Public Affairs Ireland | Training and Development | Conferences

On Thursday, 24 May 2018, Public Affairs Ireland welcomed delegates to Dublin’s Radisson Blu Royal Hotel to engage in a discussion about the social housing crisis and, in particular, the role of Approved Housing Bodies (AHBs) in the delivery of the Government’s goals.

PAI’s Director, Garrett Fennell, chaired the event, and opened the conference with a brief contextualisation of the situation as it now stands, emphasising that while all the country is short of all kinds of housing, the homelessness crisis signals a “particularly acute need” for social housing.

Figures over the last year have been hopeful, with a high level of delivery. Higher, in fact, than the Government’s projected figure. Mr Fennell noted that AHBs are a “core element” of the success in delivery. However, the recent “dark and unexpected cloud from Brussels” – the reclassification of AHBs as “on balance sheet” by Eurostat and the CSO – may have an impact on the number of homes built and provided this year, and in the years to come. He lauded the diverse panel of speakers at the event, who he assured would highlight for attendees “a range of different perspectives” in order to “understand the implications of the reclassification”.

Jim Power, consultant economist and author of Friends First’s Quarterly Economic Review, took to the podium to discussion projections for what could be the future role of the AHBs.

First, he took a look at the lay of the land, in economic terms. CSO figures showed that rent prices are up 65% since end of 2010. The year-on-year growth rates are at upwards of 7%. He asserted, “Housing is the biggest social and economic issue facing the country today”. And it’s a time-old issue: an excess of demand meeting a limited supply. This issue is somewhat exacerbated by the fact that we are quickly approaching a fully employed economy. This has led to a higher rate of mortgage availability. However, it could also herald a shortage in labour in the near future. Mr Power reckons that this issue will be especially prevalent in the construction industry – key players in housing delivery.

“After 2007 or 20088, we basically stopped building houses. We can see a sharp decline in social housing provision, notably a decline in the homes provided by the Local Authorities, a sign of the move towards private companies and AHBs”. In the foreword to Rebuilding Ireland, the then-Taoiseach Enda Kenny, stressed the increasing role the AHBs will play in the delivery of social housing in the future, which we have seen is true.

The NESC reviewed the Irish situation and made a number of suggestions to tackle the crisis. One such suggestion was that authorities should find a way of embedding a model of permanently affordable housing. But what do we mean by affordable housing? Mr Power noted one definition: affordable housing accounts for less than 30% of gross disposable income, or 35% of disposable income, on housing costs (rent or mortgage).

The higher the housing spend, the less money that is available to the rest of the economy.

In a European context, we don’t have an exceptionally bad system. The percentage of citizens who pay more than 40% of their disposable income on housing is relatively low. However, it was notable that the part of the housing market that is most stressed is the private rental system.

Past systems have led to a shortage in the number of housing units available. It was common, previously, to sell housing to tenants that had rented is. This results in a loss of housing stock, contributing to difficulties. The current demographic and increased employment put further pressure on housing stock in the private rental sector, continuing the trend of shortage of supply. Recent moves towards the Air BnB model – where homes are rented to tourists on a short-term basis for comparatively much higher rents – has contributed to the loss in the number of private rental properties available.

In terms of overall impact that this has, it is clear that increased spending on housing depletes the expendable income available to be fed into the economy as a whole.

Mr Power advice would be to increase the focus on new builds, as opposed to acquisition. New builds from AHBs have proven to be of an extremely high quality, with over half of AHBs agreeing to adhere to Building for the Future – A Voluntary Regulation Code for Approved Housing Bodies in Ireland. High satisfaction rates were recorded for the units delivered, not something that Mr Power could envisage would have been the case where Local Authorities delivered the units.

In conclusion, Mr Power commented when looking at “what the issue is, and how it feeds into social housing, you cannot look at those categorisations in isolation, they all feed in to one another”. For example, the predicted skill shortage will need to be looked at in order to lessen its impact on the delivery of social housing.

However, his main belief is that,

“If you solve housing, you will solve a lot of other economic and social problems”.

Justin Bickle, CEO and Co-Founder of Glenveagh Properties PLC, stands at the helm of a private organisation that is passionate about partnering with Local Authorities and AHBs in order to aid them in delivering high-quality homes.

Mr Bickle has a personal drive to create social and affordable housing that meets high standards. He himself lived in social housing through his childhood into his twenties. To him, the UK model of Mixed Tenure housing seemed the best option: a mixture of social homes, and affordable homes, and rented and privately owned units. This ensures that communities stay diverse, and helps prevent the creation of “ghettos”.

“Housing is a cyclical industry – perhaps the most cyclical. Our job is to build a resilient business. It’s not a land-bank play”, Mr Bickle ensured. Glenveagh’s model then, would help move Ireland towards the NESC’s recommendation of a permanent structure of affordable housing. He called this process “Community place-making.” Mixed tenure communities may be new to the Irish market, nut they are the standard in UK market.

Mr Bickle noted that his organisation have a desire to do the right thing; they are not primarily motivated by high profits.

His thoughts on the sector, currently? “I do think there is a solution to the current problem. It may take the people in this room to sit down and get it done. As part of a PLC, we want to be part of the solution. We have access to the materials, and we want to do the right thing.”

What we have in place at the moment is a dysfunctional market. In some ways, the actual figures don’t really matter; it will take a long time to actually deliver units in order to meet that backlog. Of Glenveagh, he said “We don’t want to create a boom-and-bust house builder. That just contributes to a boom-and-bust housing model more generally. If the industry comes together, I think there is an opportunity for a vehicle that could solve the current problem.”

We lost a decade to the crash. We need to shift the way we do things. AHBs and Local Authorities should be willing to engage with innovations in building technology. Glenveagh us rapid-build steel frame technology to deliver 67 in record time. They can build a wood-frame house in two weeks; the average is 6-8 when using masonry. “If we can do it to a higher standard in a shorter time, why wouldn’t we?”

His final thought was,

“Talk is great but action is better.”

Economic consultant Rafique Mottiar set out to illuminate the reasoning behind the reclassification of AHBs as “on balance sheet”. His analysis comes with the backing of his wealth of experience working with the organisation.

The CSO breaks down the economy into sectors. AHBs were previously defined as “Non-profit institutions serving households” or NPISH. This is due to the fact that they are voluntary organisations providing for a social need. This sets them aside from the Governmental sector.

When the Commission came to Dublin in 2017, they raised the issue of whether that was where they should rightly stay, because the social housing model was changing as a result of the housing crisis and the commitments made in Rebuilding Ireland. As a result, they asked the CSO to review, which they began to do in December 2017.

This is based on the qualifying conditions for the Governmental sector. AHBs are controlled by Government Departments, and lack a certain level of autonomy. This means that they are institutional units.

More substantially, the question is posed: were they market or non-market? They were not market institutions. In a market, they have incentives to adjust supply to demand. They are essentially charities. AHBs didn’t need to adjust cost and give consumers have a choice based on that price.

So then, which sector should they belong in? This is the issue that caused problems. Eurostat and CSO have a huge list of criteria. They have three specifically to decide which sector to put them in: the level of Government control, the amount of financial risk the bodies are subject to, and the degree of financing they receive from Government.

AHBs, in the way they are set up and regulated means there are constraints set up on them that require a significant amount of government control. While there may be some financial risk, it hasn’t necessarily shown itself yet. They receive a lot of financial support from Government, through several funds.

So what impact will that have? With the reclassification, it is estimated that there will be a €100m increase in Government debt this year, or around 0.03% of GDP. This could have a significant impact of the inclusion, in those terms. Further, it means that from now on, all AHB activity will be seen and examined by the Government. There is a potential impact on the objective of AHBs to deliver on one-third of social housing by 2020. The Government will now have a collective interest in how AHBs account for themselves.

Before the conference took a mid-morning break, Minister for Housing and Urban Renewal, Damien English TD, spoke about the Government’s priorities, concerns, and progress in the delivery of social housing.

He noted that despite the recent concentration on the referendum, the provision of social housing was the Government’s first priority. He also reassured those in the room that he and the Minister for Housing, Eoghan Murphy TD, help the AHBs in the highest esteem. On the issue of the reclassification, he further assured them:

“It is business as usual. We need you to focus on delivery. It is a balance sheet issue, an issue for the Government to tackle, it should not impact you. Do not limit your ambition.”

It is important, from the Government perspective, that AHBs engage with the Local Authorities to aid in the delivery with social housing, and other models such as affordable and first-time buyer properties. All things considered, AHBs delivered over 2000 houses last year. The Government are in the process of assessing each Local Authority’s land-bank and deciding which sites would be best suited to AHBs. The Minister implored those working in AHBs to “strengthen the communication”.

While the number of people that were moved into homes last year was greater than the Government had first anticipated, there are still too many people homeless or waiting on housing. The Minister said,

“Our job, all of the stakeholders, is to address this. We’re helping our own people, our own families and communities. By working in partnership, we can do that.”

Any number of homeless people, he said, was too many. Because of this, the public discourse could lead you to believe that the effort being made by AHBs is not having an impact. However, the Minister noted,

“It’s important as members, stakeholders, and tax payers, you need to know that Rebuilding Ireland is working. It was a five year plan, not a five week plan.”

Another key priority in tackling the crisis is communicating to those involved in housing development that working with the Government on Rebuilding Ireland is a “safe space”, especially for builders, and that it’s okay to invest in housing again. He said the message should be load and clear: “There is a commitment there, there’s a plan there.”

The Government’s Plan is to deliver between 10,000 and 12,000 homes for social housing every year. When there are so many people in emergency situations, however, “the targets don’t mean much, because we need people to move away from that. But they do matter.”

The numbers are heading in the right direction. Between 2016 and 2017, 7,000 houses were delivered. It will be 8,000 in 2018. Last year, over 4500 left emergency situation. This year, €2bn will be spent. Money has been allocated, it’s available for those projects. AHBs need to “keep pushing”. Moreover, “the urgency needs to stay there”. The Government are committed to ensuring that process is as quickly as possible. They need developers to be on site within 59 weeks at a maximum.

It’s been a difficult space to get back into, especially when the public commentary is not always in your favour. However, Minister English leaves the following advice:

“We need to focus on supply and delivery. Engage more with private companies to find solutions. Act like a private organisation and demand the best from suppliers. You’re paying them.”

During the succeeding question and answer session, members of AHBs expressed their great concern over whether or not they would be able to act as though it was “business as usual”. A representative of Circle Voluntary Housing assured the Minister that “If we don’t have the capacity to ramp up your borrowing, we won’t be able to deliver.”

In response, the Minister reiterated that this was invariably a Government issue to deal with, and that the money was there to be spent.

When asked whether the Government had an opinion on whether or not AHBs should be considered as “on balance sheet”, the Minister said,

“It would be better if you were off balance sheet, [and] if we can find a way to undo this, we want to. [However] this is a separate issue than delivery. It doesn’t have to affect what you’re doing.”

Another commentator noted what they considered a “lack of focus on the 10/15 year plan.” However, the Minister drew attendees’ attention to the newly published Capital Fund released by DPER. The commitment to 12,000 houses per year, and the funding for it, was accepted and published after the reclassification.

A final comment from an attendee explained,

“We’re really keen to be allocated land and to be held to account for delivering targets on that land for the people that really need them.”

The comment was welcomed by the Minister.

Following a mid-morning break, Brian Geaney welcomed attendees back. Mr Geaney is Director of Services at the Housing and Community Directorate in Cork City and County Councils. His aim was to “put across some of the issues that they face in the Local Authorities.” One such issue is what Mr Geaney saw as historical structures of communication. “There may be egos some places”, he said, “but it is not a time for egos. It’s a time to work together to get solutions.”

What is different nowadays? “The days for building without meaningful consultation are gone.” Now, all stakeholders need to be invited to the table. He said that the needs of communities should be considered when planning and developing housing on Local Authority land-banks. There is no shame, he says, in thinking, “Yes, we need social housing, but not in this place”.

To a certain extent, prevailing idea about who Local Authorities are, and what their role is, could be hindering open communication lines between AHBs and themselves. The traditional role of Local Authorities is seen to be that of regulators, specifically, “telling people what they couldn’t do, as opposed to what they could”. This is changing as their role moves away from that of providing houses to one of being an enabler for the delivery of housing, especially in conjunction with AHBs.

Mr Geaney’s advice is that both AHBs and Local Authorities need to embed “leadership and partnership cultures” within their structure. “Without it, things will not get solved”.

From the perspective of Local Authorities,

“We need AHBs to think outside of the traditional solutions. Sites may not be handed to you, you may have to work a little harder for it. There is a large job in convincing, for example, elected members of Local Authorities, who sometimes think of AHBs are private organisations”.

In terms of development on land-banks held by Local Authorities, Mr Geaney assured the attendees that “land and development departments can’t operate in their own silos” anymore. Shared resources between Local Authorities and AHBs is key to unlocking the potential that lies in those land-banks.

As AHBs move towards a model of choice-based letting, it is less likely that a previously prevailing accusation that they “cherry-pick” their tenants will be levelled at them anymore. Local Authority “lands are few and far between”. Where they do have land, they are often best developed by an AHB, from a tenancy management perspective.

Mr Geaney believes that a real hurdle for the collaboration between Local Authorities and AHBs is the intense regulation for procurement procedures. The red tape, he said, is “often a burden in emergency situations”. He would like to see a lowering in the level of regulation when it came to social housing provision. Opening that competitive dialogue in procurement could be key to finding solutions. Local Authorities “are willing to play a role in using their compulsory purchase function to help deliver” on social housing needs.

In conclusion, Mr Geaney informed the attendees that we “cannot solve the problem until we know how we’ll do it. It’s about collaboration. Everyone needs to listen to each other and support each other. We need to move past certain ideologies that may be antiquated”. As echoed throughout the morning, collaboration is key.

John Hannigan, CEO of Circle Voluntary Housing Association, set out to outline the impact that the Eurostat reclassification could likely have on the AHB sector over a 10 or 15 year period. Some 95% of the existing funding in the sector is from Government. The implication of the reclassification is that AHBs are now “an arm of the State”. So then, the likely impact goes beyond simply a Balance Sheet issue – it is expected that they will see an increase in “control elements” over the next ten- or fifteen-year period. And this will count for current investments, bad news for anyone “gearing up to use their sinking stocks”.

As mentioned earlier in the morning, the reclassification puts greater pressure on AHBs in terms of borrowing. Their borrowing will now be seen as State borrowing, and as such, will be subject to EU Standards and restrictions on borrowing levels.

As expressed by commentators from the delegation, there is a real fear that the AHBs’ “capacity to deliver will be severely impacted”. Mr Hannigan presented estimates for the level of production called for under Rebuilding Ireland; an estimated range of €3.375bn to €7.733bn or (1.1% of GDP to 2.32% of GDP) for 15,000 housing units. This is a material issue. As part of the On Balance sheet portfolio, “when it becomes a material issue, [AHBs] will now be in competition with other strategic capital infrastructure investments”.

At the AHBs, he commented, there is a “strong bias on doing, rather than just talking”. They are “working with organisations that have seen how things have gone in the past to see how we can improve now”. AHBs already currently compete with the private sector. The private sector, naturally, are producing houses for profit, not for charity. When AHBs deliver housing, “the only thing that’s gained is that someone is now in a house”. Mr Hannigan has said that “stronger regulation is required”.

Finally, Mr Hannigan welcomed the statement that the Government will work with AHBs to get them back off balance sheet. A technical group has been set up by the Department of Public Expenditure and Reform and the Department of Finance to work towards such an end. He called for stakeholders from AHBs to be given “a seat at the table as a partner to that process”. The Government have the resources and ability, AHBs have a wealth of relevant research.

The penultimate speaker of the day was Housing Europe’s team lead, Sorcha Edwards. In the main, she looked at the context of housing throughout Europe. She noted that housing policy is changing across the continent; it is becoming much more integrated with “social security systems, environmental and regeneration policies”. EU policies and Measures such as the European Structural and Investment Funds, AMIF, H2020 and the Juncker Plan have led to “real positives outcomes in some countries”.

There is also the developing “recognition that cities can provide housing for all groups of society”, but that we are not on track. Rising housing prices and a lack of social housing provision increase societal inequality in some countries. In fact, Ms Edwards believes that “a lack of appropriate housing can increase the risk of populism”, as there is a visible trend where we can see that “those against social housing are often euro-sceptic”.

In terms of the reclassification, Housing Europe undertook a survey in 2017 that showed that, of the 12 member countries of Housing Europe, nine were classified as Off Balance Sheet, and three were classified as On Balance Sheet. Many of the members were concerned about this issue. Ms Edwards drew the delegation’s attention to SGP Investment Clause 2.2, which could go some way to mitigating the damage done by the reclassification, and “can partially solve the national-co-financing issue in the case of EFSI or Structural Funds”.

Across Europe, there is a noticeable shift away from public grants to other financing methods. “Hybrid systems are the new normal”. This include systems like Social Impact bonds, which involve private investors, the European Investment Fund, and municipalities.

If you look at countries such as Austria, Vienna has 70% social housing. Some were developed by private companies, some by limited profit companies. The tendency towards mixed-income models, which go some way towards avoiding ghettoisation.

Since 2011, no denying that housing was a sector at the core of the crisis. The EU undertook an economic process aimed at identifying macro-economic imbalances and country-specific requirements. The subsequent development of the European Pillar of Social Rights, a non-binding document, as member states insisted, meant that there was a documented reference  to providing social housing to “those in need” as core to the EU’s purpose. This goes further than the definition “for disadvantaged groups” as previously accepted.

Eurostat is aware of the many Member States take with the issue of reclassification and is under pressure from the EU under the Social Pillar.

Up until now, the classification was not an issue for member states. “You will see the diversity of how systems are funded across the Member States. The diversity is massive. Housing Europe have seen that there is a definite feeling that Eurostat approaches each classification/decision differently and that should be a part of the discussion. It should stay on our radar, and continue the pressure on a political side”.

Provision of housing is core to the EU’s purpose. Eurostat is independent, but not completely unrelated, so the conversation must stay active.

Following Sorcha’s presentation, the floor was reopened for questions.

One commentor noted Sorcha’s assertion that “hybrid systems are a new normal”. They lamented the fact that Governments and statisticians often try to classify things as one category or the other, but Voluntary Housing Associations are “a bit of everything”.

Sorcha went on to comment further,

“In the current environment, we hear feedback from cities that say state aid rules block investment in social housing funding. It’s a complex set of rules,” she agreed, “but they can be overcome”.

What it takes is a constant conversation. If we put more issues on the table, the Courts will have to provide clarification where things seem unclear. “The last thing the European Commission wants to be accused of is that it’s hindering the delivery of social housing”. They would welcome the clarification, also.

Justin Bickle of Glenveagh PLC, as the head of a private organisation, was worried with John Hannigan’s assessment that private organisations were predominantly in the housing market to turn a profit. Glenveagh aim to help social housing delivery. He asked those of the AHBs, “what do you need from us?”

John Hannigan of Circle answered,

“We need a multi-dimensional approach. Private sector are doing a good job in what they are doing.” The standards are high, but they need to engage with AHBs to aim for social good”.

Dr Mary-Lee Rhodes, an Associate Professor of Business & Administrative Studies at Trinity College Dublin, and the Chair of the Interim Regulatory Committee of the Housing Agency, presented the closing remarks of the morning. She began with an anecdote. She came to Ireland to do her doctoral thesis 20 years ago. She focused on the “crisis of affordability and supply”, but had trouble with people engaging with the subject. Yet here we are, again, in a crisis of affordability and demand. Echoing the sentiments of the morning, she said, “It’s a thorny problem, it will take real innovation” to find a solution. She closed out the event with an interactive poll, which asked attendees to prioritise recommendations made by the conference speakers throughout the morning. The results of the poll are as follows:

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