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The property shortage affecting Ireland, and Dublin most especially, has largely been focused in the media on the shortage of properties to buy. But the rental crisis affecting the country is another major issue that has not been given sufficient attention in the press.
First up? What exactly are the issues that are causing the rental crisis? As one of the biggest letting agents in Dublin, Ray Cooke Auctioneers have an insight into the letting market that outstrips many of our competitors. Last year we saw 12% of our letting stock sold: the vast majority of these were sold to owner occupiers rather than investors, this led in turn to an even smaller number of rental homes on the market than were already currently available.
The largest reason behind this increased number of sales was that landlords are using the increased property prices of the 2012 to present day surge to escape negative-equity mortgages. The second combined reason is that many of these landlords are accidental and were forced into the situation by necessity and – again due to the current price surge – realise that now is perhaps their best chance to cash in and sell up. Some of these accidental landlords are themselves living in rented accommodation and want to sell-up in order to trade-up up their own living accommodation, with banks not allowing them to retain their investment property.
A huge 80% of the landlords throughout Ireland have three properties or less, with a large proportion of these the aforementioned accidental landlords.
Essentially, the country needs new landlords to increase the rentals on offer. But few are coming into the market due to a combination of taxation and increased legislation around property – unless they happen to be cash buyers.
Landlords are hit with tax over 55% on their rental yields when property tax is taken into consideration. On top of that they need to add on their everyday maintenance costs, management fees and letting costs.
Many of these accidental landlords are not in a position to cover these costs and pay either rent or a mortgage of their own.
Take an average couple who bought a two-bed apartment in the late 2000s at the height of the property boom, They would now possibly have a couple of kids and have the apartment rented and be renting a larger house themselves to suit their current circumstances.
They’re paying huge tax on their rental income and paying large rents on their rented house with no relief available on the rent they are paying.
How are they supposed to save for a deposit whilst being continually hammered with high taxes, so they are stuck in a vicious circle?
Due to a shortage of properties to buy, renters are staying in the rental market for longer, often because they simply can’t get on the ladder.
The traditional route was that those on the property ladder would rent between 23-years-old and 30-years-old as they focused on their college education and social lives.
In their late 20s or early 30s they would then jump onto the property ladder. However, due to deposit rules, property prices and mortgage restrictions, this section of society now largely can’t afford to buy or even get accepted for a mortgage in some cases.
As a result those renters are staying put in rental accommodation: often in the same property for several years. This element contributes a vital factor to the rental shortage. The long term the worry for these renters is how can they afford to continue to rent post-retirement?
There have been benefits for these renters: security of tenure has been put in place as part of rental controls; these incorporate a maximum 4% annual increase in rent costs. If renters leave their current homes they face losing the benefits of that rental control and face paying rents at full market value.
This combination of the rental controls, and potential buyers being unable to get on the ladder, has combined to narrow the market selection. Daft.ie figures reveal that rental stock is down 15% from last year.
According to insideairbnb.com and resprented in the image above by the red dots, there are currently(March 2018) 3,165 full homes or apartments available on Airbnb in the four Dublin council districts. These homes would previously have been part of the regular rental stock. The owners of these properties are exempt from rent pressure zones and Residential Tenancies Board rules, and are achieving much higher incomes from these properties than if they were let in the normal fashion. They can charge full market value according to the demand at the time similiar to a hotel room.
Dublin could follow the lead of cities such as Berlin in banning the rental of whole housing units on platforms such as Airbnb It’s currently against planning regulations but there is little or no enforcement of this by the councils.
This would free up a large volume of units back to the rental market in the areas where units are most required, namely around the city centre, which should alleviate upwards price pressure to some degree, until the delivery of new properties increases the supply to match current demand.
The mob doesn’t want to hear this, but the fact of the matter is that the market also needs to deter the accidental landlords from leaving the market.
Four out of five landlords have less than three properties: if taxation is lowered then they will be more inclined to stay in the rental market.
These accidental landlords have mortgage fees to pay back, which can’t be written off, and have tax to pay on the entire rental income and running costs – some of which can only be written off after seven years.
The Government has a shortage of social housing, which they will attempt to address though their recently unveiled national development plan – Ireland 2040, but to alleviate that situation in the immediate term they have to back the private landlords.
If they don’t do this, we’re going to see a further hike in rental prices, possibly 10% over the course of 2018, because yet more landlords are going to leave the market.
The attitude towards residential landlords needs to change and they need to be viewed instead like business or commercial partners. Give these partners taxation benefits and we can help to make life easier for the section of the public paying rent.
Author Ray Cooke
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