Being a private landlord with several properties in your portfolio used to be a way to make a decent living or was a nest egg for the future. However, several landlords are now departing the rental market, no longer able to make a decent return on their investment.
But this is bad news for renters as well as those looking to make a living from it. It means fewer properties will be available to rent in the middle of a housing crisis if landlords continue to leave the market. There are several reasons for the exodus from the market for the smaller, private landlord, but the predominant cause is a prohibitive tax system.
"An individual is paying well more than 50 per cent of the rent in tax. They're also paying capital gains so the tax cost of owning a property as an individual is practically prohibitive, and what we're seeing is that the smaller guys just aren't buying property for renting anymore," says Jim Clery, head of rental property at KPMG.
Meanwhile, building standards on multi-unit housing also present an obstacle. They just can’t meet the standards and therefore are selling up.
“There was quite a lot of poor accommodation that needed to be taken out but probably quite okay accommodation that’s also getting squashed out too. The tax was always quite high but in the old days you could buy Section 23 properties and shelter your rent and that’s what the private landlords tended to do. Truthfully the tax system is stacked against them so then you’re left with the accidental landlords. If someone comes to me and says they have a great opportunity– five units above a Spar for example, by the time you do the math you realise they won’t make a return,” he says.
No redress
Sinead Beggan of McGuirk Beggan estate agents in Dublin says private landlords have long complained of the lack of incentive to enter into the rental market, be it the lack of tax incentives, the high cost of maintaining properties, lack of support from agencies such as the Residential Tenancies Board (RTB), where landlords feel that all the power is with the tenant and they have little or no redress when it comes to removing tenants from their properties.
“We are sinking further every day into the current housing crises which means it is very important that the market is open and available to all types of buyers. Private landlords being one very strong solution to an age-old problem.
“When we compare ourselves to our European counterparts we have one of the lowest rates of long-time renters in the market. The need to own a property is instilled in us from birth almost, but this isn’t always an option for some people, especially now with house prices rising, the cost of construction rising and the number of mortgage applications at an all-time high,” she says.
KPMG intends to enter a budget submission to the Department of Finance recommending there is a better tax rate for Irish professional landlords – those with in or around 20-50 beds.
“Professionalising the residential landlord is a good idea and you could use the tax system to incentivise this. We think it would help with the housing crisis. Anything that creates supply is good, and that’s how you get rents down and supply up,” Clery says.
According to the most recent Daft Rental Report, rental values have increased not just in Dublin but across the country.
“This is mainly due to the fact that the number of available rental properties is extremely low – 1,792 for the entire country on September 13th, 2021. We need our policy-makers to consider the cost of land, construction and to consider incentivising private landlords to return to the market, easing the demand on not only the rental market but the sales market too.
Nest egg
“Most private landlords enter into the market not for huge profits but to have a nest egg for the future. They mainly want to find good tenants who will pay a fair price and cover the costs of the mortgage and annual running costs. Figures in the past have shown that typically private landlords own 1-2 units versus the larger funds who typically own many multi-unit developments, yet it is the private landlord who suffers the most when it comes to taxation or problem tenants,” McGuirk says.
Her advice to anyone considering investing into the market for purposes of rental is “ensure you have a good management agent behind you and focus on property that hasn’t already been rented so isn’t restricted under the ‘rent pressure zone’ cap legislation or is rented at current market value levels.
“Also consider buying out of the Dublin market on the commuter belt or in other cities around the country where you might get more value for your money but still yield a good rent return.”