“Is that it?” broadly characterised a somewhat deflated response to Minister for Housing Simon Coveney’s rental strategy from those on the rental housing supply side. The greatest surprise is that there were no tax breaks proposed for private landlords, when lobbyists within the sector have been crying out for tax breaks on rental income for years.
"These measures just kick the can further down the road," said Marian Finnegan, chief economist with Sherry FitzGerald. "The strategy should be addressing the current crisis, but fails to do so. They seem to be pushing all the actions into next year, but what's being done today? The biggest challenge to this sector is the significant tax take from rental income. A far quicker solution would have been to address that for existing and potential new entrants to the market."
The lack of political will to incentivise a legitimate private landlord sector is apparent, even though equivalent European models are paraded out frequently as examples of how a proper functioning rental market should operate. Instead the preference has been to focus on encouraging more build-to-rent investments largely provided by big overseas investment funds (these, and refurbished vacant homes are excluded from the new rent controls).
Dublin and Cork
The introduction of a three-year annual cap of 4 per cent on rent in the pressure zones of Dublin and Cork has also left some industry observers perplexed, when market analysts yesterday predicted that the recent rental market slowdown might convert to growth of less than 4 per cent next year anyway. If this is the case, the cap could end up costing renters more than the actual market growth rate.
Pat Davitt, chief executive of the Institute of Professional Auctioneers and Valuers (IPAV) anticipates an immediate adverse effect of the measure: "Capping rental income is a new ball game. It limits investor interest. Will it sustain the costs of being a landlord? In most cases not. This combined with the two-year [rent] freeze introduced by Alan Kelly can only incentivise landlords to push up rents to the max for the duration of the price ceiling."
Stephen Faughnan of the Irish Property Owners' Association said: "Continual interference in the rental market is damaging and will result in less investment. All that is necessary is co-operation and understanding and to treat the sector as a business. Short-term interference causes long-term difficulties undermining the confidence of prospective investors."
John McCartney, economist with Savills Ireland, believes however that the 4 per cent rate might just be the magic number to keep investors in the market. "The combined effect of new mortgage lending rules and the Help-To-Buy scheme will take the heat out of the rental market as renters in these city zones move to buy now with smaller deposits. Interest rates are likely to remain low for now, so ultimately a rate of 4 per cent offers some protection on rental yields in Dublin." Meanwhile outside of Dublin, McCartney says there are currently 27,000 less rental properties since 2011 indicating this market is regulating itself as it becomes more feasible to buy than to rent.
The favouring of Build-to-Rent developments points to an appetite at Government level for more corporate investment in the residential rental sector. This means a shift away from individual landlords to Real Estate Investment Trusts (REITS) and institutional landlords. The upside for the tenant is a better quality, managed rental product.
Suggestions around Repair and Leasing and Buy and Renew initiatives, and schemes to bring unused housing capacity to the market are to be welcomed. But because many are contingent on the outcome of working groups, task forces and examinations, their impact is unlikely to be felt until well towards the end of 2017. All of which is cold comfort for those currently stuck in or facing a dire rental situation.
Measures that will strengthen the Residential Tenancies Board’s ability to service and protect both tenants and landlords can only have a positive impact also. But the devil, as always, will be in the detail.
