Why are landlords obsessed with getting market rents?

[presidenttttt]

The landlord debate sparks heated emotions. The populism seems built on principles that include "we don't need landlords at all" and "they make their wealth in capital gains, so should swallow capped rent".

Two points in particular

1) A society needs landlords, and I would rather we had policies that empower local landlords, who reinvest wealth and jobs into our economy. As the alternative of impossible investment economics is foreign corporate funds that siphon profits abroad.

2) The capital gain point feels particular dangerous from perspective of disinformation and ignorant rhetoric. Capital gains are taxed by the government, not pocketed untouched. Arguing landlords should subsidize rents because of potential gains is incredible flawed logic — it’s like demanding businesses operate as charities. Government could reduce capital gains tax to support investment and recognise the capped cashflow, but that would also be attacked

Policy must balance tenant protections with incentives for local investment.The housing crisis is real, and hardworking people deserve better. But vilifying profitable local landlords drives them out, paving the way for corporate giants with no stake in our communities. Local landlords are already contributing nearly 50% of their income in tax, amongst the highest in the world.

I'm also disappointed in the likes of the social dems. I am as eager to find an alternative to FF and FG as many younger people are - however nobody seems to be offering solutions and leadership. Posting all over social media that everyone deserves a home and their rent should be practically free solves nothing for our society.

A good political party would leverage the energy and anger for actual solutions not votes at the cost of division and braking the fabric of society. For example identifying the policy levers driving cost to build and campaigning to change those - probably increasing the amount of zoned land and land hoarding tax, and removing design requirements like dual aspect which seems to drive huge cost nobody truly cares about

 

[Fortune]

Local landlords are already contributing nearly 50% of their income in tax, amongst the highest in the world.

I always wonder why this arguement is made, when it's the same tax that's on dividends or salaries.

 

[T McGibney]

I always wonder why this arguement is made, when it's the same tax that's on dividends or salaries.

It's certainly not the same as the tax on salaries. And the tax regime on dividends materially affects relatively few people.

 

[Bronte]

That is why we have government - to intervene when market rents and market prices are not fair and undue value is considered to be captured by one side over the other.

For example, when property prices were collapsing during the financial crisis, the government stepped in to provide liquidity to banks, bondholders, subsequently feeding into the return of asset provides within a decade.

Now we have government stepping in to try induce increased investment in rental property while protecting tenants. From what I have read so far, a big fat 'F'.

There is no determinable 'fair value' at any given time, but there can be consensus amongst market participants of whether excess value is being extracted by one side or the other.

- Who decides what is fair?
- What have you against the market deciding?
- When rents collapsed, when landlords could not pay their mortgages, when landlords could not get tenants there was no government stepping in
- Renting is not a win win for landlords, it takes hard work and effort to become a landlord
- Ever since the government started intervening in the market it has been a disaster, now the government has seen the collapse in rental properties and are applying another sticking plaster on top of the 10 previous ones and it will not work
- You've forgotten all the landlords who were forced to sell, went bankrupt or left for Australia, those of us left standing have had everything done to us to undermine our landlord business
- it is the government that created the not fair, and they are reaping what they sowed

 

[Bronte]

Yep this is the standard socialist diatribe - and it leads over time to less rental supply in the first instance (which we have seen since 2016) and then less housing overall in the second instance (ditto).

Like a fruit and veg grocer forced to sell his stock below market prices. Would you expect in 12 months time to see more or less fruit and veg grocers on the high street......the answer is obvious....and thats where we are with housing.

And it's why a lot of the smaller landlords are selling up. While preventing new ones who don't want the hassle of the rent caps, all rights to tenants and no incentives because of the tax rates.

 

[Itchy]

If landlords vanished overnight (your words, not mine), by my estimation some 350,000+ properties suitable for accommodation would come on the market for prospective owner-occupiers.

What would that do to the supply/demand and market price of housing do you think?

Looking at the Census data for 2022, I compared the number of persons per bedroom to type of occupancy. I took a weighted average of the number of persons per bedroom for owner occupied and rented. Rental properties accommodate roughly 20% more persons per bedroom (0.73 vs 0.87 persons per bedroom) than owner occupied properties (depending on what way you look at the data, could be up to 35/40% more).

Rental properties are more effective at addressing the lack of accommodation supply. Converting the rental stock for owner occupation would exacerbate the rental crisis.

 

[rungun]

Thanks @AlbacoreA ...it is a crazy suggestion.

But just for a moment, if you may, entertain it.

You suggested that if "landlords vanished overnight" we would still have more demand than supply.

I suggested that that may be true, but somewhere in the region of 350,000 habitable properties would come available on the market. And just as landlords do not build houses, they dont destroy them either by their overnight vanishing.

Knowing that there is a near €10bn budget from the Irish banking sector to support the purchase of mortgages on residential properties.

What do you think would happen to the supply/demand and price of housing if some 350,000 properties were put up for sale by landlords?

Firstly, rented housing stock is a more efficient use of existing supply. There is a utilisation loss to society.

Secondly, there is a logic miss here. Housing units are built on the back of viability. Viability comes from having end user buyers.

We saw during the Build To Let debate of 5-6 years ago a lot of statements of confidence from people claiming institutional investors were boxing out individual buyers.

The collapse in new apartment building should put this myth to bed. If that were the case, we wouldn't see the collapse - the reason why those units were built was because developers either got forward funding or had confidence a fund would buy it. For a fund the interest rates made sense and you had a huge market of cashed up DINKs who needed to be catered for.

The fact is a combination of factors has throttled that sector and the units have simply been lost.

Conversely we have seen a significant return of the 3 bed house in the Greater Dublin area as the First Time Buyers grant has given developers confidence there will be an end buyer. Similarly the wall of cash for public housing has held supply up.

We saw similar linear brain from people in discussions about hotels a few years ago, "no more hotels" was the cry, "build more houses". Same more recently with Commercial. Yes there is an overlap in utilising construction capacity but it is just not as simple as the State or society being able to switch up to our wants and desires.

I'd actually agree that small time landlordism in Ireland can sometimes be destructive and a value loss to society. We have historically had people who get into it because they "understand" it when really they should have looked to allocate capital elsewhere. There is clearly a place for it though in matching capital to market needs. We are almost certainly missing out on fresh housing stock because smaller investors are not as prepared to pile into a new apartment development as they might have been during the Celtic Tiger.

 

[jim]

What is the obsession with achieving 'market ren

In the words of john mcenroe...


You cannot be serious

 

[Persia]

This has to be the most ridiculous thread I have ever trawled (labouriosly) through.

An excellent piece of trolling.

 

[Sister Sara]

Folks, I have never attempted to proclaim an answer to the housing crisis. The most obvious answer would be to build more houses.

However, even that seems beyond the remit of developers and builders notwithstanding the many issues that may be imposing undue hurdles to climb.

The idea that long-term tenancies are more expensive than mortgage repayments for the same property only highlights further the failure of the housing market in Ireland. Which, to my mind, only functions in boom-bust, oversupply-undersupply cycles.

My suggestions, in the absence of any other reasoned suggestions and in stark departure from the proposals of government which to my mind are pure tinkering around the edges.

1. Mortgages applicants to declare the intent of the use of property, as a PPR or as a private letting. If the latter, 120yr mortgages to be approved on certain conditions that rental charges cannot exceed certain points - low re-mortgage payments should equal much lower rents offering prospective dwellers a real alternative to taking on a mortgage.

2. There is a cohort of wanna-be FTB's caught in the rental trap of not being able to save because of high rents. This cohort of individuals, co-habiting couples, and families, to be offered first preference to purchase a property where the landlord is signalling an intent to sell the property. Some tax sweeteners for the exiting landlord and the wanna-FTB's to make the process as smooth and quick as possible.
Such a scheme would significantly reduce the underbelly of FTB demand caught in the rental trap.


Neither above are panecea's to the failed housing market but they would at least assist in alleviating some of the pressure points for a temporary period.

I think they are reasonable suggestions that carry some merit.

 

[Sister Sara]

Rental properties are more effective at addressing the lack of accommodation supply. Converting the rental stock for owner occupation would exacerbate the rental crisis.

You make a reasonable point.

I should of course have added the disclaimer that my suggestions were not intended to offer a panacea for the housing crisis but rather trying to explore and perhaps alleviate some pressure point.

Point 2 in my previous addresses your point insofar as renters living by themselves, with a co-habiting partner and any children they may have.

You are correct in indentifying that a rental property that contains house sharers are more effective at addressing accommodation shortage.

 

[Fortune]

120yr mortgages to be approved on certain conditions that rental charges cannot exceed certain points -

Investing in an asset I'll never own, with little to no equity built up in my lifetime, and lower income. Eh, I think this wouldn't pass any investment screening, no matter how rudimentary.

 

[Sister Sara]

Investing in an asset if never own

I was thinking of investing in Coca-Cola, a 150yr old company, or thereabouts. I think its demise is nowhere in the distant future. But I'll never own it, so I wont invest

with little to no equity built up in my lifetime

Past performance is no guarantee of future returns, for sure.

and lower income

How do you figure this?
What is the net profit that a landlord can expect to make these days in the current market, the one that is apparently seeing them leave in droves?
Then compare that to a scheme with very low mortgage repayments coupled with low rents (but say perhaps 50% above the mortgage repayment).

 

[Ruffian]

120yr mortgages to be approved

Who would approve these mortgages?

(With apologies to all for prolonging the absurdity).

 

[presidenttttt]

For what it's worth, coca cola went up by more than Irish property in the time frame you used, and probably paid dividends too.

Proving landlords need strong rent return if they are going to invest

 

[Sister Sara]

Proving landlords need strong rent return if they are going to invest

That is interesting, can you provide some level of the rent returns that landlords currently get?

 

[Fortune]

But I'll never own it, so I wont invest

You own a shared in Coca Cola outright. With your 150 year loan, after 1 year (assuming 20% deposit) you'll own 20.53% of an asset that isn't divisible. I'll stick with Coke and it's liquidity benefits.

What is the net profit that a landlord can expect to make these days in the current market, the one that is apparently seeing them leave in droves?

The current gross income is greater than the theoretical income under your proposed lower, controlled rent.

Then compare that to a scheme with very low mortgage repayments coupled with low rents (but say perhaps 50% above the mortgage repayment).

The mistake you're making here (and it's one that a lot of small landlords also make) is confusing cashflow with profit. The mortgage payments are lower, but the cost of interest is much higher, eating into the profits.

 

[presidenttttt]

Sister sara, read the previous posts on returns. In many areas if not most gross return is below 7-8%. You selectively picked upside years for capital gains but there is the down cycle you must factor into investment planning.

Banks are not charities either and will want very high interest rate on a generational mortgage to cover their inflation exposure. What you are advocating is akin to some form of communist model.

The solution is a free market with gov focus limited on keeping costs low (ensuring sufficient and utilised zoning, and safe regs). Any intervention on the market side should be extremely short lived e.g., during a COVID black swan event

 

[The Horseman]

The clue is in the opening post property "market" like every market it finds its equilibrium.

Social housing is not a "market" again the clue is its a "social" service not expected to be profitable but to cover costs both capital and non capital.

No matter how much you want to you can't force one to fulfil the requirements of the other. Markets/business people react to market movements, a market is a living organism.

 

[Sister Sara]

You own a shared in Coca Cola outright. With your 150 year loan, after 1 year (assuming 20% deposit) you'll own 20.53% of an asset that isn't divisible. I'll stick with Coke and it's liquidity benefits.

A €300,000 investment of Coca-Cola (a €300bn company) will get you 0.001% share ownership.

It doesnt really matter the % share ownership. Landlords are in a business to make maximum profit? Correct? They are not there to assist with the fundamental social need of providing housing to the population in order to contribute to social cohesion?

The current gross income is greater than the theoretical income under your proposed lower, controlled rent.

I asked you the net profit a landlord can expect to make these days in the current market?

The mistake you're making here (and it's one that a lot of small landlords also make) is confusing cashflow with profit. The mortgage payments are lower, but the cost of interest is much higher, eating into the profits.

Why would the interest rate on a 100yr mortgage on a house be much higher than a 30yr mortgage?

The premise of this is to try use financial engineering to alleviate some pressure points in the rental market.

Instead of taking a €360,000 mortgage (100% for ease of reference) over 30yrs, the mortgage is spread over 100yrs - effectively a €90,000 mortgage over 30yrs.

After 30yrs, the landlord retires (because human life is much shorter than the life of the property) and the property goes on for sale as a designated rental property.
Over 30yrs, the value of the property has risen to say €720,000. Less the outstanding mortgage of €270,000. A cool €450,000 capital gain after a 100% loan.

So instead of paying a mortgage of say €2800 pm (charging €3200pm rent) on the 100% €360,000 mortgage - the landlord pays say, €800pm repayments.

On condition! - That the rents charged do not exceed €1,400pm, or €600pm gross profit.

A good deal for landlords, a good deal for tenants.