Why the Rent Reductions bill won't work

 PBP introduced a rent reduction bill which was defeated on 14th July 2022, but unfortunately the media narrative around it focused on the politics and ideology rather than the bill itself. This bill was defeated on that debate, but frankly, the bill itself was both the cause and victim of the kind of partisan narrative that fails renters.

The bill does 2 things: it sets up a body that will determine rents, and then designates what criteria will be used to determine rents. The body will be made up of "tenants" and "employee representatives." Tenants of what? We have at least 6 different kind of tenant in Ireland: local authority, approved housing body, cost rental/affordable, private rented sector (whole unit), student, and private rented sector (living with landlord). The bill does not say which tenants should be represented. I can only assume "employee representatives" means trade unions but what trade unions? What about representation for non union workers? Self employed? Unemployed? This vagueness is only the start of the problems.

The next criteria is based on "household income". So a "household" can be 1 adult, 2 adults, 3 or more adults, and then lone parent families with children under 18, 2 parent families with 1-3 children under 18, and then a general family designation for literally every other category of family. Finally there is a designation for 1 person over 65, 2 adults with 1 or both over 65, and finally 2 adults under 65 with no children.

There is secondary designations based on housing tenure, and then by principal economic status. But the PBP bill doesn't particularly dwell on the CSO categories even though they would have a HUGE impact on designated income and therefore modify rents, but nope, there is no mention of the fact that source of income would hugely impact ability to afford rents. Equivalising incomes would fix rents at a level above or below the affordability threshold for considerable numbers of adults, or set rents at unrealistically low or high levels, so this is a major flaw.

The bigger issue, however, is that the secondary characteristic of rent setting is the size - now there is a formula for that from ministerial guidelines for building design. This sets out for new apartments especially, what the minimum floor space is for designated living sizes. And then the guidelines specify (and contrary to popular belief, they are rigidly enforced by zoning and planning bodies) that at least 50% of apartments should EXCEED these sizes by 10% or more. This is why we have a housing crisis: since 2007, the minimum sizing per apartment has increased over the pre 1997 guidelines by insisting that 1 bed units, for example, that in the 90s were acceptable at 33-37.5m2, now must be 55m2 (aka 60m2) and on basis of 2015 guidelines 1 beds reduced to 45m2 but stipulation of 50% increase by 10% (i.e. to 49.5m2) retained. Also the new guidelines kept in place DCC stipulations on room sizes (16m2 for a shared kitchen/living room), 11.4m2 for a bedroom etc, which in many cases couldn't be "fitted" into the new lower size for the 50% of units that didn't have to be 49.5m2 or bigger. There were also new rules for dual aspects, "storage rooms", utility spaces etc.

The result is - a small build of huge 60m2 1 bed apartments at premium prices for the luxury market, but very little apartment building for sale. BTL allows a derogation whereby some apartments may be smaller, but this is extremely limited and ONLY to "fit" in units rather than making more big units.

So we really have 3 kinds of apartment - pre "tiger" era and early tiger era units where for example, a 1 bed apartment was typically 33-38m2 and didn't have much in the line or storage or private outdoor space (if any), later tiger era units which had a minimum size (for most 1 beds) of 45m2, post 2007 units that were 55m2 and a very small number of post 2014 units that are a mix of sizes but still are bigger than the 1997 guidelines that set minimum size for 1 beds at 45m2.

So a "1 bedroom" apartment can be anything from 28m2 to up to around 60m2. And both of these are considered "suitable" to home 2 adults.

There are 3 problems

    -    the rent set for 1 beds is therefore going to be based on the median income for 2 adults regardless of what the actual occupancy is

    -    there is no difference in rent based on the size - the same rent would be set for small units of as little as 33m2 (or sometimes less) up to 60m2

    -    median income calculations are based on equivalised averages and not the incomes of the tenants, which could be more or less - creating winners and losers

There is an allowance for 5% of units to be declared "luxury" meaning that 5% of the market is going to be entirely exempt from this whole rent setting process.

The issue is that setting rents on the basis of what the bill says - CSO median incomes, raises the spectre of - not rent reductions - but significant rent increases. This is because a lot of tenants (especially those subsidised by social welfare transfers) rent larger units than their immediate apparent needs. Also older tenants prefer to not share, and so often end up renting smaller units.

Some examples from CSO (2020)

- 1 adult <65     23628
- 2 adults <65   53582
- 3+ adults <75 75,385
- 1 adults w children <18 29506
- 2 adults, 1-3 children <18 58008
- Other households with children <18 66754

So to give a worked example, firstly a 1 bed rent is going to be set against the 2 adult median - which in 2020 was 53582, meaning an annual rent of 14k per annum - this is a net rent of 1116pcm. In legacy rents this is likely to be huge increase, especially if the current tenant is a single lone adult.

But there's an issue for "shared" households of unrelated persons - do they get treated as a "family" or are they considered to be separate households for the purpose of setting rents? I would assume the latter - which means that units bigger than 1 bed, designed for "mixed adult" rentals, are presumed to be made up of independent single adults. Or are 2 and 3 bed rentals to be assessed as "family" rentals - the law gives no guidance so its possible there could be 2 different stipulated rents for a unit that depend on what kind of family rents it. This potentially means that a typical 2 bed (designed for 4 people, or 3 beds for 5 people) charges a multiple of the single adult multiplier. Here's how that would work in practice:

- 2 bed unit for 4p: 4x adults @23,628pa /4 = 23628pa rent or 1969pcm

- 3 bed unit for 5p: 5x adults @23,628pa /4 = 29535pa rent or 2461pcm

The second household would actually be in many cases paying higher rents than 3 bed homes typical rent for in many areas.

Its not much better to assess such units for "family" units as often their incomes are even higher:

- 2 bed unit for 4p on basis of 2 adults with 1 child @58008 /4 = 13395.5pa or 1116pcm
- 2 bed unit for 4p on basis of 1 adults with 1+ child <18 @29506 /4 = 7377pa or 615pcm
- 2 bed unit for 4p on basis of 3 or more adults @75285 /4 = 18821pa or 1568pcm
The question here is whether or not a unit should be rented on the basis of a "family" rental, or "non family" rental - this could result invalidate the legality of certain rents as family formation changes. It would also encourage overcrowding in order to maximise savings for single adults, who would be trapped in a rent setting mechanism biased towards families.

The obvious point here is given the ambiguity of the bill, had it passed, it would have immediately conflicted with existing torts law (i.e. contracts) and retrospectively changed contracts in place. It probably would have led to court challenges that not only shot this down but incentivised wholesale legal attacks on existing PTRB arrangements. While it sounds on paper attractive to tenants, outside of Dublin especially, it might have inadvertently had unintended consequences and even in Dublin, legacy tenancies with sub market rents would have suddenly been faced with huge rent hikes based on notional design sizing and not the actual makeup of the existing tenancy. Therefore, its not a bad thing that this bill failed.