In recent years the topic of rents and the housing crisis has come to the fore, with many people holding strong views on the subject. The one thing that is evident is that Government policy is not working. That can be seen in the increase in Dublin rents by 22 per cent in just three years.
It is however also worth noting that compared to 10 years ago, rents are just 10 per cent higher today. While over the same period, electricity prices have increased by about 22per cent and car insurance by 61per cent.
It may seem strange to say, but fixing the rental crisis is actually rather straightforward. The level of rent, like any other commodity, is predominately determined by supply and demand.
Private investors
Currently there are only 1,062 units available to rent in Dublin city. This is the lowest level on record; the number of properties available to rent has fallen every year since 2009. Simultaneously, the total stock of rented properties has been falling. According to the census, the number of private rented dwellings in Dublin in 2011 was 116,935, while in 2016 it was 114,462, a decline of more than 2 per cent. This has been reflected in our figures with 32 per cent of our sales disposals of investment properties, while only 10 per cent of purchasers buying property from us are investors. Private investors are leaving the Dublin market.
In understanding the solution to the crisis, it is important to first understand that private landlords supply 69 per cent of the rental stock in the country. Given that private landlords are by far the largest supplier of rental property in the State they hold the key to solving the crisis.
Why have landlords been exiting the market in such large numbers since 2009? The answer is Government policy. In recent years the Government has introduced the following measures:
- Household charge (now called property tax);
- NPPR tax (now called property tax);
- Property tax;
- Water charges (currently on hold);
- USC and PRSI on rental income;
- Reduction of mortgage interest relief from 100 per cent to 80 per cent;
- 4 per cent rent cap denies landlords the right to charge market rent. When rents fell by 26 per cent between the end of 2007 and 2011 no one was suggesting capping falling rents at 4 per cent annually – another example of a one-sided system;
- Penal tax rates – the effective income tax rate is 73per cent;
- Lack of control over your most valuable asset, such as Part 4 leases, giving the tenant the right to stay in the property for six years;
- Proposals to not allow landlords to hold their own deposits.
So in short, landlords are over-regulated, overtaxed with an ever-reducing level of control over their most valuable asset.
It is also worth pointing out that the Government only built 247 social housing units nationwide in 2016 and only bought 1,397 units in the same period. It appears that rather than invest in social housing, the Government’s solution is to try and take over private landlords’ property by stealth.
Landlords are now saying enough is enough; they are selling up. Remember it is the landlord’s name on the title deeds, their name on the 20-30-year mortgage; it is they that the banks will pursue should the mortgage not be paid. In short, they are taking all the risk. And if the risk versus return is not acceptable, people will invest their money elsewhere, such as in property reits.
All of the above adds up to an assault on the largest supplier of rental property in the State, the private landlord.
It would seem that the Government is reluctant to be seen to encourage landlords back into the market, rather than understanding that landlords are part of the solution, not the problem.
Next week’s budget provides the Government with an opportunity to introduce the following policies:
Reduce the tax/income burden
- Reintroduce 100 per cent mortgage interest relief in this budget, rather than phasing it in over the next four years (this alone will bring the effective income tax rate to just under 60 per cent).
- Remove USC and PRSI on rent.
- Allow the market to find its own level. Remove the 4 per cent rent cap.
Stop eroding landlords’ control of their properties
- Roll back on policies and proposals that seek to prevent landlords accessing their properties.
The market reacts very quickly to new policy incentives as we saw most recently with the capital gains tax exemption introduced in December 2011. If these polices were introduced, significantly more landlords would be enticed to enter the market, supply would increase and as a result within six months we would have made significant inroads into solving the rental crisis.
- Robert Lawson is a divisional director with estate agent Lisney, and a private residential landlord
