The article below is the third in a four part series that examines Fine Gael housing policy and answers some of the most common questions that people ask about housing. You can read Part One here and Part Two here. Part Four will be published on this website in the coming days.
Government Housing Policy Explained - Part Three - Why The Government Is Handing Billions Of Euros To Private Landlords.
Fine Gael is handing about €2,400,000 (€2.4m) of public money per day to private landlords. The bill for renting ‘social housing’ from the private sector for all of 2019 will be about €900m.
This money is dispensed through a number of schemes including the Housing Assistance Payment (HAP), Rent Accommodation Scheme (RAS), Social Housing Current Expenditure Programme (SHCEP), Rent Supplement and the Emergency Accommodation Budget.
Despite their different names, the core function of each scheme is the same. All of them use public money to rent accommodation from the private sector. That accommodation, which includes everything from entire apartment blocks to a single bed in a B&B, is then used by the state to fulfill its obligation to provide ‘social housing’ to low income individuals and families.
The overall spend on these schemes since the turn of the century will soon hit €10,000,000,000 (€10bn). Fine Gael, Fianna Fail, Labour and The Green Party, during their respective periods in government, all played their part in transferring this staggering amount of public money to private landlords.
That TEN BILLION euro could have been used to build 55,000 homes that would have been permanently owned by the state - 55,000 homes that would have provided secure, affordable homes for hundreds of thousands of families over many decades - 55,000 homes that would have provided the state with a significant ongoing rental income.
So why didn’t that happen? Why is Fine Gael squandering so much public money on temporarily renting from the private sector instead of building permanent public housing?
As with so many other aspects of government housing policy, the answer to this question has more to do with banking than it does housing (read more about this here).
Handing billions of euros of public money to private landlords for the temporary rental of ‘social housing’, instead of building permanent public housing makes no sense from a housing policy perspective.
But it makes perfect sense from the perspective of a government that wants to return the banks to full private ownership by selling its shares in Bank Of Ireland, Allied Irish Bank and Permanent TSB.
Unfortunately for the government, private investors just don’t want to buy shares in banks that are deemed to have to have weak loan books and insufficient potential for future profitability.
This is exactly how Irish banks are seen by investors at this point in time. ‘Buy-to-rent’ mortgages that were taken out by landlords during the Celtic Tiger are a particularly problematic element of the loan books of the Irish banks.
Improving the loan books and future profitability of the banks is, therefore, necessary for the government to achieve its objective of returning the entire banking sector to private ownership.
And this is where HAP, RAS and the other schemes come into play.
These schemes provide private landlords who engage with them with a state-backed, guaranteed income. This in turn allows landlords to pay their mortgages and other bank debts, thus improving the loan books of their respective banks.
The impact of these schemes, however, stretches far beyond the landlords who engage with them. They have also provided very significant artificial stimulation to the entire private rental market, as tens of thousands of families that would historically have been housed in state-owned ‘social housing’ are now instead renting in the private sector, with the state picking up the bill.
The scale of this state stimulation of the private rental market can only be described as massive. There are currently about 80,000 homes being de facto rented by the state from the private sector via HAP, RAS, SHCEP and other schemes.
The Rental Tenancies Board recorded the total number of private tenancies in the state at 325,000 at the end of 2016. Assuming no great change since then, this means that roughly one in four tenancies in the private sector are now being partly or totally funded by the state. The state is also footing the bill for housing an additional 10,000 people without homes who are being accommodated in privately owned hotels, B&Bs, hostels, family hubs and other forms of emergency accommodation.
Increasing demand on such a massive scale in the private rental market was always going to cause rents to rise significantly. In fact, that is exactly what it was designed to do.
In a market where landlords can now name their price, desperate HAP-backed tenants are competing with equally desperate non-HAP tenants to secure a roof over their heads. In extreme cases the state is even competing with itself as HAP tenants compete with each other to secure a tenancy with the same landlord.
Even landlords who refuse to engage with HAP, RAS and the other schemes have seen the benefit of the government pumping billions of euros into the private rental market. A rising rental tide lifts all landlord boats.
Increased rents across the entire private rental sector is good news for the banks. It means that all landlords are in a better position to pay their existing mortgages as well as to take out additional loans for refurbishments and new properties.
The booming rental market has also helped to drive up purchase prices as landlords compete with each other and with owner-occupiers to buy up the limited supply of houses and apartments. The specific role that multinational corporations are playing in buying up housing will be addressed in Part 4 of this series.
Rising property prices are, of course, good news for the banks and the government strategy to re-privatise them. Increased property prices improve the existing loan books of the banks, while new mortgages improve them even further.
HAP, RAS and the other schemes mentioned above aren’t just part of a government strategy to bring ‘normality’ to the banking sector. They are also part of a strategy to privatise the provision of social housing that began long before the banking crisis.
In a text-book application of the shock doctrine, the banking crisis provided the opportunity to accelerate the privatisation of social housing - an opportunity that Fianna Fail, The Green Party, Labour and Fine Gael seized with great enthusiasm.
Despite all of the recent rhetoric from Eoghan Murphy about the government stepping in to directly solve the housing crisis, the direction of travel is not going to change. The private sector will still be entrusted with not only delivering private housing, but ‘social housing’ as well.
A fanatical belief in the ability of the private sector and the ‘free market’ to solve all problems is ingrained into the very DNA of Fine Gael. It makes Fine Gael, Fine Gael.
All of their housing policy is informed by that belief, as will be further demonstrated in the fourth and final part of this series, which will explain the role that vulture funds, REITs and other multinational corporations play in Fine Gael’s plans for the banking and housing sectors.