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- No EU State Aid Related Obstacles -

Executive Summary available here: Executive Summary
Full Report available here: Full Report

Research being launched today (Thursday 29th April 2021), Commissioned by the Irish Council for Social Housing (ICSH) and produced by Professor Padraic Kenna, at the Centre for Housing Law, Rights and Policy, NUI Galway, confirms that state support in new cost rental housing is in line with EU rules known as services of general economic interest (SGEI), which are decided by Member States, such as Ireland.
The report, Supporting the Irish Housing System to Address Housing Market Failure, indicates that State support for cost rental will not distort the housing market, but will contribute to a properly functioning housing system. It outlines how the EU SGEI framework, and the specific conditions that are applied to individual Member States, enable them to support their housing systems to address housing market failure.

Highlighting the gap in the market supply of affordable rented housing in Ireland, this report clears the way for larger scale state support in a cost rental scheme, which is badly need to address crippling rents in the private rented sector. The Irish Government will legislate on the terms and conditions of any cost rental programme in the forthcoming Affordable Housing Bill.

Speaking at today’s launch Dr Donal McManus, ICSH Chief Executive says, “Our sector has been calling for cost rental housing for a number of years to embed affordability in our housing system. The 2020 Programme for Government commits to a cost rental model that creates affordability for tenants and a long term sustainable model for the construction and management of homes. 390 cost rental home have been approved this year by the Minister for Housing, Darragh O’Brien, to be delivered by three AHBs. Building on this, and as part of the Government’s forthcoming ‘Housing For All’ policy initiative, we would support the recommendation in Professor Kenna’s report that the Government should introduce a multi-annual cost rental programme to ensure continuous delivery of cost rental housing over the coming years. This research provides a comprehensive view on how EU SGEIs operate in the housing sector and identifies that the public policy objective of meeting citizens' housing needs, where this need is not being met by the market, is one of a number of reasons as to why cost rental housing is consistent with EU SGEI rules.” SGEIs, such as social and affordable housing activities deliver outcomes in the overall public interest that would not be supplied by the market without public intervention. The concept of a service of general economic interest is an evolving notion that depends, among other things, on the needs of citizens, technological and market developments and social and political preferences in the Member State concerned. Irish state support in this area has been recognised as an SGEI in EU law for over twenty years.

Author of the report, Professor Padraic Kenna, of the Centre for Housing Law, Rights and Policy NUI Galway, says “An affordable and good-quality home is essential for every person’s well-being and social participation. Reliance on markets has largely failed to ensure adequate and affordable rented housing, even for households in secure and well paid employment. In Ireland, It is widely acknowledged that many private sector rents are unaffordable, except for a small proportion of the population, and this constitutes a market failure. The two elements that are required for a Member State to make lawful use of SGEIs are economic activity and market failure. AHBs should have a key role in delivery and management as it chimes with their non-profit mission; they are managing homes not real estate assets, and there is no conflict between the interests of shareholders and tenants. AHBs are in it for the long-term and there is no leakage of state investment. To ensure that these cost rental homes remain truly affordable, this model must be large-scale and long-term. To protect State investment, safeguards are needed to ensure that these homes don't become part of an offshore fund’s ‘asset portfolio’. Equally, tenant purchase would completely undermine the economic basis of the cost rental model in Ireland.”

Dr McManus added, “AHBs are entrusted by local authorities to provide accommodation, which is in line with their non-profit Articles of Association and charitable status. This has been accepted by the European Commission as meeting the criteria for social housing SGEIs. The Affordable Housing Bill 2020 sets out a new legislative basis for cost rental delivery in Ireland. And the Cost Rental Equity Loan (CREL) scheme, announced in Budget 2021, will see the Department make €35 million in loan funding available to Approved Housing Bodies for the purpose of providing cost rental housing. Cost rental schemes, with currently proposed rents of €1,200 per month, will facilitate those in the income deciles who cannot afford to rent in the private market. However, to achieve affordable rents of €1,200 per month requires State Aid. Current cost rental housing plans include 50 units at Enniskerry Road, County Dublin, 306 units at Shanganagh Co. Dublin and a planned cost rental scheme of 400 units at St. Michael’s Estate, Dublin 8. However, in the context of approximately 340,000 private tenancies in Ireland, a multi-annual cost rental delivery programme is required to ensure that this form of tenure is scaled-up to meet the housing affordability needs of Irish households.”

Notes

• Defining Social Housing at EU Level: There is no universally accepted definition of social housing and it is not officially defined across Europe. Two models have been identified, mainly based on the allocation criteria. Universal approaches assume public responsibility for providing everyone with decent, affordable housing, while targeted approaches assume that social housing is only directed to those whose demand is not satisfied by the market. Four general features of social housing can be identified that vary between different national systems:

Tenure: Social housing is mainly provided for rent, but in some countries also for sale, intermediate tenure or shared ownership (i.e. to buy                a share and pay a rent for the remainder).
Provision: Different providers of social housing exist, ranging from authorities, non-profit associations and companies to cooperatives, for-      profit developers and investors.
Beneficiaries: In some countries social housing is directed to all citizens and high income ceilings should guarantee a mix among beneficiaries. In others, it is a targeted service and low income ceilings ensure that only the most vulnerable groups are eligible. Besides income ceilings, other criteria such as housing conditions, homelessness, unhealthy accommodation, over-occupation and forced cohabitation can play a role and prioritise certain target groups such as youths, elderly, disabled persons, families with many children, ethnic minorities or refugees.
Funding arrangements: The social housing sector mainly relies on public funds in some countries, while in others on credits raised on the finance market. Different sources are used for social housing projects, ranging from private loans, mortgages and private funds to public grants and loans. In addition, municipalities often contribute by offering land at reduced prices or even for free.

• Defining Cost Rental Housing: The term ‘cost rental’ has been defined as ‘all rental housing, irrespective of ownership, the rents of which cover only actual incurred costs of a stock of dwellings’. Cost rental housing is based on the principle of ‘maturation’ – i.e. the loans on earlier stock will have reduced over time, or have been paid off, and the costs of new developments can be pooled (cross-subsidised) over the total stock (or particular parts of it), resulting in a small increase in rents overall. The predominant source of finance can be secured through private borrowing, but the equity in (and security of charges on) the overall stock may result in lower borrowing costs. There may also be an element of public subsidy, or State Aid, free or cheap land, public guarantees on borrowing, interest subsidies, and housing benefits for tenants, in order to keep the rent levels at affordable levels. But maturation is the key in facilitating lower pooled rents, which still must cover management and maintenance costs.
• Interpreting SGEIs: The exceptions to EU rules on competition and other areas which SGEIs enjoy “can apply only if the services in question enjoy, in advance and by legal act, have been attributed a mission of general interest.” It is necessary to make explicit at the national level, that a particular activity is categorised as an SGEI, in order to apply the rules on eligible State Aid. Competition Commissioner Vestager, in 2017, stated that to be an SGEI, “social housing must respond to a public need: the provision of accommodation to disadvantaged citizens or socially less advantaged groups who due to solvency constraints are unable to obtain housing at market conditions. Member States may not define a social housing SGEI so broadly that it manifestly goes beyond responding to this public need.” However she adds, “The scope and organization of SGEIs differ significantly from one Member State to another, depending on the history, the culture of public intervention and the economic and social conditions prevailing in each Member State.” This offers a wider scope for social housing as an SGEI. In the recent 2018 Dutch CJEU case, AHBs in Ireland were defined in terms of SGEI or public service criteria, emphasising the not-for profit element.
• Defining Housing Affordability: 35% of net household income is a legally defined metric of affordability in the Housing (Miscellaneous Provisions) Act 2009. However, affordable rents (at 35% of net income) in average private housing in Dublin in 2019/2020 were out of reach of Income Deciles 1–9. In Galway, those in Income Deciles 1–8 could not afford private sector rents. In the rest of the country, those in Income Deciles 1–7 could not access affordable housing in the private rented sector. Average private sector rents per month are currently not affordable for Income Deciles 1 (Weekly affordable rent at €74.57) to 8 (Weekly affordable rent at €224.62) in Dublin. This demonstrates that there is a significant requirement for increased affordable rental housing to cater for all those excluded from the private rented market. Cost rental housing should clearly target those households who are excluded from the private rented sector, or who cannot access housing at affordable rents, especially those in Income Deciles 4–8.

Executive Summary available here: Executive Summary

Full Report available here: Full Report