By David Phelan and Lydia Bentley
Introduction
Ireland and in particular, Dublin, is in the midst of an ongoing affordable housing crisis driven
by strong demand and limited supply, so there is no doubt that it is the right time for
innovative solutions. The Programme for Government 2020 notes that improving the
standards, security and affordability for renters in Ireland is a priority for the Government and
it is clear that new solutions are needed in the housing sector. The stated object is to deliver a
cost rental model of housing that will create affordability for tenants and a sustainable model
for the construction and management of homes. Ireland has looked to international
experience to address current issues and has begun implementation of a number of cost
rental schemes. According to the latest legislative programme, the Land Development
Agency (LDA) will soon be placed on a statutory footing which will enable it to deliver on its
stated objectives of increased housing provision and specifically the employment of cost
rental schemes.
The Cost Rental Model
The cost rental model is a way in which a state or local authority can provide affordable, high quality rental accommodation to low or middle-income earners. The rent charged only covers the cost of delivering, managing and maintaining the home and therefore, the rent is not
driven by market movements. It is considered that this move away from purely market driven
rents should provide an affordable and sustainable solution for renters. The total cost of the
housing development is divided by the amount of homes to establish the rent which is spread
out over the lifetime of a long-term building loan. This means that rent is affordable over the
long-term and it can be implemented by linking household income to the actual costs of the
housing development. International experience shows that cost rental models can underpin
stability, choice and affordability in housing markets for rent and purchase. Generally, these
schemes are targeted at moderate-income households, although income thresholds
governing access may vary depending on location. For cost rental models to operate
effectively there is usually some form of subsidy offered, for example, the provision of low cost finance,
preferential access to land and loan guarantees.
Cost Rental Across the EU
Cost rental plays a major role in successful social housing schemes across Europe. It can be
found in countries such as Austria, Denmark, France, Finland and the Netherlands. It is also
applied to social housing associations in Northern Ireland that set rents based at a level that
cover the associated costs of delivery. In Austria and Denmark, housing providers are legally
obligated to ensure rents cover the costs of provision. While social housing providers in
Finland and France are permitted to balance costs over a number of projects so that
aggregate rent covers aggregate cost. In Finland, cost rental provisions are mandated for a
fixed period (usually 45 years). After this timeframe, rent can be determined by prevailing
market conditions or the property can be sold. In England, rents are determined using a rent
formula which includes property values and local earnings and takes the number of rooms in
the property and rental caps into account. Cost rental funding also allows independent
housing bodies to avail of diverse sources of capital funds.
The Vienna Model
The Vienna Model of housing uses a cost rental approach. It is roughly based on a type of
tenancy popular in the Austrian capital. It is internationally regarded for providing sustainable,
high quality residential developments that delivers housing for all. Tenants can acquire rights
during their tenure and may be able to purchase their apartments outright if they are in a
financial position to do so. The Vienna Model does this by adopting a general needs approach
to housing provision and delivering secure, long term and innovative public rental housing in
well-designed neighborhoods. In Vienna, higher income earners can also access the public
housing sector. Up to two thirds of Vienna's 1.9 million population live in public housing in each
one of the 23 city districts.
Implementing Cost Rental in Ireland
There are already a number of cost rental pilot projects currently underway in Dublin. These
include schemes in Sandyford, Co. Dublin known as the Enniskerry Road Project, St. Michael’s
Estate in Inchicore Dublin 8 and Shanganagh, Co. Dublin.
The Enniskerry Road Project is a scheme being delivered by Respond and Tuath Housing
Associations in partnership with Dún Laoghaire-Rathdown County Council. It aims to deliver
105 social homes and 50 two-bedroom cost rental homes. The properties will be
professionally managed by these Approved Housing Bodies. As with all tenancies managed
by Approved Housing Bodies, the tenancies are subject to the Residential Tenancies Acts
2004-2020. The land for the scheme is being provided by the Housing Agency and must be
used for cost rental for at least 70 years. Funding is being provided through the Housing
Finance Agency and the Department of Housing, Local Government and Heritage. The
scheme is expected to be delivered by late 2021.
At St Michael’s Estate in Inchicore there will be approximately 500 units, 30% will be social
housing and 70% will be based on a cost rental model. The land being used for this scheme is
public land so rent will be calculated based on the cost of construction, management and
maintenance of the development.
At the launch of the plans for the Inchicore project the then Minister for Housing, Planning and
Local Government Eoghan Murphy, indicated that the scheme will be aimed at households
with a maximum income of €50,000 (single income) or €75,000 (dual income). The cost of
renting a two-bedroom unit in each of these schemes is currently estimated to be €1200. This
is markedly below the market rent in both areas.
The largest scheme to date is being undertaken by Dún Laoghaire-Rathdown County Council
in conjunction with the LDA. The LDA has been tasked with including a cost rental model
within its ambit of solutions to increase housing delivery for the State. Of the 597 units planned
at Shanganagh, 306 are to be delivered as cost rental units. It is clear that the LDA as a new
agency with responsibility in the sector will be a key contributor in the roll out of cost rental
schemes similar to the scheme being developed at Shanganagh. The latest legislative
programme includes a new Bill to place the LDA on a statutory footing which will be an
important step for the agency as it seeks to drive delivery of housing and use the benefits of
the cost rental model.
Conclusion
The implementation of a cost rental model such as The Vienna Model in Ireland would
undoubtedly help to create a more affordable and sustainable approach to our housing needs
and has the potential to have a stabilizing impact on market rents. International experience
also shows that from the time of the adoption of these models and the implementation of
these schemes that it may take a decade or longer before full benefits materialize. It is clear
that the policy being pursued by the Department of Housing, Local Government and Heritage
will increasingly include cost rental schemes but it will be the means of implementation that
will be critical in assessing the impact on the broader housing and rental sectors in the years
to come.
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