Cost rental is a form of not-for-profit, Government-funded rental housing, much like social housing. Unlike social housing, however, it is targeted at middle-income households (those with incomes roughly between €30,000 and €66,000). 

Rents are not based on residents’ income, as they are in the social housing sector. Instead, rents are based on the cost of financing, building, managing and maintaining the housing over the long term. Currently typical monthly rents in the sector are between €1,200 and €1,600 for a two-bed. 

Cost rental provides secure, long-term homes for those who are not eligible for social housing, who can’t or don’t want to purchase, and who are fed up with the expensive, insecure and often poor quality accommodation available in the private rental sector.

Most experts believe this new housing tenure has the potential to be a game changer for the Irish housing system because it makes non-market, not-for-profit housing available to a wide swathe of households, it provides a form of secure, long-term rental as an alternative to both the private rental sector and homeownership, and it gives the Government a new way to increase the supply of housing. 

This last aspect is particularly important: because tenants pay rents that cover the cost of providing cost-rental housing, the sector can, theoretically at least, be self-financing over the long term, reducing pressure on the public purse.

Our research, based on survey data and in-depth interviews with residents, shows that cost rental is certainly meeting the needs of residents. Most residents (almost 80%) previously lived in private rental, and cited issues like unsuitability of the property (including issues with damp and mould) as well as affordability as the main reasons for moving to cost rental. 

Most importantly, residents feel a strong sense of security and ownership over their cost-rental homes, showing that rental housing, when done right, can be a real alternative to homeownership.

Affordability

In terms of affordability, the picture is more mixed. The cost-rental sector aims to ensure rents are less than 35% of household disposable income, but our research shows that 56% of residents pay more than that. 

To get a more accurate picture of affordability, researchers often focus on households who are more economically vulnerable, specifically those who fall within the bottom 40% of households by income. Almost a quarter of cost-rental residents fall within this category and pay more than 35% of their net income on rent. 

These households have a safety net because they can apply for HAP if, for example, they lose their job. But they are still paying more than they should be for housing which is meant to be a cornerstone of the Government’s affordable housing strategy.

The question is how to bring rents down. There are essentially two ways to do this. As rents are based on costs, if costs can be reduced then rents will become more affordable. Unfortunately, the roll-out of cost rental has taken place during a period of intense cost inflation, making this a challenge. 

But the Government still has options. They can provide some grant funding to cost-rental providers, i.e. Approved Housing Bodies (AHBs), the Land Development Agency and Local Authorities. Providing grants reduces the amount of money providers need to borrow, and therefore reduces interest rate costs. 

Another option, one used in Denmark, where cost-rental housing has been around for decades, is an interest rate subsidy. At the moment AHBs, who provide most cost-rental housing borrow from the Housing Finance Agency at around 3.75% to finance their new supply. A subsidy from central Government could fund, say, half of the associated interest rate repayment costs, at least until interest rates come down.

On the other side of the coin, affordability can be achieved via a direct subsidy to cost-rental residents. A small income subsidy could be provided that covered, for example, 20% of rent for cost-rental residents who pay more than 35% of their income on rent and fall within the bottom 40% of households by income. 

This would ensure the rent subsidy is only targeted at those who truly need it, and the amount of subsidy would be small, approximately €300 per month for eligible households. Rent subsidies like HAP have received a lot of bad press. But in the case of cost rental they can play a crucial role for three reasons. 

First, much of the rent tenant's pay goes back to the Government ultimately, as rental revenue is used to pay back the Government loans that fund the delivery of cost-rental units. Second, because rents are fixed by costs, rather than market prices, putting more money in cost renters’ pockets won’t drive rents up by inflating demand, as it does in the private housing market. Third, cost rents get more affordable over time, because rents increase very moderately. 

Our research shows that the typical cost-rental household consists of two adults in their 30s with children, with almost all adults in employment. The reality is that as the years go by the earnings of these households will grow much faster than rents, so they are likely to only need a rent subsidy to help them out in the first few years of their tenancy.

The evidence suggests that cost-rental has been hugely successful. These small changes, relatively inexpensive from Government’s point of view, can ensure it reaches its full potential as the ‘game changer’ needed by our housing system, and especially by the hundreds of thousands of households trapped in a dysfunctional private rental sector.

• Michael Byrne is lecturer at the School of Social Policy, Social Work and Social Justice, UCD. 
• Cian O'Callaghan is senior lecturer at the Department of Geography, TCD.