Cost rental: A lever of recovery
The pursuit of properly targeted policies to improve rental housing affordability could spur activity, create jobs, and enhance energy efficiency across Europe, a report by the International Monetary Fund (IMF) has stated.
Published in the aftermath of the Covid-19 pandemic, the report makes the case for making affordable rental housing a pillar of Europe’s economic and societal recovery, recognising that in many advanced European economies, a large and rising share of low-income renters, the young, and those living in cities is overburdened.
The cost rental tenure in Ireland was introduced via the Affordable Housing Act 2021 and proposes properties available to rent at a lower charge than average market rents in an area. Rent covers cost of construction, management, and maintenance, on a not-for-profit basis, offering long-term secure tenancies.
By March 2023, only 585 cost rental homes were in place in Ireland but a further 550 had been scheduled for delivery, and Housing for All envisages 18,000 cost rental homes to be funded by 2030.
Across Europe, rental housing support for the segment of tenants most in need has often not kept pace with affordability pressures. The pandemic compounded a long-standing reality that lower-income households tend to spend a larger share of their disposable income on housing than those with high incomes. This has been particularly true for renters, with the IMF report highlighting pre-pandemic figures showing that the cumulative median real rent rose by nearly 7 per cent over five years from 2013, with a few cities recording cumulative real increases of more than 30 per cent.
According to the IMF, housing affordability pressures are more intense for renters than homeowners, with the median renter spending more than one and a half times the median homeowner, as a share of disposable income. Rental price surges and affordability pressures have been particularly harsh in some major European cities, among the 14 (of 24) countries that experienced an annual average real rent increase of at least 1 per cent since 2013, 11 saw larger increases in their capital city than for the country as a whole.
Interestingly, the report finds that most countries provide more public resources toward home ownership than renting and that public spending on social rental housing has been on the decline. The IMF says: “Effective policies that improve rental housing affordability will be a critical component to reverse accelerating divergences post-Covid.
“They must comprise measures that enhance long-term income opportunities for low-income households and the young to benefit from the structural transformation of the economy (including investments in education, re-skilling, childcare, etc.), as well as targeted rental housing assistance and measures to increase the affordable (social) rental housing stock across locations, especially with a view to facilitating movement to locations where new jobs are being created.
“At the same time, investment in rental housing would help accelerate economic activity and job creation in the recovery.”