Housing coin stacks, each one bigger then the last with last one showing coronavirus and a questions mark representing the uncertainty in the housing sector during the Covid-19 pandemic

Into the Unknown

Ireland had a target of around 35,000 new homes to be delivered in 2020, aiming for supply to catch up with steadily growing demand. With the spread of Covid-19, its classification as a global pandemic and subsequent national restrictions to curb the spread, construction slowed. The pandemic had a marked impact on the housing sector with measures such as restrictions in the rental market helping tenants, even if only in the short-term.

Demand and supply of housing stock in Ireland remains a key obstacle to achieving balance in the sector, throughout the pandemic and beyond.

The stunted progress of the Irish construction sector in delivering more stock during 2020 began with the onset of government restrictions in March. Construction sites were required to cease operating by the end of March 2020 and did not recommence operations until the latter part of May 2020.

The number of completions in Q3-2020 indicates that the sector was able to make up some of the ground lost during Q2. The CSO indicates that total new dwelling completions for the third quarter of 2020 were 5,118, representing a decrease of 9.4 per cent on the same period in 2019. It does however represent an increase of 55 per cent on Q2-2020, confirming completions were dramatically affected by Covid-19 and the associated restrictions. With the worst effects demonstrated in Q2-2020 completion numbers, the sector began to catch up again in Q3.

A similar narrative unfolded globally with a slowdown in construction productivity during the initial phase of Covid-19-related restrictions in Q2-2020. In the UK construction output fell by 40 per cent in April 2020 and in the US, it fell by 30 per cent in the same period. There is evidence that as countries implemented ‘lockdown’ procedures during the year, real estate activity fell including rentals and appraisals / inspections.

Unfortunately, 2021 is already off to a shaky start with the recent announcement that construction must once again cease at least until the end of January 2021. This could hamper the industry’s attempts to make up some of the ground lost during 2020 closures and reduced capacity due to social distancing requirements on site.

With progress set to be curtailed in January with Government announcing all non-essential construction is to cease, there are some exceptions including what is described as social housing projects or “designated as essential sites by Local Authorities”.

Although the sector could not deliver as much as anticipated during 2020, it did surpass earlier pessimistic outlooks for the year. Prices held more firm than initially anticipated. The month-on-month change in the house price index shows a slight fall in the month from January to February (-0.1 per cent) and from March to April (-0.1 per cent). Although prices picked up month-on-month from May onwards, overall prices decreased by 0.4 per cent nationally in the year to October 2020.

The cost of renting also rose for another consistent year to the end of Q3-2020 marking a year-on-year rise of 1.2 per cent overall. There was a notable fall in rents in the month from March to April 2020 (down 2.1 per cent) and although they recovered considerably during the remaining months to October 2020, the rate of growth during 2020 was at a slower pace than the previous year overall. Additionally, for the first time in almost a decade, rents fell in Dublin. Rental prices reached their peak in September but began to fall back again in October (-0.8 per cent).

Covid-19 brought with it a myriad of complexities and with each wave of new infections, new restrictions including the moratorium on evictions extended from Q2 2020 offering some protection for tenants but likely to create some difficulties for landlords.

With the Government encouraging people to stay at home, limit movement and interaction with others, and to work from home where possible, people were forced to spend more time than ever before in their properties. Homeowners could take the opportunity to renovate where they had the time and money, but renters generally rely on landlords to identify and facilitate such projects.

The Housing (Standards for Rented Houses) Regulations 2019 stipulate a prescribed set of minimum standards for rented accommodation in a range of categories including structural, ventilation, and fire safety, among others. They represent not only a chance for renters to enjoy a minimum standard of safety and comfort in their rented homes, but also a statutory obligation for landlords to provide this.

Fire safety is an area of consistently high non-compliance across the regulations. A sample of over 1,000 rented dwellings inspected by Inspex on behalf of Local Authorities in 2020 shows that less than 1 per cent were compliant with Regulation 10 (Fire Safety) at the first inspection stage. However, a cumulation of follow-up inspection data shows that after the follow-up stage it is observed that almost 49 per cent of properties are compliant with fire safety requirements.

Although it is encouraging to witness safety standards improve throughout the inspection process, fire safety does remain a concern and requires careful monitoring through the Local Authority PRS inspection process.

The construction sector in Ireland proved during the tumult of 2020 its ability to adapt quickly to new health & safety guidelines and restrictions to limit and contain Covid-19 spread. Data pertaining to Regulation 10 compliance, as outlined above, shows that landlords in the rented sector are similarly capable of complying with regulatory requirements when inadequacies are highlighted.

Unlike the construction sector in 2020 that was subjected to the rapid introduction of several new industry requirements requiring quick adaptation, the Housing (Standards for Rented Houses) Regulations 2019 represent a long-term and consistent standard. This consistency gives PRS landlords the opportunity to familiarise themselves and, ultimately, to comply.

Local Authority inspections are a necessary and reliable means of determining vulnerabilities that might exist in rented accommodation. In some cases, failure to comply with the regulations can be due to any number of factors. For the most part landlords appear keen to comply and upon receiving the summary of non-compliant areas set about rectifying problems where required.

National and sectoral responses to Covid-19 globally have shown how Government measures can impact individuals and industries. The additional problems brought on by Covid-19 highlights the importance of consistent checks of properties to ensure compliance, as landlords are statutorily obliged to do.

AHB delivery of affordable homes shows a reconfiguration of housing in Ireland with strikethrough of Plan A to implement Plan B

A Changing Landscape

There is a demonstrable link between population growth and housing demand with current estimates suggesting around 34,000 new dwellings are required each year until 2030 to keep pace with population growth and changes in household formation.  A country with 6 million people – as Ireland is projected to have by 2050 – needs more homes than a country with 4.8m, our current population.  With this population growth, action is needed to deliver more affordable homes.

The right to adequate housing does not require the State to build housing for the entire population, rather it intends to deliver affordable homes through the collaborative efforts of the Local Authorities (LAs), Approved Housing Bodies (AHBs) and the private sector.

State support for housing in Ireland has undergone some dramatic changes in recent decades. The traditional ‘twin pillars’ of housing policy included home ownership combined with the provision of social housing through the local authority system for those who could not afford to purchase. The growth in the role of the private sector began in the boom years and accelerated during the recession.

Section 21 of the Housing (Miscellaneous Provisions) Act 2009 requires each LA to prepare a summary of the social housing assessments carried out in its administrative area annually.  Key findings from the Summary of Social Housing Assessments 2019 indicated that 68,693 households were assessed as qualified for housing support up to June of that year.

Legislation introduced in 2009 recognised that households needing social housing could have their needs met by LA or AHB provided social housing, or by private rent subsidies or privately leased dwellings.

To qualify for access to LA and AHB housing, households must have net incomes below a specified level.  For low-income households who cannot access social housing, Government provides different financial schemes to enable low-income households to access accommodation in the private rented sector.

For most of the period since social housing was first built in Ireland in the late 19th Century, LAs have been its main providers.  With 365,350 council houses and flats, the LAs have made a major contribution to providing affordable and secure accommodation for low-income households. The various housing policy statements published since the 1980s highlight several reasons for the declining role of LAs, among these, the affordability of Exchequer funding, differential rent and the effective management of the properties and tenants.

AHBs are independent, not-for-profit organisations either (a) Limited Companies formed by guarantee of their members and not having a shareholding, registered under the Companies Act 2014, (b) Societies registered under the Industrial & Provident Societies Acts, 1893 – 2014 or (c) Trusts incorporated under the Charities Acts.

Initially, AHB spending was not categorised as public spending and their borrowing was not considered part of the national debt.   This has been cited as the reason why growth in this sector has been supported by government.  This status did change in March 2018 when the EU statistics agency, Eurostat, determined that AHBs should be reclassified as public bodies, in other words moved on-balance sheet.  There is no indication to date, however, that this has affected the expansion of the sector.

Today as an integral part of the housing system, the increase in state funding, and that there are more than 500 AHBs established in Ireland, it was only a matter of time before regulation was introduced to the sector.

Important steps were taken in this regard with the establishment of the Voluntary Regulation Code for AHBs in July 2013 and then with funding eligibility largely guided by adherence to the Code, a total of 275 AHBs, representing 36,992 homes, signed up to the Code.

Transitioning from voluntary to statutory does mean significant change. The Housing (Regulation of Approved Housing Bodies) Act 2019 signed into law on December 23rd, 2019 allowed for the establishment of the Approved Housing Bodies Regulatory Authority to oversee the effective governance, financial management and performance of all AHBs.  Under the same legislation most housing association tenancies had to be registered with the Residential Tenancies Board (RTB).

The Residential Tenancies Act itself saw the introduction and enforcement of minimum accommodation standards that now apply across the mix of housing providers.  While the LAs are responsible for checking and enforcing the minimum accommodation standards all landlords, including AHBs, are responsible for ensuring their rented properties meet these standards.

In 2019, AHBs contributed around 40 per cent of new social housing across all delivery channels (new-build, acquisitions, and leasing).  Total new provision by AHBs increased from just over 1,300 homes in 2015 to over 4,000 homes in 2019 and the AHBs now have a total of 40,000 homes under management.

The reconfiguration of the housing landscape in Ireland has laid the foundations for major reform with LAs transforming into procurement agencies and regulators and AHBs taking a more active role in the supply of housing.

The mechanisms used to deliver affordable housing have become more varied in recent decades but given the increasing need for social and affordable housing, the AHBs’ contribution to the housing market remains vital whilst at the same time effective regulation and independent verification of accommodation standards should prevent any deterioration in housing stock.

For Rent sign represents Residential Tenancies Act 2020 introduced new rental protections for tenants who face rent arrears and, as a result, are at risk of their tenancy ending

Residential Tenancies Act 2020

The Covid-19 2020 Act was introduced on 27th March 2020 and banned all rent increases and tenancy terminations, with limited exceptions, during the Covid-19 emergency period. This emergency period expired on 1st August 2020. From 1st August 2020, when the Residential Tenancies and Valuation Act 2020 came into force, new rental protections applied to tenants who face rent arrears and, as a result, are at risk of their tenancy ending.

This new legislation introduces temporary restrictions which provide that tenants are not required to vacate their rental properties during an Emergency Period, except in limited circumstances relating to specific breaches of tenant obligations.

The Act seeks to recognise the impact that the rise in unemployment and reduced working hours associated with the pandemic has had on the rental sector, and the challenges that this presents for tenants in meeting their obligation to pay rent. The Act brings in temporary restrictions on ending tenancies when restrictions on travel outside a 5km radius of a person’s home are in place. Currently, this is in place for six weeks from 21st October 2020.

Rent increases already served will be effective on some tenancies but not on others. Tenants whose income was adversely affected by Covid-19 may be protected from increases.

Not that all tenants in arrears are protected by the changes in the legislation, but the Residential Tenancies Act 2020 does set out new protections and obligations for tenants in financial difficulty as a result of Covid-19 and increased obligations on the service of documentation around rent arrears on all tenancies.

A tenant who follows the procedures and provides a landlord with a self-declaration form relating to an inability to pay rent due to Covid-19, cannot be made to leave the rented accommodation before 11th January 2021, and do not have to pay any increases in rent until after 10th January 2021.

Where a self-declaration form is given to a landlord from a tenant highlighting a tenant’s inability to pay rent due to Covid-19, a tenancy cannot be ended before 11th January 2021 and the tenant must be given a minimum 90-day notice period to vacate.

In normal times, a tenant is required to pay rent in full and on time until the tenancy ends even where a dispute arises between the parties. If the rent is not paid it is a breach of a Tenancy Agreement.

If a landlord wants to end a tenancy due to rent arrears, a landlord must issue a tenant and the RTB with a written Rent Arrears Warning Notice providing a minimum of 28 days for the rent arrears to be paid in full. The 28-day warning notice period only begins to count down when both the tenant and the RTB have received the Warning Notice. Warning Notices must always be in writing as a text message or email is not considered suitable.

A Notice of Termination (NoT) is the official document which ends a tenancy. Landlords and tenants can serve a NoT as usual during an Emergency Period, subject to certain exceptions, but the notice period cannot begin to count until an Emergency Period is lifted.

Covid-19 has had a significant impact on jobs and incomes across Ireland. Since March 2020, there have been a series of new rules and requirements regarding tenancy terminations and rent increases that affect both landlords and tenants. Either party misunderstanding their obligations is best avoided.

A checklist of indoor pollutants, adequate ventilation is an important factor that ensures potential pollutants or moisture generated within a property can exit the property

An Important Factor

The quality of rental accommodation is critical to the success and sustainability of the residential rental sector and rented properties should provide efficient, safe and healthy environments for those who live in them.

Updating and improving standards and regulating their application to the sector are essential to ensuring the quality of accommodation. The Housing Acts 1966 to 2014 allocate responsibility to the Local Authorities for the enforcement of the Housing (Standards for Rented Houses) Regulations that prescribe the minimum standards for rented accommodation.

Regulations setting out minimum standards for rented accommodation were first set out in 1993 with the most recent iteration being the Housing (Standards for Rented Houses) 2019.  Regulation 8 of these standards requires that all rented homes have adequate ventilation.  Analysis of a recent inspection sample shows that 52% of the older rented housing stock and 32% of recently built rented housing stock are non-compliant in the provision of adequate ventilation.

In ‘normal’ times, we spend around 90% of our time indoors and around 16 hours a day on average at home.  Time spent in our homes has been estimated by some experts to have increased to 98% and 23.5 hours respectively during the Covid-19 pandemic.

With people spending so much of their time indoors, and with growing evidence of poor indoor air quality (IAQ) being linked to a range of health conditions, there has never been a more important time to ensure a building has effective ventilation. In addition, people who may be exposed to indoor air pollutants for the longest periods of time are often those most susceptible including the young, the elderly and those suffering from respiratory or cardiovascular disease.

Ventilation is the intentional introduction of fresh outside air and the removal of stale indoor air from the living spaces within our homes.  Without proper ventilation, an otherwise insulated and airtight house will seal in harmful pollutants, such as carbon monoxide as well as moisture that can damage a property’s structure.

Carbon monoxide is the odourless deadly gas produced as a by-product of the combustion of natural gas and home heating fuels such as propane, oil, coal, and timber.  Inhabitants of a home generate moisture when they cook, shower, and do laundry. Just by breathing and perspiring, a typical family adds about three gallons of water per day to their indoor air.

Effective ventilation facilitates the exchange of air between the outdoors and indoors and helps to prevent the build-up of airborne pollutants as well as reducing the threat of viruses taking hold inside buildings.

Outdoor air enters and leaves a building by infiltration, natural ventilation, and mechanical ventilation.

Air movement associated with infiltration and natural ventilation occurs as the air moves through opened windows, doors, and vents.  A secure ventilation opening located in a wall or window (trickle ventilation) ordinarily incorporates a controllable ventilation grille which can be fully opened or closed.

There are a number of mechanical ventilation devices, from outdoor-vented fans that intermittently remove air from a single room, such as bathrooms and kitchen, to air handling systems that use fans and duct work to continuously remove indoor air and distribute filtered and conditioned outdoor air to strategic points throughout a house.

Good indoor air quality is important to avoid health issues and ventilation is now generally accepted as an important factor in preventing the virus that causes Covid-19 from spreading.

Aside from the good sense of it, to achieve compliance with Regulation 8 Housing (Standards for Rented Houses) Regulations 2019, the means of ventilation chosen for each room within a rented property should ensure an adequate supply of fresh air for the people living within the property, dispersal of residual pollutants and removal of water vapour from the areas where it is produced in significant quantities.  This should reduce the likelihood of creating conditions that support the growth of mould, provide good indoor air quality while protecting investment in rented housing stock.

Two men on pedestal, one much higher then the other looking down showing an imbalance. A strong and balanced rental sector is a key component in any healthy housing market

Striking A Balance

This emergency period has presented significant challenges that few could have imagined and its full impact on the rental sector has yet to be realised. That said, it’s time for something completely different….

A strong and balanced private rented sector (PRS) is a key component in any healthy housing market. The successful provision of rented housing is considered of such importance it formed one of the five pillars of Rebuilding Ireland published in July 2016.

Historically the PRS in Ireland was a residual sector seen as a temporary arrangement on the way to owning a home or accessing social housing. The sector was virtually unregulated until the introduction of the Residential Tenancies Act 2004 that set out the rights and obligations of landlords and tenants and detailed rules around residential tenancies.

Over the last number of years, there has been considerable change to the sector’s regulatory framework with the Residential Tenancies (Amendment) Act 2015, Planning and Development (Housing) & Residential Tenancies Act 2016 and the Residential Tenancies (Amendment) Act 2019. The sector has seen an expansion of the Residential Tenancies Board’s (RTB) regulatory role, introduction of rent pressures zones, security of tenure protections, introduction and enforcement of minimum accommodation standards along with many other measures.

Buy-To-Let (BTL), where a property is specifically purchased to rent to tenants rather than lived in by the purchaser, used to be all the rage. Historically, most of the investment in the Irish rental sector came from these small-scale investors where a poorly regulated sector, with little or no limit on rental growth, made for an attractive investment and required little investor knowledge. Most were diligent landlords, but some were rogue.

Build-To-Rent (BTR) describes the practice of delivering purpose-built residential rental accommodation and associated amenity space for the purpose of being used as long-term rental accommodation. This new sector provides larger scale purpose-built apartment blocks that benefit from professional management, flexible tenure and the long-term, low-risk, steady growth requirements of the institutional investor.

To confront the problem of distressed assets in a post-2008-crash context, the system was encouraged to sell off assets and large portfolios to financial institutions, private equity firms, hedge funds, real estate investment trusts (REIT) and vulture funds. Property tax incentives introduced by the Government during the economic downturn, has been the target of criticism. Supporters believe these policies encouraged capital back into the Irish market at a time when it was much needed and bolstered the subsequent growth in FDI and our economic recovery.

While private institutional capital (investment funds and REITs) have been major purchasers of residential units in the Irish market, public capital in the form of Part V acquisitions, AHBs and local authorities are also significant buyers of residential property.

While turnover in the BTR sector more than doubled last year to €2.54 billion, many believe the Government’s encouragement of institutional investment away from the BTL sector and into the BTR sector has been costly for generation rent.

With increasing insurance, maintenance, management costs and less tax relief to be claimed, BTL investors are struggling to compete with BTR institutional investors. The tax and regulatory frameworks of the residential rental market are two of the disincentivising factors for smaller landlords, while institutional investors enjoy the benefits of organisational structure, economies of scale and stronger equity.

Even though investment funds have had the capacity to pay the high construction costs of apartment blocks in urban areas while satisfying the Government’s requirement to deliver scale in a demanding housing market, others believe some of the larger landlords are of now of sufficient scale to influence government policy as well as possessing rent setting powers in certain locations.

According to the RTB, some 40,000 smaller landlords have left the sector since 2012, while the sector has become increasingly attractive to large scale investors and corporate residential landlords. The market has expanded to include 340,000 tenants, 714,000 occupants and 174,000 landlords. But as it has expanded it has also become more expensive with rents rising by 40 per cent between 2007 and 2019, almost double the EU average.

The provision of rental housing is of such importance that an over-reliance on a limited number of third parties is a risk we shouldn’t take and one that can only be mitigated by ensuring we have a balanced mix of PRS housing providers.

Balance between money and housing, the extraordinary legislative measures to somehow contain the impact on housing provision during Covid19 pandemic

Containing the Impact

The speed with which the pandemic has struck left our policy makers with no option but to implement extraordinary legislative measures to somehow contain the impact on housing provision.

Self-isolation confirmed medical diagnosis and/or a reduction in working hours or loss of employment are likely to present significant financial challenges for both landlords and tenants over the coming months.

With effect from 27 March 2020, emergency measures were introduced into law, to protect tenants during the Covid-19 emergency period.  The Act provides for amendments to the Residential Tenancies Act 2004 – 2019 that are expected to last for a period of 3 months but may be extended if the Government considers it necessary.

The legislation ensures that tenants cannot be forced to leave their rental accommodation, other than in exceptional circumstances, during the emergency period. A notice of termination cannot be served and where a notice of termination was served before the 27/03/2020, it cannot take effect until the emergency period has ended. For tenancies of less than 6 months duration, a tenant now has 28 days, increased from 14 days, to pay rent arrears due.  If the tenant and landlord are unable to agree an approach to arrears, the landlord cannot issue a notice of termination during the emergency period. Rent increases are prohibited during the period but rent decreases can be implemented.

Landlord obligations in relation to the property and the tenant remain unchanged and tenants are obliged to continue to pay rent during the emergency period.

Some of the country's largest landlords and institutional property investors have said they will support government efforts to protect tenants who are impacted by the disruption caused by the pandemic through measures such as deferral of rent payments and payment plans.

The trickle-down effect of rents not being paid would be devastating leaving some landlords unable to make mortgage payments, meet insurance costs and pay their own bills.

Smaller landlords facing potential difficulties in making loan repayments are being advised that certain banks, retail credit and credit servicing firms have introduced 3-month payment breaks on mortgages.

While tenants are expected to pay rent during this period, income support and rent supplement provided by the Department of Employment Affairs and Social Protection is available to those struggling to do so. Any rent arrears built up during the period will be payable.

Tenants are advised to contact their landlords as soon as they can to talk through delayed or partial payment options.

The legislative changes are temporary in nature, lasting for the duration of the Covid-19 crisis, after which point residential tenancies will revert to the current legislative arrangements.

Gavel with words compliance above representing AHB regulation was formalised in statute with the enactment of the Housing (Regulation of Approved Housing Bodies) Act 2019

Raising the Stakes

Although the right to housing in Ireland is neither constitutionally nor legislatively protected, we are, under the United Nations Sustainable Development Goals committed to ensuring access to adequate, safe and affordable housing for all by 2030.

Due to the imposition of austerity measures over a decade ago and government funding cuts for social and affordable housing development, delivery of the actual housing units has been slow while demand continues to grow.

The concept and definition of social housing in Ireland has broadened over the course of time. Social housing is now described as housing provided by a Local Authority (LA) or a housing association to people who cannot afford housing from their own resources and properties rented by either of these groups from private landlords. Some experts include the provision of government subsidies, such as the Housing Assistance Payment (HAP), to facilitate lower income earners in securing rental accommodation in the private sector.

The establishment and registration of Approved Housing Bodies (AHBs) was first introduced in statute under the Housing (Miscellaneous Provisions) Act 1992. It set out the general scheme of how AHBs could and might operate alongside LAs in Ireland for the provision of social and affordable housing to those who could not afford to rent in the private sector and for groups with specific needs, such as the elderly, disabled or homeless.

By 2013 the AHB sector began to formalise in a meaningful way with the introduction of the Voluntary Regulation Code (VRC) by the Department of Housing. In doing so, the Department acknowledged the scarcity of funding for LA-led social housing supply and the growing need for AHBs to fill the void in social housing provision.

The Residential Tenancies (Amendment) Act 2015 brought AHB tenancies under the remit of the Residential Tenancies Board (RTB), while in 2019 the regulation of AHBs was formalised in statute with the enactment of the Housing (Regulation of Approved Housing Bodies) Act 2019.

The Act covers the areas of corporate governance, financial management and reporting, property and asset management and tenancy management with which all registered AHBs are now required to comply. The Approved Housing Body Regulator is required to submit for approval draft standards to the Minister for Housing within six months of the establishment of the Act to outline requirements in this regard, for example procedures to ensure control and oversight, requirements for financial and risk control and procedures for ensuring financial viability, and policies relating to the management of dwellings and communication with tenants.

With the significant public resources being invested in the AHB sector and organisational responsibilities growing exponentially, the idea of being too big to fail in the context of housing provision, cannot be contemplated. The challenge for AHBs to cater for housing needs and increasingly fill the LA void is a conferral of significant responsibility which must be carefully monitored and held to account.

A sample of inspections carried out by Inspex in 2020 on AHB owned and managed properties show that after first inspection, 99.5% of properties failed to comply with fire safety provisions, 72% failed to comply with structural provisions, 72% failed to comply with heating related provisions and just over 25% did not comply with ventilation requirements, per the Housing (Standards for Rented Houses) Regulations 2019.

These results demonstrate the importance of the LA proactive inspection programme and for the compliant and responsible landlords, large or small, to know that the non-compliant landlord, large or small, is detected through the system of regular inspection.

The role of independent inspection and verification of minimum standards in rented accommodation is as important as ever. The larger landlords, like any of the 520 registered AHBs in Ireland, focused on delivering housing at scale, should note that as stakes continue to rise so too do the systems to detect and uphold the necessary standards throughout the lifetime of each and every tenancy.