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Propertypin proves nothing on Rent Allowance (other than that their figures are wrong)

Posted by Karl Deeter on 16 August 2011 - Leave a Comment - Printer Friendly Version

There was an interesting post on ThePropertyPin that I came across on twitter and in reading the analysis I was struck by the statistics mentioned regarding the rent supplement.

For a non-landlord, hearing that ‘rent supplement’ is above actual rents must seem like lunacy, heck, even for a landlord it sounds ridiculous. In particular when the average is 7% above the general asking prices according to the piece. But taking this post on the face of things merely circumvents the truth within the figures.

In fact, in many instance there are several factors at play, such as a local authorities inability to accept ‘asking prices’ as the real price, where these figures are negative it demonstrates that they know the asking price is not the ‘clearing price’ and therefore they can offer the client (rent supplement recipient) far less than that which is dictated by the market.

For instance, in every case given, Leitrim is not giving people enough to rent a property and its the same in Longford. In Longford the average of -22% of the asking rent is not there to make people homeless, rather it is the clearing price for the properties and it is working in terms of getting tenants into good quality buildings.

Am I sure? Yes, because a call to the housing department in Longford County Council verified that (just needed to double check!).

Now that we have debunked the fallacy behind some of Ireland’s worst counties when it comes to property stock why don’t we look at the shocking examples of overpayment which would justifiable whip people into a rage.

A 17% premium in Kerry on a one bed apartment becomes only a 2% premium if you go to 2 or 3 bed apartments. And let us not forget - every example given is for apartments, not houses. How many 1 bed apartments are there in Kerry versus the people who want to live in them who are on rent supplement? If a couple in Kerry lose their jobs do they move to a major urban area to look for work or stay put?

How many owners of 1 bed apartments are in the tourist letting business in small towns rather than the local welfare receipt business? These things don’t translate across, if they did you wouldn’t see such a drop in the premium on 2 and 3 bed apartments.

Wicklow demonstrates the same thing, Wicklow 1 beds command a 25% premium according to what is on the PropertyPin, but think about this: if you are getting money that you don’t have to work for then why would you opt for anything other than the maximum quality you could obtain for the allowance given? Add to that the cheaper properties are not in good locations and welfare recipients don’t all own cars so they need to be close to public transport and that means getting a really good 1 bed, not something halfway up a mountain, if they have children there are also minimum standards that must be met.

In fact, under the housing act changes of last year the local authorities actually carry out inspections now for properties that are to let and if it isn’t up to scratch you can’t rent it to a person receiving rent supplement, so it implies that standards must be kept high and therefore the cheap properties might be eradicated instantly.

Even this flood prone property in Bray is more expensive than the price given as ‘proper market price’ in the comparison so there is perhaps some ‘figure massaging’ in there too.

The majority of 97,000 recipients (people or households) on Rent Supplement live in major urban centres, namely Dublin, Cork, Galway, Limerick and Waterford, something I verified with a senior civil servant in the Housing Finance Agency. Looking at those areas you see the following:

It shows that far from being some big ‘give away’ that in the actual areas that the supplement is most needed and used that often it is BELOW the market asking price, meaning that in many cases the person actually has to make up the difference.

In particular the 2 bed apartments interest me because they are the key accommodation in ’standard letting property’ (we’ll continue to just breeze past the uncomfortable non-inclusion of actual houses in the example) and in every major urban centre the figures are negative or only up less than 1%.

In the three bed category it is an even bigger divide with a greater than -10% in 4 out of 5 urban centres.

And this is where it gets unpleasant. There is a risk premium to letting a property to people on rent supplement, the PRTB backlog is not just made up of tenants who had their deposits kept, and in those cases there are a percentage who will still lose based on the evidence provided at the hearing.

Rent supplement is not ‘guaranteed’ because in many cases the tenant controls whether it gets paid or not, and letting agents will tell you that in general a property let out to a family on rent supplement will have greater wear and tear - hence the ‘no rent supplement’ ads you see, implying that there is a genuine increased cost that comes to renting a property to a person in receipt of it.

So, when you look under the hood of the figures you find that in the major urban centres where rent supplement is used most that far from being a give away that in fact it doesn’t cover the price, so landlords either discount for the tenant or the tenant has to make it up themselves it is nothing like the image portrayed when you first examine the issue.

The propertypin has proved nothing, I don’t often visit the site because I was banned for having a ‘commercial name’ [three years after taking the name up!]); and you can consider this ’sour grapes’ if you want, or a rational examination of faulty analysis, whatever floats your boat!

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13 Responses to “Propertypin proves nothing on Rent Allowance (other than that their figures are wrong)”

Eamonn Moran Says:
August 16th, 2011 at 11:45 am
Karl just so things are upfront. Are you a landlord (do you have a commercial interest on rent allowance not being reduced)? Are you calling that house “flood Prone” in Bray, just because of the picture?
Average Rent vs Rent Allowance - Page 3 Says:
August 16th, 2011 at 11:46 am
[...] Irish Mortgage Brokers | Mortgage Brokers Dublin Blog by Karl Deeter today claiming rent supplements are below rents. Reply With [...]
Karl Deeter Says:
August 16th, 2011 at 11:48 am
Hi Eamon,

The analysis is not based upon bias, it is based upon rigour, if you think a bias is evident because of what I do for a living that is one thing, but in general terms it doesn’t matter because the facts speak for themselves.

The ‘flood prone’ property is thus because the area has been flooded in the past, you can get that on a google search of the area, or you can call an insurance company and speak to one of the people who work in the geo-claim section because they keep records of this kind of thing for underwriting purposes.
thanks for coming by!
karl
Shane Nevin Says:
August 16th, 2011 at 12:11 pm
Like you’ve stated, rent supplement is only really going to only to put a floor on a small section of the market. Just like estate agents, people on the property pin are likely to have their own agenda in wanting rents reduced; thus, this personal bias affects their thinking. It’s actually quite arrogant of Eamonn Moran to expect you to provide disclosure when people like him and the other anonymous bloggers on the property can say whatever they like without providing anything pertaining to their own self interest in this regard.
Karl Deeter Says:
August 16th, 2011 at 1:35 pm
@Shane

Thanks for coming by to comment. the main point I hoped to make is that far from rent supplement being a ‘freebie’ that in the areas needed it trades at a discount and in the areas it isn’t popular it carries a premium, there is more to be determined from this but one thing that can’t be drawn from it is the original analysis given.
come back again soon!
cheers
karl
Patrick Dunne Says:
August 16th, 2011 at 4:02 pm
Karl,

Lets take an example of an unemployed Dublin couple with one child. According to the figures on thepropertypin link above, such a couple would receive 930 euros per month rent allowance. Page 7 of the daft report shows asking rents across each postcode/area. The 930 euros p/m would allow the couple to rent an ‘average’ apartment in every area of Dublin (including Dublin 4!). Now supposing, as you alude to above, that asking prices are a little higher than actual rental prices - Lets say 10% as this is generally accepted by renters and letters I believe. Assuming this, our fictional couple could rent an ‘average’ two bedroom apartment in every Dublin postcode in Dublin except D2, D4 and D14. In fact they could rent a 3bedroom apartment in 10 of the 25 areas.

I wonder how a low income couple with one child would fare in comparison?

In my opinion social welfare should not provide an ‘average’ standard of living as this is the incentive to work.

The comparison made between the two sets of figures clearly, in my opinion, shows that rent allowance is too high. Whether this is creating an artificial ‘floor’ on rents I cannot say. However I have heard in the past that the Government makes up to 50% of all private rental accomodation. If this is true then clearly the high level of rental allowance is distorting the market.

ps I noticed that you didn’t answer Eamonn’s question above. Do you have a vested interest? If you do not believe that rent allowance is creating an artificial floor on rents then you would be in favour of a cut?

Regards
Patrick
Karl Deeter Says:
August 16th, 2011 at 5:12 pm
Hi Patrick,

Always happy to see new visitors!

Anyway, the point being made in your analysis is entirely different than mine which is that the premium claimed does not exist in the way it was claimed. Furthermore, there is the uncomfortable reality that people in this country have a preference for houses over apartments so that single fact undoes the argument in another way.

The idea of letting prices being below asking prices is perhaps real, perhaps not, if it was then eventually many landlords would drop their price and it would be reflected in asking prices but instead we are seeing stagnant prices meaning that there is also a likelihood that prices are not going up or down - something I clarified with Ronan Lyons earlier today when I interviewed him on Newstalk.

As for being vested interest, take it that I am, I work in the mortgage industry, if I say ‘I’m not’ the usual clamour is ‘oh but you are’ if I say that I am then it will be ’see you are vested interest’; the subtle point that is being missed is that my position doesn’t amount to anything even if I owned 100 apartments and they were all let to rent allowance recipients because that is not enough to sway the market - the analysis was wrong and misrepresented - that is the crux of it! Rent supplement is not the majority of the market and therefore cannot create a ‘floor’, oddly - not repossessing houses in arrears (likely to be 70,000+ at this stage) does artificially keep house prices high because that is almost 9% of houses with mortgages on them and it stops clearing prices from readily occurring - but that is a different point/argument

I agree with your point about social welfare not being there to give an average lifestyle to people who don’t work, but that has nothing to do with price floors or an attempt to create them, it is also a different point/argument.

I’m guessing you came here from the propertypin, please come back again soon!
thanks
karl
Dreaded_Estate Says:
August 16th, 2011 at 5:43 pm
I think you raise a very valid point MB and I don’t actually disagree with you.

However, it is not necessary for the rent allowance to be above the average rent for the rent allowance to be putting a floor on the market.

The average rent for, say a 2 bed, encompasses everything from the most basic 2 bed apartment to the {link removed} 2 bed in Ballsbridge asking €5k per month. Therefore the average rent includes lots of properties that nobody on social welfare will be in the market for but they push up the average rent overall.

Therefore while the rent supplement could be below the average rent overall it could be above/or very closer to segments of the market.
Tommy Says:
August 16th, 2011 at 8:56 pm
Hi Karl,

Genuinley miss your views over on the pin

Ref: Rent Supplement; The recipient of rent allowance must pay a minimum of €24 per week for their rent. This makes up the difference between asking prices and the rent supplement in most cases from your tables.

PS I’m living in Limerick city and rent a 3 bed house in a decent area for €600 p/m. Anecdotal, I know but the figures for rent supplement in Limerick City are a disgrace

“The household (this is the claimant and may also include a qualified adult and qualified children) must contribute at least €24 towards rent”
http://www.citizensinformation.ie/en/social_welfare/social_welfare_payments/supplementary_welfare_schemes/calculating_rent_supplement.html#ldbfa0
Tommy Says:
August 16th, 2011 at 9:08 pm
Oop!

From the website

The rent paid to your landlord (that is, your contribution plus your Rent Supplement) must not be above the maximum rent level set for your county or area.
my theory up in smoke
Karl Deeter Says:
August 17th, 2011 at 10:04 am
@Tommy Is it not €24 in total rather than per week?

The household (this is the claimant and may also include a qualified adult and qualified children) must contribute at least €24 towards rent.

Non-dependent household members who are solely dependent on a personal social welfare payment must also contribute €24. However, if Benefit and Privilege has been assessed against your social welfare payment you will not have to contribute €24.
Conor Says:
August 17th, 2011 at 6:37 pm
Hi Karl,

The rent supplements are distorting the market, there is no incentive for a rent supplement tenant to get a reduction in the rent as the money saved will not accrue to them.
The state is setting the maximum it will pay (creating a artifical floor).

why not give everyone an allowance still based on family size and let them negotiate with landlords and rent money they save, they keep, provided the accomadtion meets the standards etc.

this open market measure would reduce rents in many areas i bet by 25%.

also in addition the state having such a large share of the private rental market is a price maker not taker.

the rent supplemt scheme ias it stands is part of the hidden welfare state that in this case acts acts a landlords dole.

regards

conor
Gaius Says:
January 3rd, 2012 at 5:32 pm
Karl
I have personally experienced putting in a rental offer on a house that had been vacant for months only to be told “sure we can get more than that on social welfare”.

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Propertypin proves nothing on Rent Allowance (other than that their figures are wrong)

13 Responses to “Propertypin proves nothing on Rent Allowance (other than that their figures are wrong)”

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