes into long-term leasing arrangements at the top of the rental market, its own social housing construction has ground to a halt. In Dublin one local authority, Dun Laoghaire Rathdown, didn’t manage to build a single social home throughout 2020 while Fingal managed a derisory 24.

Continued obstacles and bureaucracy by central government, which impede local authorities from building social housing, force them to turn instead to the private sector.

Before any more damage is done, it is time to review the state’s over-reliance on long-term leasing as a means to provide social housing. At the very least, the Minister should immediately close the loophole that allows developers’ Part V obligations to be satisfied using long-term leases.

To that end, I am bringing forward an amendment to legislation, which will be debated in the Dáil this week, to ban leasing for Part V arrangements. I hope the government will support this bill and commit to ensuring a sustainable supply of social housing and value for money over the long-term.

Cian O’Callaghan is a Social Democrats TD for the Dublin Bay North

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