5 0 April 2017
“R
ENT OR Buy?” is a frequently asked question.
Buying a property is a form of long-term
saving; mortgage repayments pay loan inter-
est as well as a portion of the principal loan amount. The
end of a mortgage term coincides with full ownership of
a substantial asset. When renting, no such saving occurs
and the asset is retained by the landlord. The argument
for buying is compelling - rental costs are higher than
mortgage repayments in many locations.
In fact, for Government policy-makers the question
should be “Rent or Build?”. The governmnt’s ‘Rebuilding
Ireland’ Housing Action Plan proposes 47,000 new social
dwellings in the next five years, 70% of which will be
rented or leased. The remaining 15,000 units are to be
a mix of builds by Local Authorities, Approved Housing
Bodies, so-called 'rapid' units, and regeneration pro-
jects. It is an ambitious plan with a large budget
allocation. Last year, according to Sinn Féin Housing
spokesperson, Eoin Ó Broin, 76% of the Department of
Housing social housing so-called ‘solutions’ were pri
-
vate homes leased by the State.
From these figures it can be seen that the State con
-
tinues to be reliant on private housing rented for social
housing. Given the ambition and scale of the current
housing strategy, it is appropriate to examine this rental
model from an economic perspective. What are the cost
implications of renting a typical house versus a local
authority building social housing itself (direct
procurement)?
A cost-benefit analysis will test the underlying
assumption that it is cheaper to rent than to build.
State housing: Rent or Build?
In this indicative worked example the following assump-
tions apply: a three-bedroom dwelling (apartment or
house) is located in the Greater Dublin Area, a rent con-
tribution (say Housing Assistance Payment) in this
location is €1,050, and the average building cost of a
directly-procured Local Authority three-bed Home on
state owned land is €180,000. This cost was confirmed
by Minister Simon Coveney in the Dáil last November.
Locations outside Dublin will have lower building
costs and lower rent-assistance payments, but the dif-
ferences will be proportionate. Energy costs for
low-energy (nZEB) building standards will be examined.
It will be assumed that a home is properly maintained
over the thirty-year period in each scenario and that
costs are similar, and so are not tabled. nZEB will be the
new-build national performance standard in 4 years.
It should build Passive Houses,
not rent housing from the private sector,
as social housing
State could save
€9bn over 30 years
on social housing
OPINION
‘Rebuilding Ireland’
proposes 32,000 private
homes rented or leased
by the State over the next five
years - this may cost €290m per
year more than Local Authority
built low-energy homes
by Mel Reynolds
Bruck Passive Houses, Changxing, China
Design: Peter Ruge Architekten
Avoid 9bn euros of this