No quick fix for home rental crisis, say experts
As rents reach new peak, experts says situation likely to get worse before getting better
A property-rental queue at Northumberland Road, Dublin, in 2012. Photograph: Bryan O’Brien/The Irish Times
Anyone who has ever rented has horror stories. Whether those involve dodgy landlords, difficult housemates or almost-uninhabitable dives, the experiences renters gain are character-building, if nothing else.
But while those who moved on to buy their own homes often look back on their days in the rental sector with fondness and amusement, it’s anything but a laughing matter for those currently renting.
A Daft.ie study confirmed this week what tenants have known for some time, which is that the residential rental sector in Ireland is in crisis mode. And things are likely to get a whole lot worse before there is any prospect of them getting better.
According to the latest report, rents reached their highest level on record during the second quarter of 2016 and are nearly 10 per cent higher than they were a year ago. At the same time, the number of properties available to rent continued to decline, with a little over 3,600 available across the country on August 1st. Of those, just 1,100 were in Dublin.
Rents in the capital are now 5.2 per cent higher than their previous peak in early 2008. Nationwide, rents rose by an average of 3.9 per cent in the second quarter, to €1,037, the largest three-month increase since the peak of the Celtic Tiger in 2007.
With an influx of students about to move into our biggest cities ahead of the new academic year, an already struggling market will strain to accommodate them all.
Ronan Lyons, assistant professor of economics at Trinity College Dublin and author of the Daft report, noted earlier this week that average rent had jumped by more than 39 per cent since bottoming out in 2011, meaning students face tough choices when it comes to deciding where to study and live.
While the current spike in construction of student accommodation should help alleviate the problem, much of it is not due to be completed for some time. Moreover, the high costs involved mean many developers aren’t prepared to invest in such projects.
“Construction costs are very high in Ireland compared to other countries and in particular compared to what students can afford. Roughly speaking, no one is able to build new student accommodation for less than rent of about €200 per week whereas students in the private rented sector are typically paying less than €150 a week, so there’s a gap that to be bridged,” Mr Lyons told The Irish Times.
Students are just one segment in the rental market that needs to be catered for. While there may be specific measures that could assist them, some commentators argue for increased action to support all of those currently renting.
The crisis in the rental sector has not gone unnoticed in official circles, even if it took some time to be given due consideration.
“Until recently when we looked at the housing market we were looking at mortgages and house prices. The rental sector was neglected for a long time because there was a perception that people who rented were somewhat unfortunate. They were students who didn’t have much money, youngsters starting out on their careers or those who had separated or divorced or through some other reason had fallen on hard times,” said Peter Stafford, director of Ibec-affiliated Property Industry Ireland.
“In addition, there was also the idea that any problems that happened in the rental sector were temporary and would soon go away because everyone aspired to getting a mortgage and a foot on the property ladder and doing so would resolve any issues that existed. Unfortunately, it has taken a crisis for renting issues to get on the table,” he added.
The Government has introduced measures to address the sector’s problems, as the previous Fine Gael/Labour coalition also did, such as a hike in rent supplement, a promise of additional social housing and the enactment of legislation limiting rent increases, which came into force last November.
Such measures are aimed at curtailing rising rents and providing increased support for tenants. But how effective are they? Some commentators pour particular scorn on the move to control rent by limiting increases to every two years.
“Rent control measures only tend to benefit those in situ. They don’t help those who are looking for a place to live. In fact, it ensures that if someone is in a rent-controlled apartment they are going to stay there as long as they can and so it doesn’t help the natural churn of property,” said Mr Stafford.
“Controls can also undermine landlords who are charging below-market rents, because it unnecessarily penalises them if they do need to increase prices for whatever reason,” he added.
Minister for Housing Simon Coveney admitted earlier this week that rising rents may, in time, be the result of the stability measures introduced late last year. Others believe their introduction has simply postponed even bigger increases that will come into play in 2017.
“I think the measures have just pushed the problem back till next year,” said Davy Stockbrokers research analyst Ray Crowley.
“There will be a series of rent reviews next year where potentially you could see double-digit rent increases on the cards. All the measures did was kick the can down the road,” he added.
From linking the cost of renting to the consumer price index, to bringing in additional tax breaks for landlords, introducing greater security of tenure and reversing plans to restrict the height of apartment blocks, plenty can be done to alleviate the rental crisis. However, the overriding problem is supply, according to the experts. Or rather the lack of it .
When the chief executive of Ireland’s largest private residential landlord warns that rents are reaching the limits of sustainability, then you know you have a serious problem. David Ehrlich, chief executive of Ires Reit, which has a portfolio of 2,377 apartments spread across Dublin, did just this earlier this year when he expressed concern about the imbalance between supply and demand.
“There are still limited levels of activity in housing construction happening and so there are no quick fixes here. This is a problem that is going to be with us for the rest of the decade,” said Mr Crowley.
He added that while policymakers can do little about land costs, they can influence issues such as building heights that could persuade investors to take a punt on the residential property sector, rather than the commercial one.
“Engagement between the various councils in Dublin and government departments on the mix of density could be improved and that would certainly increase viability and encourage more capital into the development market. Issues such as reducing car-parking loads in downtown developments in favour of greater use of public transport to move people is also something that could be looked at,” said Mr Crowley.
“From a capital point of view, there is a lot of overseas capital that would like to invest in the residential sector in Dublin. It is within the grasp of policymakers to open up the gates for that capital to come in and fund local developers to build apartment blocks,” he added.
Mr Stafford is also keen to see more done to encourage other investors into Ireland: “We need to get a huge number of professional build-to-rent landlords coming into the market so that we end up with thousands of purpose-built apartments that are made to be rented out for the long term. If it was up to me to make changes I’d go all out to create so many landlords in Ireland so that they would be chasing tenants rather than the other way round.
“The Government policy in Britain has been to do this in London so that you effectively flood the market and then don’t really need to have rent control as things stabilise.”
Plenty of other factors have contributed to the current crisis. Not least of these is the introduction of stricter lending measures by the Central Bank, which has effectively locked many people out of the property market. And growing numbers of individuals and families are staying renting through choice rather than necessity.
Balancing the needs of competing commercial interests while also ensuring those renting don’t find themselves in a worse situation will be tricky. Ensuring the rental sector is given proper attention will at least be a start.
“We’re going to have to get used to the idea that the cohort of people who are renting is going to get bigger. We can’t just assume that anything which improves the housing market will by default improve the rented sector,” said Mr Stafford.
Over the last few years, property funds such as Kennedy Wilson, and real estate investment trusts (Reits) such as Hibernia and Ires, have been busy snapping up apartment blocks across Dublin. While these don’t try to hide the fact that they are going all out to make a profit, they also promise to bring a level of sophistication to the rental sector that will come as a shock to anyone who ever lived in a grotty bedsit in Rathmines.
“From a tenant point of view, experience elsewhere shows that bigger institutional owners of apartment blocks are able to provide a better service to tenants and equally manage better for their shareholders,” said Mr Crowley.
However, some are highly critical of the arrival of institutional landlords in Ireland.
“Reits are playing a role in fuelling the crisis by pushing up rents and house prices further. Furthermore, the issue has been raised of large vulture funds using Ireland’s low and zero tax regime to pay little or no tax on their speculative residential activities here,” said Rory Hearne, a senior policy analyst with the think tank Tasc.
He believes the answer to the current crisis is to invest further in social housing. However, Mr Hearne sees little in the Government’s action policy for housing and homelessness that will lead to significant change.
“The mechanisms which the plan relies on to provide social housing – the private finance-, investor- and developer-led initiatives – have failed over and over again to provide affordable and quality housing,” he said.
Even if property funds continue to buy apartment blocks, additional investors enter the market and more social housing comes on tap, the rental sector is likely to remain fragmented, meaning that small-time buy-to-let will remain important players.
Responding to the latest Daft report, the Irish Property Owners’ Association (IPOA) said the Government was relying on the private rental market to cover its obligations to provide housing, while penalising the sector with additional taxes and charges. The IPOA claims that some 40,000 private landlords left the rental sector between 2012 and 2015.
Mike Allen, director of advocacy at Focus Ireland, agrees. He said the increase in costs inflicted on landlords in recent years, such as the property tax and a reduction in relief, has had a double negative impact.
“The additional costs are passed on to tenants, making rent levels unaffordable, while at the same time making being a landlord a less attractive option,” he said.
Fintan McNamara of the Residential Landlords’ Association of Ireland believes that while large property funds get tax breaks, smaller landlords are penalised.
“You’d expect more people to be interested in getting into the market due to rising rents but the net yield to investors is a lot lower than it should be, because of all the extra taxation,” he said.
“Investors are coming in at the top end of the market who get great tax breaks and who are rolling in money after buying up apartment blocks on the cheap. Small-time operators, who are the backbone of the industry and who for the most part are decent people not there to rip off tenants, experience huge difficulties,” Mr McNamara added.