Government policy on residential tenancies is driving traditional landlords out of the business, according to long-term landlord Maurice Deverell, who owns apartments in south Dublin as well as in Manchester and other northern English cities.
The tax treatment of landlords is “bizarre” and changes to the law on the rights of tenants are being introduced without the position of landlords being taken into account, he says.
"The one thing here is landlords are petrified to let out properties," Deverell says, when comparing the different rights tenants have here and in England.
It used to be the case that landlords could move a tenant out without having to give any reason after four years. This was then changed to six years, and the Government is now considering introducing unlimited tenancy rights for renters.
“Something they don’t think about is the average age of landlords here,” Deverell notes. “I think it’s 54, but a lot of landlords are 70 or older, and they don’t want to leave a property problem behind, so they are leaving [their property vacant].”
Older landlords who might want to leave a property to a family member would prefer to do so when it was unlet rather than let, given the rights that tenants now have or may be given, he said. If the mortgage on the property is paid off, then it increases in value with no cost to the owner, who does not have to suffer the stress of worrying about whether a tenant will leave.
“It is a lot cheaper to leave it vacant than to take in a bad tenant or take in a tenant that you cannot get rid of in the future.”
Deverell has been a landlord for 28 years and owns mostly one-bed apartments, many in Dún Laoghaire, Co Dublin. He sold some of his Irish apartments in 2006 at the height of the boom and used the money to invest in England.
“The yields are better and have been for donkeys’ years. It is easy to get 10 per cent plus over there,” he says, referring to yield on investment. “Here, it is difficult to get five.”
‘Passive income’
A full-time landlord, he said the way rental income is taxed in this jurisdiction is “bizarre”. Rather than being treated like, for instance, the owner of a chip shop, landlords are treated as if their income is “passive income”, such as a person gets from an investment in shares.
This means that some expenditures, such as property tax and paying off the capital on a mortgage, cannot be set against profits, while other expenditures, such as on buying furniture for a property, have to be charged against profits over eight years, rather than in the year of the outlay, as is the case with investments in his English properties.
The laws that have been introduced stopping rents increasing above stated rates in certain rent pressure zones mean tenants do not move on as they used to, Deverell says.
The rent caps have the unintended effect of favouring new landlord entrants to the rental market, such as the residential property investment funds (Reits) that are becoming an ever-greater presence here.
A traditional landlord may have a legacy tenant whose rent has not increased significantly over recent years and whose rent is subject to the caps on increases, whereas new Reit-type entrants to the market, who are investing in new properties, can charge the market rent, which has shot up in recent years.
“Rent control creates a phenomenal amount of problems,” Deverell believes.
Because his costs are going up faster than the rent he can charge, he is being effectively asked to rent out apartments for less than he used to, as each year passes, he adds.
The difficulty in getting a tenant to leave is making the banks in Ireland slow to loan money to landlords, he says. In England, if a landlord goes bust, the banks can easily get rid of the tenant, and sell the property. "Here, they can't."
Deverell agrees that rents are incredibly high for some tenants, and is “amazed” that a scheme hasn’t been introduced where the rent a person has been paying can be taken into account when they are applying for a mortgage to buy their first home.
Difficult tenants
If a tenant stops paying the rent and the landlord has to go to the Residential Tenancies Board (RTB), the process can take many months and at the end of it, all he or she gets is a letter from the board giving permission to go to court to seek to have the tenant ordered to leave. The whole process could take “a year or two”.
The effect of government policy on the rental market is that landlords are leaving, and have been since about 2015, he says.
“The landlords will leave and leave and leave. That is going to happen. The more they push it, the more they will push them out. Property prices have gone back up, and most of the landlords are now in positive equity. Not by much, but mentally [it is important]. A lot will now leave, and you will end up with less mom and pop landlords, the accidental landlords, and you will see the big companies coming in.”
These companies buy large numbers of apartments at a time, and have even bought entire apartment developments. They are able to charge the highest rents available in the market, because often the properties have not been let before and are not, therefore, rent-controlled.
The companies will have the financial muscle to shift government policy back in their favour, Deverell claims.
“They will absolutely change the market,” he says. “I would not like to be renting in 10 years’ time.”
Con Nagle, of the Global Properties real estate and letting agency in Ballincollig, Co Cork, owns a number of semi-detached houses in the local area, which he lets.
Some properties we let at the moment are €300 or €400 a month under the market rent, because of pressure zone caps
Nagle bought the houses at the height of the boom, with almost 100 per cent finance.
“They are all under the water at the moment, in terms of negative equity. They are costing me, every month, in that the mortgage repayments as well as the interest, is more than the rent received. So I am subsidising it every month. Would I sell them if I could? Very, very likely.”
Nagle has long-term tenants he is happy with and who provide him with an income to help service his loans.
“Most of the rules for landlords are good, except for rent caps,” Nagle says “Housing standards rules are good. It is good to see house standards coming up. But there are no incentives there.”
Bank finance
If the Government introduces a lifelong tenancy right, then this will affect the value of landlords’ properties, he says. “Because you could only sell that house to a landlord, and at the moment, landlords find it very difficult to get bank finance.”
Apart from the major companies, the only people who are currently buying properties with a view to letting them are people who have significant sums of money on deposit in the bank. "If you use that to buy a property in Ballincollig, you could get €1,500 a month, or €18,000 per annum, whereas that money will earn zero in AIB or Bank of Ireland. They are the investors who are out there at the moment."
Nagle, who describes himself as more of a “trapped landlord” than an accidental one, said that, in his role as a letting agent, the rent cap regime can put him in a difficult position. If a property is advertised for rent, it can attract more than a hundred replies, such is the demand. So his agency keeps a list of people it knows are looking for somewhere to rent. When a landlord comes looking for help in locating a good tenant, the agency chooses someone from the list.
But if the property has recently been vacated by a previous tenant, it may still be subject to rent controls, meaning it can only be rented at a price below the market rent. The sums involved can be significant, so which name Nagle selects from the list has a significant financial consequence for the person chosen.
“Some properties we let at the moment are €300 or €400 a month under the market rent, because of pressure zone caps, so we are giving people a present of €300 or €400 a month. So how do we pick or choose that? It gets very, very hard.”
The Irish Property Owners’ Association represents a wide range of landlords, from people who own one property that they let, to landlords with a portfolio of properties that they rent out as their main source of income.
Margaret McCormick, information officer with the association, says the way the law and the RTB operates means that a landlord whose tenant stops paying rent may have to wait for more than a year before they are able to get them out. The landlord may, at the end of the process, get an order telling the tenant to pay the rent that has accumulated, but if the tenant is not in a position to do so, then the landlord remains out of pocket.
Earnings punishment
During 2020, non-payment of rent was the issue in 31 per cent of RTB cases, followed by disputes over the landlord retaining a deposit which, at 27 per cent, was the second most common reason for a case coming before the RTB.
Landlords who have rewarded good tenants by keeping rents low, she says, are now finding themselves restricted with these low rents because of the rent cap law, yet having to maintain their properties in a market where costs are increasing. “You get punished for keeping the rent low.”
A study released recently by the Central Statistics Office shows that half of all landlords are earning less than €10,000 a year from their rental properties.
The Government is continually changing the law to address the problem of the highest rents in the highest rent areas, “but the legislation affects landlords around the country”, McCormick says.
No one is looking at the issue as it affects landlords, only tenants... No one is looking at why the landlords are leaving
Rental control always leads to less accommodation being available, yet at the core of the current rental crisis is the lack of supply, she adds.
“The rental accommodation that is moving out of the market is the lower-end rental accommodation. The Government intervention, rather than helping tenants, is reducing the amount of accommodation that is out there.”
A report in July from the RTB showed that the number of tenancies registered with it peaked in 2016, at 319, 822, and has since been falling, with a drop of almost 22,000 between the end of 2016 and the end of last year.
Research, McCormick says, shows that one tenancy is coming onto the market for every two that leave. In other words, the net fall of 22,000 tenancies means approximately 44,000 tenancies have left the market. Most of these 44,000 tenancies were let by smaller landlords or investors, she said.
“No one is looking at the issue as it affects landlords, only tenants,” says McCormick. “No one is looking at why the landlords are leaving.”
Landlords by numbers
Age
Slightly more than half (52.8 per cent) of all the 156,555 landlords registered with the Residential Tenancies Board (RTB) in the first half of 2021 were aged between 45 and 64, according to a recent study by the Central Statistics Office (CSO).
Almost one in five (22 per cent) were older than 65 years, while just under a quarter (24.2 per cent) were aged between 30 and 44 years.
Income
Slightly more than half of all landlords netted less than €10,000 from renting out residential property, according to 2019 data used in the same CSO report. A further 28.6 per cent of landlords netted €10,000-€20,000. Slightly more than 1 per cent netted rental income of more than €100,000.
The study found that for 43.7 per cent of landlords, employee income was their primary source of income (ie not their rental income).
Rental income was the primary source of income for one in five landlords. When it came to landlords with 20-plus tenancies (a tenancy is usually the equivalent of an apartment or a house), 74 per cent had rental income as their primary source of income, and 42.9 per cent had a gross income of more than €200,000.
Landlord types
Forty-six per cent of landlords were PAYE workers, the CSO found, while approximately 15 per cent were self-employed in 2019.
In descending order, the primary sources of income for landlords were found to be employment income, rental income, self-employed income, director income, private and occupational pension, State pension, social welfare excluding pension, and rent from commercial property.
The median total gross income (ie income from all sources) for landlords, in 2019, was €50,091. Almost 60 per cent of landlords had a gross income of less than €60,000. Five per cent had a gross income of more than €200,000.
In general, the distribution of employment types among landlords reflected that of the economy, the study found, with human health and social work activities being the most common employment type. However there was a notable overrepresentation of those working in the financial and real estate sector, and a notable underrepresentation of the accommodation and food services activities sector, the CSO study found.
Reits
The study found that it was difficult to get data on Real Estate Investment Trust (Reits) tenancies from the RTB data, but it did look at data on companies that paid local property tax. It found that properties owned by companies involved in “renting or operating of own or leased real estate” went from slightly under 17,000 in 2016, to 25,003 last year.
