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Real Estate

Is the introduction of the Vienna Model in Ireland as a response to housing affordability the right solution at the right time?

By David Phelan and Lydia Bentley

2 October 2020

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 neighbourhoods. 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 stabilising 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 materialise. 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. 

 

For more information on the content of this Insight, please contact:
David Phelan, Solicitor | E: david.phelan@rdj.ie | T: +353 1 6054205

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