Effect of rent controls? Higher rents and reduced supply

Properties than don't meet any proposed new standards or are unwilling to meet them will also leave the market.
 
NoRegretsCoyote said:
Ten years ago in 2012 I moved into an apartment renting at €1,500 which was market price at the time. I didn't stay too long before buying a house but if I had the landlord would probably have let the rent alone even as market rents took off in 2014 and 2015. Then rent freezes and RPZs came into effect from 2016 (and subsequently Covid freeze and then the 2% absolute limit). The precise calculations are beyond me but I think the most the landlord could have legally increased the rent under the various regimes since 2016 was about 20%, so from €1,500 to €1,800.

I still get daft alerts for the area and the odd time an apartment in the complex comes up it lets for €2,800 now, a full €1,000 above what I would be paying if I'd stayed there for the last ten years. Rent controls have their place in the short term, but there is just no good reason why existing tenants should be privileged so much over new tenants simply by virtue of having the been there for many years. The bigger question is what is the landlord supposed to do? Legally, the landlord is down a gross €12k a year, a full 35% below market rate. This is a lot of money! Prices are rising all over the economy at the moment because producers need to do so to stay in business and customers can sustain it. If coffee was fixed at 2012 prices you would find most coffee shops would just close as it wouldn't be worth it. You either have a market economy or you don't.

So for a landlord stuck 35% below market rent what are you supposed to do? If a tenant leaves the most obvious thing to do is sell up. If you want to stay a landlord ironically enough the best thing is to leave it idle for 24 months and then let it again at market rates. If there is repainting/refurbishing after a long tenancy there is going to be void time anyway (say 2 months). So you lose 22 months rent at the old rate but can let again at market rate of €1000 higher. After five years you've broken even and are re-established at the higher rate. This is a big upfront cost though with a relatively long payback time. Another option (again if you are a really committed landlord) is to sell one property and buy an identical one that hasn't been subject to rent controls and take in market rent. These are the kind of financial gymnastics a committed landlord is expected to exercise just to stay in the market. It's no wonder so many just throw up their hands and walk away.

I think @Sarenco is broadly correct that rent controls have made a bad situation worse. I think the tax question is still a bigger factor, there is just a lot more tax on income and capital gains than there was 15 years ago. Added to that there is a huge cohort of landlords leaving at the moment. This is the 2002-2008 accidental landlord cohort which is not out of negative equity and can get rid of the albatross around its neck. The other is is professional landlords who bought 2011-2014, held for seven years and can avail of a full CGT exemption. Why would these latter landlords stay in the game stuck well below market rents with a capital gains tax shelter being eroded year on year?

In any case landlords will always be selling and a bigger issue is why so few are buying. For me the tax treatment compared to pension assets is a huge difference, particularly the CGT exemption. Something like the German system where there is no CGT payable if a landlord buys and lets for at least ten years would be a very good idea in the Irish context and I think would tempt some landlords back in.


There is no evidence that this is behind a material number of notifications to quit. Many landlords don't even know of the existence of this provision.
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One of the best and most logical posts ive read about the issue in a long long time.
 
PebbleBeach2020 said:
One of the best and most logical posts ive read about the issue in a long long time.
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Germany has the same problem with a two tier rents due to rpz. They also shifted to large investment landlords and had problems with it.

This was all known before Ireland decided to reinvent the wheel by going down the same road.

No-one said that rpz weren't a big factor. They just aren't the only one. Targeting one issue in isolation is why they were introduced. It's ironic this thread suggests doing the same in reverse will fix it. Different sides of the same coin.
 
Sarenco said:
...Will any Irish politician admit that rent controls have created this crisis?...
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Seems like that was the argument ...

I'm not arguing against you that is a bad idea. Just broadening the scope of the discussion.
 
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Sarenco said:
No, I repeatedly said that, in my opinion, rent controls are the primary (not the sole) reason for the recent net reduction in our rental stock.
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I'll agree to disagree due to clear evidence this general trend started before rpz.

Also viability argument doesn't hold up under scrutiny.
 
There are many reasons and everyone will have their own opinion.

For me:

Rent pressure zones
Taxation levels
Inability to deal quicky with bad tenants
Sinn Fein threats on anti landlord action

I see it as these four reasons. I think the RPZ is the primary cause though. Again, just my opinion. I find it incredible to penalise existing landlords and leave new landlords set rents at whatever figure they choose. Yes, they are meant to set to market rent, but there's no enforcement.

Landlords with mortgages, say a tracker, have seen interest rates go up by 1.25% in two months and talk is another 0.75% next month. The rent cannot be increased to the same amount (ignoring half the rental increase in tax). So landlords are actually in a worse position now than previously. And yet they are expected to remain in the sector.

To resolve this, how about reducing taxation to landlords renting at say, 20% under the market rate.

I've said it before on here, I think Sinn Fein are making the situation way worse and getting more popular because of it. They vilify landlords and threaten to restrict their ability to selling their property and only allowing them sell to another landlord with tenant in situ (and so the assets value will take a huge hit as a result).

All these threats are doing nothing but encouraging current landlords to serve notice and sell up. Makes the situation worse again. Government get more unpopluar as a result. Opposition/SF get more popular.

There's none so blind as them that what won't listen.
 
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Only 40% of one property landlords have a mortgage. It's something like 80% of 150+ unit landlord properties.

I wonder what % of those leaving have mortgages.
 
Mocame said:
Eoin O'Brion has a detailed outline of his plans for regulation of private rented housing in today's Sunday Business Post. This is the most significant paragraph:

'We would give tenants real security of tenure by removing the sale of property as a grounds for issuing an eviction notice. We would also narrow the use of landlord or family member grounds for eviction to very specific categories, and we would introduce an NCT-style certification system for landlords to ensure that property meets minimum standards'.
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If I was a landlord I'd sell up immediately after reading that. In my opinion it is probable that Eoin O'Brion will be the minister for housing after the next election. There's no way I'd risk being a landlord with him in charge.
 
There's an interesting piece from Dominic Coyle in today's Irish Times "What are the tax implications if we allow daughter stay in our rental apartment for free for three years?".

Question
We have a two-bedroom apartment rented out for €800 per month in a rent pressure zone. We were a bit soft and did not increase it in the past as tenants were very good and we now cannot raise the rent by more than 2 per cent annually.

Our daughter [...] is looking for a place to stay in the same general area and finding it impossible to find anywhere. [...]

In two to three years’ time when our daughter’s salary will have increased and she should be able to afford to pay her own rent, we will be near retirement. We would most likely be putting the apartment back on the open market and could charge market rent, which I expect would be far in excess of the rent we are charging now. What are the tax implications if we were to allow our daughter to stay in the apartment rent free for three years?
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Advice
Because of your previous decisions on rent, you are very circumscribed on what you can secure for it in the market — barely half the current market rent in the same area on the basis of the figures you provide. However, you are entitled to withdraw it from the market to accommodate a family member.
[...] providing she is there for more than two years, it will reset the clock on renting the property subsequently in the open market
[...] In other words, you will be able to rent the property out again at whatever the prevailing market rent is at that time. If you are saying it is currently €1,500 a month as against the €800 or so you can secure under rent pressure zone rules, rental inflation indicates it will be well over double the most recent rental income you secured. That will provide a better income to you as you near retirement, even with the tax on any income earned and the costs involved in renting out property.
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So here you have it. Decent landlords finally waking up to the fact that they will be stuck with a below-market rate forever if they continue to do right thing. Tenants who have done well from below market rates for several years and about to get a big shock when they re-enter a market with very constrained supply due to the policies they have inadvertently benefitted from.
 
I dunno how anyone landlord or tenant can be shocked. Rents are in the media almost every other day for like a decade or more.

You'd be checking that the rent comes in you'd be aware of it monthly or so. Or your agent would. More so if your margins on a razor edge.

Likely get a call from the tax man wondering are you under declaring rent and thus the tax.
 
Sarenco said:
In my humble opinion, rent controls are the primary (not the sole) reason for the recent net reduction in rental stock.
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Is there a reduction in rental stock or a reduction in the stock available to rent? They are very different things.

In 2016 there were 326,493 residential dwellings in the private rental sector, up 19.2% from 2006. There were 143,178 rented from local authorities, up 8.4% from 10 years previously. During that time the population of the country went up by 10%. The average household size in 2006 was 2.81 people. In 2016 it was 2.75 people. So, the number of private rentals went up nearly twice as fast as population and demographic change driven demand.
I fully agree that supply is not matching demand but are the actual numbers of rental properties in the market dropping?

Sarenco said:
Accidental landlords coming out of negative equity are certainly now in a position to exit the market but I don’t believe they would be doing so in large numbers if they were able to generate a reasonable risk-adjusted return on their rentals.
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The risk adjusted element is a big issue.
Sarenco said:
I don’t really see why the age profile of landlords is particularly relevant. As it happens, most landlords that I know are long since retired.
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I've no data to back my view up either, it's just a hunch, and so I'm open to correction.
Sarenco said:
Fear of a future Sinn Fein led government? That might be a motivating factor for some landlords but it’s hardly a new concern.
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RPZ's are certainly reducing the "risk premium" available to landlords while the actual risks are increasing.
Sarenco said:
In the here and now, landlords can see that their costs are rising, without any ability to meaningfully increase their rental income. The consequent squeeze on rental profit is causing many landlords to conclude that staying in the business simply isn’t worth the risk and hassle. So they’re heading for the exit doors.
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I agree.
RPZ's are dampening the ability of the market to respond to demand but population increase is swallowing new housing faster that that housing can be produced. That, in my opinion, is the main reason why we have a housing shortage and everything else is just a symptom of that.
 
PebbleBeach2020 said:
One of the best and most logical posts ive read about the issue in a long long time.
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Agree with your comment on the excellent post you quoted. I bought in 2012. Held for ten years. Had decided to sell for various reasons: increased value of the property; tenant not keeping the place; tenant went on HAP and their onerous inspections requiring further heavy investment (no problem keeping the place up per say if I have the money (I don't) and if the tenant is responsible and looks after the place and notifies me of problems but that wasn't the case); just sick of the stress, worry and uncertainty of it all (not cut out for it!). Tenant now gone (HAP pays for the increased rent at the new rental found) and my property vacant. Because I gave selling as the reason for termination I could be penalised if I don't do that within 9 months (not sure how this is or even if it's enforced - someone would have to report you - which could be done by a spiteful ex-tenant or neighbour if they figure it out - not that I'm paranoid!). The sad thing is now that I've repainted the place it looks much better and there are people arriving at the flat (unadvertised) through word of mouth and asking (begging) me to rent it to them even if it's less than perfect. I'd be renting at below market because it's RPZ and also I think the market rates are too high and would try to keep it reasonable and I'm ok with that. But I'm afraid of being penalised if I do rent again despite the fact I'd like to help give people somewhere to live. It's a dilemma for sure and it seems to me the government should not be discouraging landlords from moving out tenants after a certain period of time (say after two/three years of renting) and allowing them to choose tenants at their own discretion. Effectively depriving them of the right to manage their own property. People need to realise that renting is temporary and there can be no guaranteed security of living in someone else's house/flat for life and plan accordingly. There are plenty of options. Landlords should not be saddled with bad tenants at a low rent for life. It makes zero sense and that's why landlords are leaving. They are afraid of/bewildered by all the new regulations and the potential risk for them and it's not just about money. People on rent supplement, HAP, on long term social welfare payments who can't for whatever reason afford to buy or rent long term from private landlords should be guaranteed housing by the government. It's the govt's responsibility. Simple as that. And the fact they have avoided taking this responsibility means more than likely SF will be elected in the next election and no amount of legislation or ridiculous photo-opping by DO'B trying to make himself look like a 'people's hero' such as this will save them now:

www.irishmirror.ie

All landlords 'acutely aware' of obligations to tenants, says Housing Minister

The Fianna Fail minister made the comments at the launch of a report by the housing charity Threshold, which found that found that a third of renters are spending 50% of their income on rent
www.irishmirror.ie www.irishmirror.ie

Not sure who I'd vote for in the next election! Not DO'B that's for sure nor SF.....is there any sane party out there that could effectively deal with all of this!

Here's a good article on the perils of too much rent-control with a big-picture take on the Irish rental situation from a NZ website:

https://www.stuff.co.nz/business/property/129646516/heres-what-we-can-learn-from-irelands-rental-market-collapse
 
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In some other countries there is the mindset that a rental isn't temporary. But they also enforce stronger landlords rights.
 
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