Should Rent Supplement be cut or raised?

Over at progressive-economy.ie Nat O’Connor has been crunching the numbers from the latest daft report

As noted previously, the Rent Supplement maximum payment will cover a significantly different proportion of average rents, depending on what part of the country you live in. So people in some areas are more likely to be squeezed into poorer accommodation and/or to make further top-up payments from their social welfare than are their equivalents in other areas, by the mere chance of what administrative area they live in.

I’m not sure I get this argument, is Nat suggesting that a portion of our rented accommodation is unsuitable (not good enough) for those who have their rents paid by working taxpayers, but is suitable for those who work and must pay their rents themselves? If rent allowance is raised, the result will be that those in receipt of social transfers will be able to out compete workers & taxpayers for the accommodation they desire.

According to the Daft report there are almost 25,000 properties available to rent on Daft.ie today. This compares with approxiametely 3,600 in March 2007 (according to daftwatch @ thepropertypin.com). Equally daftwatch shows that there are approxiametly 7,700 properties advertised as available to rent in Dublin, compared with just over 1,500 in March 2007. Some portion of the properties advertised on Daft are duplicates, and some are single adverts for multiple properties (e.g. new developments being rented out by developers unable to shift units). There are according to various sources between 10,000 and 16,000 unsold apartments in Dublin leaving an overhang of up to 40,000 empty apartments in the city. In addition, developers have even taken to renting out hotel rooms on a long term basis. Speaking to landlords locally, those willing to accept rental allowance tenants (and many who don’t) regard it as a floor price on the rents they are willing to accept. With a huge overhang in the market, it may in fact be keeping rents artificially high for everyone, to the benefit of landlords, but at taxpayers expense.

  • Dave

    Socialists who are using the language of economics and rights to advance their agenda by stealth. The agenda that O’Connor is pushing by this subterfuge is one where the state provides accommodation to those who have shifted that burden from their own shoulders onto taxpayers, so taxpayers, in addition to working to provide for their own accommodation, must work to provide for the accommodation of non-taxpayers – and they must make do with accommodation that is inferior to those for whom they are providing the free accommodation, thereby dis-incentivising them. This is basketcase ‘economics’ but that’s the type that socialists and self-serving political hacks now specialise in proffering. The public, alas, assume that these muppets and their bogus ‘economics’ are genuine, and haven’t grasped how far the game has shifted from democratic debate about policies to post-democratic imposition of policies by self-appointed elites.

    The State, post NAMA, will have an incentive to inflate rent since higher rents equal higher property value, so it is more likely to increase the supplement rather than reduce it.

  • As you’ve noted, we have an oversupply of rental accommodation in Dublin. Some of it is too low quality for anyone to live in and we have an opportunity to squeeze it out of the market without forcing anyone to live in it.

    In fairness, we are all taxpayers, whether we pay a larger proportion through income tax or VAT.

    Rent Supplement was meant to be a short-term measure. So, if someone lost their job, they could get supplementary welfare to pay their rent for a few months. Should the state decrease that person’s chances of getting back to work, by forcing him/her to move home, maybe change his/her children’s schools, etc? Have a look at my follow up post on progressive-economy.ie re quality and the state paying ‘average’ rents.

    I don’t think it is too radical to suggest that the state is better off if everyone is housed. If you have a magic solution for full employment, great. If not, we need to support those who are currently unemployed.

    But I agree that Rent Supplement distorts the market. It would have been much better if we invested in social housing (or created more well paid employment), rather than creating a situation where c.40 percent of the private rental market is tied into state payments.

  • Mack

    Nat –

    rather than creating a situation where c.40 percent of the private rental market is tied into state payments.

    Wow! Rents, in Dublin at least, are very high. €1,000 for a 1-bed shoe-box apartment is extortion in my opinion. If 40% of landlords are subsidised by the state – then the state surely has a responsibility to get better value for the taxpayer _and_ other renters?

    http://www.daft.ie/searchrental.daft?id=755333&search=1

    http://www.daft.ie/searchrental.daft?id=769318&search=1

    Karl Deeter makes some good points on your original post on the subject Nat.

    http://www.progressive-economy.ie/2009/06/more-cutting-times-rent-supplement.html

    The link you were trying to post above didn’t come out, could you post it again?

    Btw, I agree no-one should have to live in accomodation that fails to meet minimum standards. Raising minimum accomodation standards is a different issue to the level at which the taxpayer subsidises Irish landlords. As you point out many of the lowest quality flats are owned outright – the financial impact of raising regulatory standards on the owners would not be too onerous.

    We have a severe fiscal crisis & we have to do something to sort it out. Subsidising Irish landlords who charge extortionate rents is not only immoral but an exceptionally odd policy for the left to pursue.

  • Mack

    Nat –

    Also, my wife had a baby last year. As we effectively fell back onto a single income, and as rents were falling we moved house to take advantage of lower rents (forcing our landlord to re-rent our house at a lower rate, helping force rents down further) reducing our costs.

    This strikes me as an instance of the principle-agent problem, unlike private tenants, rent allowance tenants have no incentive to negotiate down rents if someone else happily foots whatever bill the landlord sends them.

  • Mack –

    Lots of different issues here. Let’s tease through them.

    I am not trying to defend the policy of Rent Supplements, which is indeed a payment from the state to private landlords at near-market levels. I think it is a short-term policy that got out of control. My comment on it are based on the fact that it is current policy, so I want to describe the effect of further cuts to it.

    In fact, the Government’s stated policy is to move everyone on RS into the Rental Accommodation Scheme (RAS), but this has been slow to date. RAS involves negotiating a lower than average rent, so it should provide better value for money – although I am not convinced that RAS is a better long-term solution than traditional social housing either.

    Yes, many people can help themselves, by downsizing or whatever. And if this is appropriate, CWOs can advise people to do so. Rent Supplement is a discretionary payment, not an entitlement. But in Dublin’s housing market, sometimes chasing a lower rent might mean a lot of upheaval, moving to a new area, etc, so it makes sense for a CWO to pay it.

    In terms of incentives, if rent supplement was replaced with an income supplement that was invisible to the landlord, then recipients would indeed have a reason to negotiate and this should remove a lot of the market distortion.

    The URL I tried to paste is here

  • Mack

    In terms of incentives, if rent supplement was replaced with an income supplement that was invisible to the landlord, then recipients would indeed have a reason to negotiate and this should remove a lot of the market distortion.

    That makes sense.