“Cost-rental model” is the flavour of the month as a way of solving the housing emergency and making the provision of shelter more affordable and sustainable.
The cost-rental model is a system whereby the total cost of a housing development (land, design, construction, property management and maintenance) is divided by the number of tenants or homes to establish the rent, typically spread out over thirty years. This would mean that on a house costing €350,000 to build (which is what the Society of Chartered Surveyors estimates the average to be), plus another €50,000 to maintain it for a thirty-year period, on a very conservative estimate of pricing the total rent would be €400,000 divided by 30, that is, €13,333 a year or €1,111 a month, if everybody in the development is paying the same rent
On top of this there are insurance costs, interest repayments, and a sinking fund (money put aside for one-off long-term repairs, for example roof replacement, rewiring, etc.). This would make rents substantially higher for your average family home: in Dublin they would come in at about €1,500 a month.
Rent levels might be lower than market rates (€1,800 per month), but it is certainly still well beyond the means of many of our citizens, considering that half the population earn less than €28,500 a year.
These figures show that rent would be more than half gross income for half the population, and a decidedly greater fraction of net pay.
The system also allows for people who earn less to pay less rent, which would mean that those on higher incomes would pay higher rents to compensate for the shortfall. Consequently, high-income earners would be subsidising lower-income earners’ rents; or, if you take that a step forward, people on higher incomes will be subsidising low pay: poor people subsidising other poor people.
There is no crisis that capitalism cannot fix so long as the working class are willing to pay for it.
This model does this, as employers and the state are let off the responsibility to their employees or citizens, while the cost of the housing is shared in total by the tenants instead of being from general taxation, as part of the social cost of using our young, well-educated population as workers.
This “young, well-educated work force” that we keep hearing about does not just happen, it must be paid for; so if you want to use it there is a cost.
The cost-rental model would also ensure that it will be more attractive to low-paid people to take up these homes, as the rent would be shared by all tenants and linked to their income. In other words, if you earn more you pay more. Why would somebody decide or agree to pay more in rent than the value of the property, just because they earn a few extra euros a week?
This would lead to the ghettoisation of these housing developments, as they would be filled with low-income families, thus reproducing the mistakes of the past.
It is not the duty of one group of workers to provide a subsidy towards the housing needs of other workers: this is the duty of the state.
Universally accessible public housing is the only solution to the housing emergency. Differential rents based on a percentage of income, typically about 15 per cent, should be applied. This would release and provide a lot more disposable income to families. As it stands today, many people are paying up to 70 per cent of their income on rent; and, as we see from the example above, this would differ little with a cost-rental model.
So, if we want to achieve genuine mixed-income public housing, the only way to achieve this is to make universally accessible housing available to all citizens: a new housing service publicly owned, available as a right, much like health, education, and so on.
Of course this would put the state into conflict with our lord and master, the EU, as it would be deemed “unfair competition” with the private sector and its pursuit of profit.
The cost-rental model is a sop to builders, bankers, developers, and the EU, at workers’ expense. So let’s call it what it really is: cost-rental twaddle.