Why are private landlords selling despite record rents?
In a recent radio chat, the average rent in Dublin was €2,000 per month. When I attempted to explain that this was not the average rent charged, I was challenged with the latest figures from Daft.ie and RTB (Residential Tenancies Board).
Of course, none of these reports capture the average of rentals billed in the market, but rather those of new rentals over the previous three months. In the case of Daft.ie, it asks for the prices during the period while the RTB follows the actual new rental agreements.
The RTB has informed the Institute of Professional Auctioneers and Appraisers that it is not yet able to publish average rents for all property types, although all tenancy agreements must be registered with the organization.
I anticipate that when or if the information becomes available, we will find that the average rent for a one bedroom apartment will be closer to €1,500, with many tenants paying well below this figure.
Private landlords are leaving the market, despite record rents. Four years ago, the institute noticed this change, and to test its veracity, we undertook a small survey of its members across the country. We have found that these owners are indeed leaving the market in large numbers. We have been chastised in some quarters for the warning.
It is now accepted, and documented in RTB reports, that 6,824 private owners left the market between 2018 and 2020, bringing their number down to 165,736.
Private landlords would be willing to sell rented properties if they could get the market value
Other organizations have documented in budget presentations and elsewhere how poor it is now to invest in residential real estate, given that over 50% of rental income is paid in taxes and with capital gains. 33% on the sale of such a property. . Business real estate investment is treated much more favorably in comparison, with some very attractive tax advantages.
Unequal treatment between private landlords in areas of rental pressure compounds the problem. Where properties are on a first let and in cases where properties have not been let for a period of two years, landlords are free to charge market rent – or in other words, the rent that the market will bear. Other private owners in the same areas are limited by RPZ legislation to minimum increases. Ironically, the hardest hit are those who did not rush, as many did, to raise their rents to market levels before the RPZ rules came into effect in December 2015.
What is not often understood is the impact of this differential on the value of one’s property upon resale. A property rented at 50% of market rent will only achieve 50% of the market value of that property as an investment property.
This forces affected landlords to terminate tenancies and take possession of vacant property so that they can achieve market value by selling the property to an owner occupier. The tenant must find another property at a much higher rent or risk becoming homeless, adding to the state’s problems.
Private landlords would be willing to sell rented properties if they could get the market value. Other investors would buy them, as in several other countries, were it not for the unfair restriction imposed by current RPZ legislation.
Internationally, while rent control has been shown to have beneficial effects, it would appear to have had serious negative consequences
An example I came across recently was the owner of a one bedroom apartment near Dublin city centre. The current market rent would be €2,000 per month, but the property is currently rented at €1,100, which is €900 less than market rent or €10,800 less per year. In the six years since RPZs were introduced, this would amount to something in the region of €50,000, given rents over that period.
Trauma and Disruption
This owner is very sorry to have had to evict his tenant for whom the apartment has been his home for 12 years, but feels he has no choice.
If some kind of equalization program had been introduced for these owners, even over a period of time, they would be able to put their properties on the market and sell them for rent to another investor, thus avoiding a lot of trauma and unnecessary disruption for everyone involved.
This problem is the main reason why private owners leave the market. And it could trigger a constitutional challenge with all that it could potentially entail for the state.
Internationally, while rent control has been shown to have beneficial effects, it would appear to have had serious negative consequences. Introduced in Germany in 2015, they were found to have no lingering effect on rental prices, but did lead to a reduction in housing quality.
In Ireland, much of the changes to housing policy in recent years have unfortunately been initiated in response to political arguments often by those who shout the loudest. He often lacks real knowledge of the market. To put it mildly, it was piecemeal.
The housing minister recently set up a housing commission. I would respectfully suggest that it takes a serious look at the issue of rent control, although no branch of the state can yet tell us, more than six years after their introduction, what the average residential rent in Ireland is now.