Opinion: Professional investors are good for tenants and for the market

There has been a strong media focus in the past month on the improving housing market conditions predominantly in the greater Dublin area, but also on likely trends in the other cities.

For those not actively engaged in the market as potential purchasers or intermediaries, it seems to have come as a shock that there might be a shortage of housing units, given the widespread perception that the country is over-supplied.

But that is to ignore the fact that last year, only 8,500 new units were built and more than 60 per cent of those were one-off housing units. National demographic growth didn’t stop with the 2007 downturn, although high levels of emigration, especially of those in the optimum household formation age brackets, has tempered demand.

It was notable in the recent property tax returns that just over 8,200 units nationwide claimed exemption through being in a “ghost estate” or “held by developers for sale” categories.

There is already general acceptance that there is a need for at least 5,000 new houses in the greater Dublin area this year as well as a further 1,000-2,000 in total over the other cities. The Economic and Social Research Institute's Medium-Term Review 2013 estimated an ongoing need over the next three years for 22,500 houses annually nationwide.

The predominant demand is for typical three- and four- bedroom houses, but the prices of apartments in Dublin have increased too.

For rent
It would be a mistake to think that the extra and growing demand is focused solely on the owner-occupier market. Since 2006 there has been an increasing demand for rented residential accommodation, with the numbers renting having increased by almost 50 per cent to just under 500,000 in that period alone. And it looks pretty certain that the numbers renting will grow for the next few years.

Anecdotal reports from those looking to rent confirm the view that there is increasing demand and a relatively static or perhaps even a diminishing supply.

Some increases in supply did come through in the last few years as developers and banks holding unsold but completed or partially completed stock made them available in the letting market. Nama has some more units in the pipeline.

But counteracting that, we have had the removal this year of many substandard bedsits from the market, thanks to new regulations for pre-1963 rented accommodation. And with the banks imminent focus on realising defaulting buy-to-let units, it is likely that there will be a reduction in the available stock. This view is borne out by the well reported, flat-finding difficulties experienced by students this autumn.

So it’s not surprising that the latest reports from the Private Residential Tenancies Board and property agency Daft show some rents increasing especially in the cities.

While a growth trend in rents is desirable to encourage new investors into the market, it presents significant challenges to the competitiveness of the economy and is likely to penalise those least able to buy a property.

In the past few years there have been several negatives for residential landlords, including a reduction in the interest that can be offset against income, reductions in rent supplements and the introduction of the non-principal private residence and residential property taxes.

In spite of those challenges, in the past 18 months we have seen the emergence of a new type of institutional and professional investor entering this market with a quality, long-term rental income focus, buying purpose-built blocks of apartments and housing units. They upgrade, let, maintain and operate in a manner consistent with mainland European residential and North American investment standards.

Notwithstanding our cultural obsession with ownership, it is obvious that we need not only to retain a generous supply of rental accommodation, but also to urgently expand the urban stock of such units, supported by professional management and maintenance regimes, so as to meet the growing needs of transitional and longer-term tenants.

Property Industry Ireland's National Property Strategy urges the Government to encourage professional long- term investors into this sector and the budget decision to extend into next year the seven-year capital gains tax exemption for such purchases is a welcome step.

Aidan O'Hogan is a chartered surveyor and chairman of Property Industry Ireland, an independent and representative organisation, affiliated to Ibec, for all sub-sectors of the Irish property industry. He is a former chairman and managing director of Savills in Ireland