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Rent caps are causing homelessness

Welfare renters are prevented from paying market rents, on the ridiculous pretext that below-market rates can be maintained. This breaches their human rights.

Homelessness and the role of rent-supplement- caps came up in each of the three leaders debates which took place before the February 2016 general election. Enda Kenny, the then Taoiseach, was asked whether the government’s reining-in of the Labour party’s efforts to increase rent-caps, was causing homelessness. He responded to the effect that any increase in rent-supplement caps would “only go into the pockets of the landlords and doesn’t alter the supply”. Joan Burton, the Labour leader, commented that her then department’s policy was to review individual claims for increased rent-supplement caps on a case-by-case basis. Micheál Martin, the Fianna Fáil leader, interjected a few times to point out that the rent-supplement caps were well below market rates, and that this was causing homelessness; he said that, “it was the worst scandal in homelessness since the state was founded”.

Normally in media discussions on homelessness, the more intricate details of rent caps rarely get discussed.

The important facts: subsidies, contributions and caps

The government imposes an upper-rent-cap on a particular type of accommodation for a housing need of a welfare recipient. For example, a single person may rent a room in a house or may rent a one-bedroom apartment. A different ‘cap’ applies to each. A single mother with two children will be assigned a different cap. The ‘cap’ here refers to the maximum level of rent allowed to be paid (by welfare renters) for an approved housing unit. Let’s call this the upper-rent-cap. The supplement, which the government is willing to pay, falls short of the (nominal) rent, as the claimants are expected to contribute a certain amount from their standard welfare allowance (such as job-seekers allowance), which is about €30 per week. Let’s call the government’s contribution the “rent-supplement”. The government has limited resources and has a legitimate interest in capping the amount of money it pays out to subsidise accommodation.

The amount of the renter’s contribution (the €30 odd) has increased since the crash in 2009, and this is itself problematic, but this is not the core problem. The reason it generally gets ignored, is that the media are too quick to report that ‘basic’ welfare payments have been untouched in austerity budgets, generally ignoring the increase in the ‘contribution’, which of course in reality cuts welfare recipients’ ‘basic’ living wage. Strangely, most politicians usually don’t make too much noise about this either; it is apparently too complex to fit into a soundbite.

Here is the key issue. The government will cut the subsidy to zero, if the claimant seeks to rent an accommodation unit where the rent exceeds the upper-rent-cap set by government.

The argument advanced by government goes like this: by preventing welfare claimants from paying above the cap, the landlords will be pressured to keep the rent at the capped level (or below), since no other welfare recipients can outbid them. Magic.

Of course, the streetdogs know the upper rent- cap policy is barking mad. Hence, the reality is that the upper-rent-cap is often just theoretical, or a ‘pretend-cap’.

So, how can welfare claimants, who collectively only constitute 25% of the market, compete with workers for lower priced accommodation? The answer is: they can’t, unless they ‘cheat’ the cap.

The charade continues

Let’s look at the economics a little closer: if all one-bedroom apartments were ‘upper-rentcapped’ at a low rate, then the cap would work, at least for a while. Landlords would take the hit, at least until one of them took a constitutional challenge, claiming a violation of property rights. They would allow the apartments to fall into various levels of disrepair, as there would clearly be tenants anxious to rent them at the below-market rates. Some of the apartments would ‘level-out’ at the market rate after a period of deterioration. This is one of the inevitable consequences of rent-control generally.

But the government has not done this. The ‘pretend-cap’ does not apply to non-welfare renters, who make up over 75% of the market, based on 2016 data. So, rather than being capped, landlords can choose to rent the apartments to lower- (or medium-) paid workers, at the market rate (or at the Pressure Zone maximum).

Effective boycotting?

A 25% boycott never achieved anything. We should know, since we invented the word. In 1890, encouraged by Parnell, local farm workers, grocers and other businesses refused to supply goods or services to captain Boycott, an agent for farm landlords. The boycott, which commenced near Lough Mask in Co. Mayo, involved the whole community and adjoining towns. Any slippage would have rendered it ineffective.

During the US Civil Rights movement, African- Americans, who made up 75% of customers in Montgomery, Alabama, boycotted the Montgomery Bus system, four days after Rosa Parks was arrested for refusing to yield her bus-seat to a white man in 1955.

In EU competition law, it is believed that market players require to hold over 50% of a market, in order to exercise a dominant position, which can facilitate influence on market prices, while a threshold of over 90% is held to constitute ‘super-dominance’, allowing significant price control by government.

So, how can welfare claimants, who collectively only constitute 25% of the market, compete with workers for lower priced accommodation? The answer is: they can’t, unless they ‘cheat’ the cap.

Top-ups: don’t ask, don’t tell

Many claimants have had to offer under-the-counter ‘top-ups’ to landlords to either retain their accommodation, or to obtain it in the first place. Whereas the government’s proclaimed policy of case-by-case consideration of flexibility, appears progressive, this policy does not apply to new rentals, and current renters can only apply for discretion for ‘future’ rent increases. For years the government has conveniently turned a blind eye to the ‘top-up’ arrangements. This enabled government parties to benefit from facile media headlines of basic welfare payments remaining untouched. Left-of-centre politicians could claim the least-well-off were protected. Right-of-centre politicians could claim that rent-supplement payments were kept from running amok. Hence, there has been a kind of cross-spectrum acquiescence in the charade. As the rental market inflated, and the caps were welded in place, the top-ups required increases to often unmanageable levels. Thus, the first tranche of homelessness. But then the “do-gooders” came out looking for the scapegoats. History came a calling. Landlords, who else?

Rather than acknowledging that the upper rent- caps were a charade, landlords became fair game -“They are discriminating, they are greedy, and they need to be punished”, were the cries. Allowing top-ups became criminalised for both landlords and welfare claimants. The Equal Status Act was amended in January 2016 to make discrimination on the basis of welfare status an offence. But, importantly, this was only imposed on landlords (the scapegoats, at least, in most cases) and not on government (the real problem), which tellingly granted itself an exemption. Usually, human rights are designed to protect citizens from government actors, but not in Ireland.

Furthermore, the combined effects of upper rent- caps and Rent Pressure Zones have largely made any top-ups unviable, as landlords fear being potentially locked into agreed lower rates. This is probably reducing supply to potential welfare dependent renters even more.

Anti-discrimination ‘law’

Anti-discrimination laws are a great fillip to the ‘do-gooder’ brigade, who can claim credit for the recognition of the ‘problem’. Great, if they worked, but they don’t, mainly because the government is exempted.

Landlords, or at least some landlords, discriminate by targeting certain markets, all the time. For example, most landlords discriminate against students, by charging them much higher rents. Landlords renting to students can seek up to €400 extra per month for a nine-month lease. Landlords know that students, on average, cause more ’wear and tear’ on their properties, and that there is a significant chance that some will hightail it (stop paying) two months before the end of the lease, knowing that the landlord’s enforcement options are limited. The high-tailers push up the cost of rent for diligent students, as landlords price in the risk and spread it over the student population generally. This may seem unfair, as the diligent students end up paying a premium to subsidise their recalcitrant colleagues. To clarify, I’m not suggesting landlords should be able to charge more to welfare-funded renters, but rather that they should be free to charge the same rent as they charge to competing workers.

Now, if the ‘do-gooders’ had their way, they’d probably impose an upper-rent-cap on student rentals, by making it illegal for landlords to charge a premium. But, students’ parents come from mainly middle-class backgrounds and they’d call a halt to such a baloney-effort, should the do-gooders be bold enough to give it a try. Not a chance. The politicians would never risk turning what is a serious accommodation challenge for students into what would inevitably be a student accommodation crisis, if the do-gooder brigade were allowed to ‘interfere’ in the market. (The term “crisis” is relative, and I accept that for each person affected, it may be a personal crisis).

So, it is primarily not any innate prejudice by landlords that causes homelessness, but rather the inability of (welfare-dependent) would-be renters to engage with market forces in a fair and balanced manner. Do-gooderism may be emotionally appealing to those who opine from a position of lofty grandeur, but it does not provide a roof to the homeless. Landlords can, but only if they are allowed to charge market rates.

Landlords – a mixed bunch

Landlords reflect society as a whole – there are the good, the not-so good, and the bad. But, if we are to solve the housing crisis, and ensure flexibility in housing supply, we will continue to need landlords. Scapegoating is not in anyone’s interest. Some landlords act altruistically, and accept the capped rate from some welfare tenants, even though they know that they could get €100 to €150 extra from workers, per month.

Others, anxious not to act as the state’s evictors, but equally unwilling to accept below-market rents, accept ‘top-ups’, from welfare- renters, taking account of the reduced tax payable, due to their ‘inability”’ to declare the ‘top-ups’ to the revenue.

Other landlords, understanding the extremely vulnerable position of some welfare recipients, charge over €100 above the market rate, which may be up to €300 above the ‘upper-rent-cap’. Thus, some persons fall well below the supposed minimum-income level prescribed by the government to avoid poverty. However, for those affected, the ‘greedy landlords’ appear less callous than the society that turns a blind-eye to a dysfunctional government policy. Efforts to denigrate landlords generally are facile, and if anything, drive more altruistic landlords out of the market.

Politics trumps rights

Welfare recipients often come from vulnerable groups. People with disabilities, alcohol/drug addiction problems and long-term unemployed with borderline mental health issues are particularly vulnerable to homelessness. Unfortunately, they tend to not be as well represented in the political system as middle-class-funded students, for example. For whatever reason, the (rent-cap) charade and its consequences largely goes ignored. It is made more problematic because those who are affected are unable to raise their concerns, out of fear of making their situation more difficult.

In fact, human rights are also reduced to a charade when the most vulnerable cannot avail of their protection. India and South Africa are among the few countries that allow third parties to litigate actions directly on behalf of oppressed minorities.

A Human Rights approach

How can human rights overcome a housing crisis? The answer is that they can’t, but they can spread the turmoil in a less disruptive manner. This matters. It is the disruption that causes homelessness. Allowing people in receipt of welfare to top-up their rent as they deem best meets their needs, would avoid the disruptiveness caused by not being able to bid for available scarce accommodation. Coercing renters to (unnecessarily) reveal their welfare income source to landlords facilitates indirect discrimination, whereas proof of payment could be provided by bank-lodgement slips instead. The upper-rent-cap signals to landlords the possibility of future income gouging, as a result of the state’s proclivity to allow gaps to open up between market rates of rent and upper-rent caps; this encourages landlords to discriminate to avoid being gouged.

The government is in effect imposing a restrictive covenant on welfare recipients’ money, whether this has come from government or from a person’s savings. Welfare recipients are prevented from using money, legitimately obtained, to top-up their rent to a market rate, so as to avoid homelessness. They can only do so if they forego the entirety of the available subsidy. This property interference may be a violation of Article 1 of Protocol 1 of the European Convention of Human Rights (ECHR), as any claim to the effectiveness of a 25% boycott system does not meet the initial rights interference requirement of pursuing a legitimate goal with a rational basis.

The upper-rent-cap inevitably prevents welfare recipients from staying in the more affluent neighbourhoods of our main cities, and gradually coerces them to be removed from these areas, in what can be called “social cleansing”.

Article 2 of Protocol 4 of the ECHR states that: Everyone has a right to “freedom to choose his residence”. This does not mean that the state must fully finance persons to live in the richest areas, but it appears to impose an obligation on the state to not arbitrarily and constructively create administrative hurdles that effectively prevent renters from exercising an economic choice to live in any area. Any interference in this right needs to be justified in a democratic society. I contend that the upper-rent-cap imposed by the government on welfare recipients is not a justifiable interference. In fact, a less intrusive rent-cap system imposed on single parent families in London, was found to violate Article 8 ECHR, in a June 2017 Court decision (DA v Secretary/ Work & Pensions).

Whatever the motivation, the policy is objectively not in the public interest. The evidence in mounting in this regard. A recent survey by the Simon Community indicates that 90% of all available properties are above upper-cap levels and in some areas no property is available at the upper-rent-cap level.

The sins of our oppressors

Rights violations often exhibit a pattern of passage from one generation to another. In the case of upper-rent-caps, we need to go back in time to about 200 years ago. At that time, we had what were referred to as the ‘penal laws’. One of those laws resonates with the upper-rent-caps of today. The intention to subjugate and demean may have been more stark during the penal law period, but the effects were similar. One penal law required Catholics to sell their horse to any Protestant who offered them £5. Hence, Catholics could not rise above their station by owning a horse of superior quality to those owned by Protestants.

Today, government policy portends to be in the best interests of welfare-recipients. Renters are prevented from paying market rents on the pretext that below-market rates can be maintained, even though this policy clearly can’t work. Accommodation options are taken out of the reach of welfare-recipients, in a similar manner that horses were grabbed from Catholics, 200 years ago.

A new approach

The government needs to acknowledge the main causes of homelessness if it is to effectively address the problem, which includes its dysfunctional boycott system. Dublin hotel prices are rising significantly, reflecting increasing demand for emergency housing and increased demand from tourism. The possibility of Brexit refugees moving to Ireland is another potential pressure point on housing demand. The increased demand for nightly room rentals coupled with the Rent-Pressure-zones drives some landlords to convert to AirBnB services, to avoid rent-controls. This further shrinks the supply of rental properties, creating a kind of vicious cycle.

The welfare upper-rent-cap needs to be removed. This is not a panacea but it is a necessary start. A problem cannot be solved until its full extent is recognised. Raising upper-rent caps (as previously demanded by Fianna Fáil) is not sufficient. A system that naively seeks to pressure landlords to accept below-market rents cannot work and inevitably incentivises the gentrification of housing units, leading to reduced supply and further homelessness. The mantra of more social housing as the only solution needs to be attenuated; we need to acknowledge also that a normal market interaction between landlords and welfare renters needs to be an essential part of the solution, particularly in the short-to-medium term.