Higher costs, less benefits - Why the enhanced social housing leasing model is a bad deal
The outgoing Fine Gael government devised an off balance sheet scheme to deliver social housing, but will it deliver value for money? Mel Reynolds crunches the numbers and finds the scheme may almost double the cost compared to a direct build – with no asset left once the lease ends.
Build vs lease
This analysis compares the long-term cost of the enhanced leasing social housing to direct procurement in the Dún Laoghaire-Rathdown area.
- Direct procurement (build)
For comparative build costs, the Department of Housing issues “Unit Cost Ceilings” – guidelines for tender costs of new social housing. Last year the ‘all-in’ costs for a directly-procured two bed social apartment by Dún Laoghaire-Rathdown County Council was €295,000 . With a 2.9% loan interest rate over a thirty year term, monthly costs will be mortgage repayments of €1250 plus maintenance costs of €100 per month . This gives an annual cost to build direct – including maintenance – of €16,200. At the end of the term the state owns the property.
- Enhanced leasing model
Under the enhanced leasing scheme Dún Laoghaire-Rathdown County Council will rent a two-bed apartment for €2500 per month for a period of 25 years and maintenance is included. This gives an annual cost of €30,000 per year. The developer/owner retains ownership at the end of the term.
Cost-benefit of enhanced leasing
The net present value is the present value of expected net benefits or costs and residual value is the value of the asset after 30 years. Enhanced leasing costs €13,800 more per year than building; over thirty years assuming normal inflation and an interest rate of 2.9%, this is the equivalent of a net present value (cost) of approximately €275,000.
The residual value to the local authority is zero and the cost of non-transfer of title is €295,000. Between long term running costs and the loss of the asset at the end of the term, the projected total cost of an enhanced lease over the equivalent local authority build is €570,000.
A summary of the long-term costs of enhanced leasing are as follows:
Enhanced lease cost (per 2 bed unit)
Running costs (net present value costs): €275,000
Asset loss (The residual cost): €295,000
Total additional enhanced lease costs: €570,000
When a local authority takes out a loan to build a home, the state owns the property debt-free after thirty years. After the loan is paid the asset can continue to be used as social housing or be sold on to fund further development. When a lease is created, there is no transfer of title at the end of a tenancy period.
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Lifetime costs associated with enhanced leasing are significantly more expensive than building. Figures echo a 2018 Department of Public Expenditure and Reform (DPER) report on social renting which concluded that the cost of leasing in areas of high demand is twice the cost of building .
Leasing of social housing represents very poor value for taxpayers.
Under the Rebuilding Ireland Action Plan 10,000 new private sector social housing leases are to be created by 2022. The equivalent cost of this could be €5bn, a significant sum which would impact on and new government's plans for affordable new builds or deep retrofits. Long term costs to the taxpayer for privatising social housing provision with costly arrangements such as Enhanced Leasing will be considerable for decades to come.
Ten years ago we socialised private sector debt and will be paying this back for decades. Today we are privatising social housing provision and this, similarly, will cost us dearly down the line.