Approximately 40 per cent of property sales in the final three months of last year involved landlords selling their investment properties, according to the Society of Chartered Surveyors Ireland (SCSI).
The finding, contained in the SCSI’s latest annual report, appears to buttress the industry narrative that smaller landlords are being squeezed out of the market by stricter rent controls and higher tax burdens.
The report found that increasing levels of buy-to-let properties were being put on the market, aggravating supply shortages in the rental sector.
It noted that on average 40 per cent of residential sale instructions to agents in the fourth quarter of 2022 were landlords selling their investment property.
The SCSI linked the exodus of smaller landlords to “overly complex” rent legislation; low rental returns; and compliance with “onerous” housing standards.
“The trend of private landlords exiting the market has serious implications for the supply of rental properties,” warned John O’Sullivan, chairman of the SCSI’s practice and policy committee.
“SCSI agents are reporting that the supply of available units to rent is at one of the lowest levels ever experienced and they don’t believe the situation is set to improve in the short term,” he said, noting that almost eight out of 10 agents surveyed by the SCSI are of the view that individual buy-to-let second-hand rental units being sold at present will not be replaced in the rental market in the next two years.
Taoiseach Leo Varadkar has promised to introduce incentives to retain smaller landlords amid a pronounced decline in available rental properties. Property website Daft noted recently that there were just 1,087 homes available to rent nationally on its website as of November 1st, including just 345 in Dublin.
In its report, the SCSI predicted house prices would continue to rise this year by an average of 2 per cent — 1 per cent in the first quarter of 2023 and a further 1 per cent over the course of the next three quarters — despite the dampening effects of inflation and higher interest rates, which have triggered reversals in other countries most notably the UK.
While economic uncertainty, inflation and interest rate hikes have cooled the market, affordability and viability remain key issues, it said. It calculated that new homes remain unaffordable for first-time buyers in several counties. On the basis of a first-time buyer (FTB) couple having a combined annual income of €89,000 and being able to borrow €356,000, equivalent to four times gross salary as per the Central Bank rules, the SCSI estimates counties Kildare and Wicklow would be unaffordable based on average house prices by €27,000 and €74,000 respectively.
Meath, Cork and Galway remain affordable to the average FTB couple with available purchasing power exceeding new homes prices by as much as €28,000, €8,000 and €21,000 respectively, it said.
On the wider issue of supply, the group said while new housing completions in 2022 are expected to be at their highest levels in approximately a decade, about 25,000, there is concern among SCSI agents that commencements and planning permission numbers are declining and that this will have a direct impact on the number of completions this year and possibly into 2024.
It said its members had highlighted the cost of construction as a particular concern in relation to the supply of new homes with inflation and labour shortages contributing to higher costs.
The SCSI estimated that based on current new housing completion projections there will need to be an increase of almost 8 per cent of new home output each year to 2030 to meet the Government’s Housing for All targets.
This means the State would need to be building 27,000 new homes this year, rising to 39,000 in five years and over 45,000 by 2030.