Effect of rent controls? Higher rents and reduced supply

Gordon Gekko

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Speaking as a landlord, and to present a slightly different view, I don't find it difficult at all.

- The property was once my PPR and it's worth around what I paid for it, so any future growth in its value is partially sheltered.

- Yes interest is only 80% deductible, but like many landlords I have a tracker, so 20% of virtually nothing is virtually nothing. The restriction is almost meaningless.

- Rents are high in a world where it's difficult to generate income on surplus cash. A 7% gross yield is attractive.

- The last time it became vacant, there were more than 30 people who wanted it. It's easy enough to derisk in terms of getting a bad tenant when you have 30 people to profile.

- I now get a high rent which I'd be happy to grow at 4% per annum (assuming that's the market rate). There is no more "keep the rent low" stuff. It will go up by 4% a year which has a nice predictability to it.

- If landlords are exiting, then what I have becomes more valuable in my view.

- I use an agent who I trust and the cost is tax deductible. I have no hassle at all as a result.

- The property forms part of my own retirement strategy.
 

Sarenco

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I now get a high rent which I'd be happy to grow at 4% per annum (assuming that's the market rate). There is no more "keep the rent low" stuff. It will go up by 4% a year which has a nice predictability to it.
The problem is that many existing landlords are stuck with renting at 20-40% below the market rate, primarily because of the two-year moratorium on rent reviews.

The fact that the new rules may not have adversely impacted you personally (I think you previously told us that you were able to bring your rent up to the market rate before the rules kicked in), underlines my point that the RPZ regime unfairly discriminates between landlords and tenants and is resulting in increased rents, in aggregate, due to a shrinking supply of rental properties as landlords exit the business.

That is bad news for our economy and that impacts us all.
 

SqueezedMiddle

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Gordon, I think you got lucky with the timing of your rent increase. I got very unlucky with mine.
And any day now could come the next bit if market interference and God knows what that will do.
So safer to just sell and be done with the while property investment slave to the revenue commissioner lark.
 

Gordon Gekko

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I did get lucky in terms of the timing.

However the "it's tough being a landlord" narrative is overdone in my view.
 
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Sarenco

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I wonder would you still be of that view if you hadn't been lucky enough to be able to raise your rent to the market rate before the RPZ regime kicked in? Most landlords weren't so lucky.
 

Gordon Gekko

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I wonder would you still be of that view if you hadn't been lucky enough to be able to raise your rent to the market rate before the RPZ regime kicked in? Most landlords weren't so lucky.
You're conveniently ignoring the other positive dynamics, e.g. low interest rates, a massive excess of demand over supply, the reversal of the interest deductibility restriction, and the fact that those underrented properties are still yielding strong rents.
 

Sarenco

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I don't think I'm conveniently ignoring anything but I would note that the subject of this thread is the effect of rent controls.

In any event, the gross yield on many under-rented properties is actually not that impressive. On an after-tax basis, many landlords have realised that they would be far better off realising any positive equity and applying it against the mortgage on their PPR. In many cases, that gives you a higher or comparable return with zero risk.
 

cremeegg

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Any landlord who had a viable business a few years ago has a much better business today.

However the anti-landlord sentiment in the media and the anti-landlord attitude in recent legislation is deeply worrying.
 

Sarenco

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A lot of landlords (particularly "accidental landlords") that bought during the boom didn't really have a viable business a few years ago.

Once they emerge from NE over the coming months, many will now exit the market.
 

Sarenco

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Perhaps but the reduction in supply will ultimately drive up rents, in aggregate, which was obviously not the objective of the RPZ regime.

That's really my core point - the RPZ legislation is discriminatory and counter-productive.
 

trasneoir

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Well, the Minister can't say he wasn't warned…

"In letters to Housing Minister Simon Coveney, two of the country's biggest residential landlords warned him off introducing rent caps, saying more consideration needed to be given to increasing availability in the private rental sector."
Two of the country's biggest turkeys warned the minster against introducing Christmas. While their argument was (at least with the benefit of hindsight) correct, these are not the most credible people to be delivering such a warning.
 

Sarenco

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It's certainly true that institutional providers of residential accommodation have an obvious vested interest in this issue. No doubt about it.

However, I can't think of a serious economic commentator that thinks that rent controls ever work in practice.

Here's what Paul Krugman, hardly a free-market zealot by any reasonable measure, has to say about rent controls:-

"The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go -- and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out -- what yesterday's article oddly described as ''free-market horror stories'' -- and constantly proliferating regulations designed to block those strategies? Predictable."

Like he says - the results of rent control legislation are entirely predictable.
 

Sarenco

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Interesting to see the country that's effectively iRes' home patch following suit...
Yup and here's CAPREIT's reaction to the proposals -

http://www.marketwired.com/press-release/capreit-comments-on-proposed-changes-to-ontario-rent-controls-tsx-car.un-2211256.htm

In a nutshell, they don't expect the proposed changes to have any effect on their revenue because they don't believe that the proposed changes will reduce rents.

In other words, rent controls don't work and tenants are ultimately the real losers.
 

Sarenco

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I see SF are now calling for an urgent review of the RPZ legislation.

Somewhat ironic given the fact that SF's contribution to the framing of the legislation made it far worse than Minister Coveney's original proposal.

https://www.thetimes.co.uk/article/rent-controls-raising-pressure-on-tenants-3cvgczsq2?t=ie

"Opposition TDs have called on the government to conduct an urgent review of the rent pressure zone system after a report suggested that it may be doing more harm than good.

Simon Coveney, the housing minister, introduced the measures, which limit landlords to annual rent increases of 4 per cent, in December. The latest rent index from Daft.ie, the property website, has shown that rents have continued to increase despite the new controls, however.

Ronan Lyons, an economist at Trinity College Dublin and author of the report, said that the zones had been counterproductive, with renters now more afraid than ever to leave an existing tenancy. The total number of properties available to rent across the country slipped to 3,084, the second lowest on record, while rents surged by 13.4 per cent in the first three months of the year.

Under the legislation it is up to tenants to report rent increases greater than 4 per cent to the Residential Tenancies Board (RTB). Market analysts have said that tenants are unlikely to report landlords who are in breach of the law due to the precarious nature of the rental market and the lack of housing supply.

Landlords only have to register new tenancies or existing ones every four years with the RTB, meaning any increases in rent in the intervening years are not officially recorded. This makes it nearly impossible for the board to detect illegitimate increases.

Eoin Ó Broin, the Sinn Féin housing spokesman, said that the government should conduct an urgent review of the legislation, which now covers more than half of the country’s rented properties.

“The introduction of rent pressure zones was supposed to restrain rents and limit annual increases,” he said. “At the moment the tenant themselves is responsible for ensuring that landlords are complying with the new legislation. With the supply of rental properties so limited many tenants are reluctant to go down this route for fear of being evicted.”

Renters who have stayed in their accommodation since 2013 have experienced rent increases of 27 per cent, compared with 50 per cent for those who have moved. The report showed that the average monthly rent rose to €1,131 in the opening three months of the year, the fourth quarter in a row that a new all-time high has been set. The rate of growth slowed slightly from 13.5 per cent at the end of last year to 13.4 per cent."
 

SqueezedMiddle

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They should just remove all rent control.
But what will happen of course is tighter controls with worse unintended consequences.

If they removed the current controls and allows me to evict rogue tenants within a month then I would stay in the rent business, but as it stands I am in the process of leaving it.

Rent should be a nogitioation between two parties and that is all it should be. Pay x for y level of service.

Increase the level of service to increase your profit. Let the level slip and your profit decreases. Landlord and tenant will meet at a level that suits both.

That's impossible at the moment.
 

AlbacoreA

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Seems to me the Govt is doing everything in its power to

1) not build social housing.
2) not incentivize the building of social housing.
3) encourage foreign investment.
4) Discourage small Landlords

We have a shortage of housing especially affordable housing. I don't see the Govt trying to address this in any meaningful way. They seem to be intent to exacerbate the shortage. Which would seem to a policy designed to attract investment into the country, without regard to the hardship its causing.
 
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