Out of the mouths of Babes ...

Zambia

Heard something interesting the other night. It is widely accepted that a lot of the push upwards in housing was investors. This is the case here , in the republic and in London and the like.

Several 20 something Belfast people are agast that they have to pay the amount they do now for housing after the 33% average growth last year. Dublin 20 somethings have lived with this for sometime.

In a programme I caught the end of on BBC2 they had Lily Allen (the singer) on about some tat or other but at the end of the show they asked her one question. If you where Gordon brown what is the first thing you would do if you came to power.

Her response stunned me a bit as she said.

"I would pass a law that only allowed anyone to own a maximum of 3 residential propertys at any one time so that a few people could not dictate the price of a market and push a whole generation into subtle poverty"

I could see the merits of such a law, but doubt its workability.

What does anyone think is this something that should even be considered.

Calina

It's a slightly naive statement, coloured, possibly, by the fact that she is from a country where home ownership is paramount. The reality is that we do need a rental market for people who are not ready to buy for whatever reason, who are between owned houses, or for short term on location workers, for example. So you can't close down the investment side of things completely.

What we need to do is disincentivise amateur investors - the ones who own two houses, and then we need to ensure that unoccupied houses do make the rental market or are sold. One of the biggest problems in Ireland in recent years is that what security of tenure we have (part VI) can be ended by property sale or retention of house for family. This needs to be ended as a matter of urgency because it subtly supported the exploitation of capital appreciation on the property as a wealth generator, rather than its utility value and rental yield. With a concentration of serious investors in the market, there might be less grief in the rental market in terms of deposit retention/non-declaration of rental income and property to the PRTB.

Greater tenancy protection and policing of same would go a long way towards limiting the scurge of rampant capital appreciation caused by concentrating supply in a few hands. Penalties for not making investment property available for rental should also be pretty hefty - eg 16% of our housing stock is not in use. If the owners of same were required to pay 8% of market value of that property for vacancy periods exceeding 3 months, they wouldn't be hoarding property.

Dalfiatach

We need professional landlords with a large and well-maintained rental stock. What we don't need are amateur investors.

Limiting everyone to 3 properties would mean that large, professional landlords would be banned, and every landlord would be a small-time amateur!

No, what we need are, as Calina said, better tenancy laws, more oversight and penalties for bad landlords, more scrutiny by the Revenue when people buy houses (come on, half the country are lying about the status of their properties to avoid capital gains taxes), measures to discourage flippers...

We need to encourage responsible long-term property investors so that a stable and attractive rental sector exists; and hammer the quick-buck merchants, scam artists and the "property is my pension" muppets. In conjunction, of course, with a return to sensible lending criteria and banning IO mortgages on PPRs.

We'll end up in that situation eventually anyway, it's the only sensible way to go as every other developed European economy has discovered. We can do it now and hasten the bubble collapse, or we can wait till after the bubble-bust carnage. Our politicians will of course wait so that they can't be blamed for collapsing an unsustainable bubble market.

OTK

It's traditional to blame speculators for financial problems of all kinds. It appeals to jealousy and provides a faceless scaepgoat. Note that Lily would limit people to 3 houses because most of us know someone with a couple of houses and we want to blame the people we can't see - not ourselves. As Calina points out, many investors are naive overmortgaged amateurs. Foreign speculators are always blame when a currency devalues, the 'Gnomes of Zurich' or George Soros or whatever Bogeyman we can dream up.

Speculators add demand, liquidity and volatility to markets.

Investors in UK property must either rent out their houses or else pay council tax on unoccupied dwellings (typically €1500/year for a 2-bed apt). In Ireland we have far higher stamp duty rates to compensate for not having any property tax or residential rates. This discourages liquidity.

Investors in Irish residential property have become accustomed to a 10 year average 15% annual capital appreciation, making it hardly worth their while to grub around for the 2% they can earn from actually renting out their properties. Once a point is reached where prices stabilise, investors will find that their properties are losing money relative to inflation. With low yields and and maxed out prices, there will be few new investors. With some investors forced to sell or deciding to get out, prices will then slide.

If Lily Allen were Gordon Brown, the Brits would likely starve within a few months.

joemc99

What have you got against 'amateur investors'? Why shouldnt someone put their hard earned money into a house as an investment/retirement.....loads of my mates have done this, I was going to do it, and most of you may do it in the future....

May not be as attractive now, but it certainly was 5/10 years ago.

seamus

joemc99 wrote:

What have you got against 'amateur investors'? Why shouldnt someone put their hard earned money into a house as an investment/retirement.....loads of my mates have done this, I was going to do it, and most of you may do it in the future....

May not be as attractive now, but it certainly was 5/10 years ago.

Someone has every right to spend their money on whatever they want.

The main problem with amateur investors is as OTK put it:

Speculators add demand, liquidity and volatility to markets.

Amateur investors are the main culprits of property bubbles, and of our existing property bubble. In ideal terms, the value of homes would increase directly as demand for homes increases. Speculators cause an upward shift in this trend. That is, a speculator is not someone who needs a home, nor are they fulfilling any particular need in the market. They are just buying because they can, which creates an artificial demand. This causes prices to inflate ahead of actual demand.

It's actually a sort of upward spiral. Amateur investors buy property, which push prices up, which creates incentive for more investors to jump in, which pushes prices up, etc etc. That's the bubble. At a certain critical mass, investors will stop jumping in, and/or actual demand will drop off.

This is where amateur investors become the thorn in everyones' sides; They drop out. This is why it's called a bubble, and "artificial" demand. As soon as something changes, amateur investors will drop out, rapidly deflating the market, offsetting any actual demand, and flooding the market with properties that they're desperate to offload, thereby dropping the value of all other properties.

Real investors with large portfolios will maintain the bulk of their portfolios, even if everyone else seems to be selling up, because they're in it for the long haul. They satisfy the rental demand that exists in every market; amateur investors don't.

That said, I don't agree with the statement that the OP is discussing. Limiting people to a maximum number of properties, while it seems to be attractive economics, is essentially government-imposed socialism. IMO, it would also create it's own type of property bubble - even more people may buy *and* maintain their three properties as their nest egg, leaving us oversupplied and overvalued. This would be a much more slow-burning bubble deflation (as the population ages), but would create big economic strain.

As others have said, the ideal is proper legislation for those with property that isn't their primary home. I would prefer to see yearly CGT on this property (in the region of 20% of inflation) as opposed to CGT on the sale, to discourage the casual investor from attempting to dip his wick. If people had to pay a certain bulk of cash to the revenue every year on non-liquid assets, then it would either discourage them, or encourage them to get renters in to cover their costs.

OTK

joemc99 wrote:

What have you got against 'amateur investors'? Why shouldnt someone put their hard earned money into a house as an investment/retirement.....loads of my mates have done this, I was going to do it, and most of you may do it in the future....

The first post suggested that the solution to overvalued property prices would be to curb large landlords yet most properties are held by small landlords.

Small landlords are harder to regulate and tax than larger ones.

Zambia

OTK wrote:

The first post suggested that the solution to overvalued property prices would be to curb large landlords yet most properties are held by small landlords.

Small landlords are harder to regulate and tax than larger ones.

Ok so Its agreed I am not voting for Lily Allen , I would have to agree with Seamus and others. Yes the original plan seemed aimed at property barons.


A more heavily regulated Rental market , meaning rental properties had to have leases and unbreakable opt out clauses like selling off the propertys.

I am sure loads of these Properties are hitting the market now as Seamus said the fair weather investors are cashing out booting there tennents out in the process.

Afuera

Zambia232 wrote:

I am sure loads of these Properties are hitting the market now as Seamus said the fair weather investors are cashing out booting there tennents out in the process.

This would appear to be matched out by some of the data coming from daftwatch. It currently shows an increasing inventory in property for sale and a reduced inventory of property for rent.

I'm wondering now what litigation (if any) these investors would be open to if they boot out tenants, try to sell the property, are unable to and have to resort to renting it out again. If I saw new tenants moving into a property I was booted out of I'd be non-too-pleased.

Zambia

Afuera wrote:

This would appear to be matched out by some of the data coming from daftwatch. It currently shows an increasing inventory in property for sale and a reduced inventory of property for rent.

I'm wondering now what litigation (if any) these investors would be open to if they boot out tenants, try to sell the property, are unable to and have to resort to renting it out again. If I saw new tenants moving into a property I was booted out of I'd be non-too-pleased.

I suppose if they gave the original tenants first option they should be ok?

joemc99

To property bubble/boom (call it what you like), can be attributed to one thing, availability of credit. This is a function of a better economic environment, lower interest rates, and the willingness of banks to lend the credit. You can do nothing about the first two (we are all better off with it), but the third could and should have been regulated more.

Simply saying 'property prices are nuts and the gov should never have let it happen' is very naive, it is so much more complex than that.

Things have defo changed now, and it would be hard for new investors to make it work, but the guys who got in 10 years ago are sailing. Still getting the places rents, prob dont have a mortgage (so not influenced by rates), and will hold on to the property for another 15 years (so they dont care if prices dip for a few years).

Think about it, if you had a load of cash to spnd, and the property market was going up ~15% yoy, you would hop on too!

Afuera

Zambia232 wrote:

I suppose if they gave the original tenants first option they should be ok?

I'm not too sure that would cut it though. The original tenants would have already had to move on somewhere else if they were given notice that their lease was ending. Forgetting the cost and trouble that this may have brought them, and the fact that they may now be tied to a different lease, I can't imagine them wanting to move back to rent from someone who has already thrown them out.
Maybe attempting to sell (however feable that attempt is), is sufficient to satisfy the rules regarding breaking Part IV tenancy? If that's the case then, tenants rights are even more of a joke in Ireland than I thought. If they must actually sell the property, then it gets into very shaky ground if a landlord is unable to sell up after evicting tenants.

EDIT: Looking at the Tenancy Act 2004, the keyword regarding this matter seems to be "intends". The landlord must intend to sell the property within a three month period of the tenants leaving. Not too sure what they would need to do legally to prove their intention of selling though. If they turn down offers (that they feel are too low) would that negate their intention of selling within the period specified? If after 3 months the house is unsold are the previous tenants entitled to report them to the PTRB, and would action be taken against them? Maybe there are some legal experts out there that would know what would happen in these circumstances...?

Gurgle

joemc99 wrote:

To property bubble/boom (call it what you like), can be attributed to one thing, availability of credit. This is a function of a better economic environment, lower interest rates, and the willingness of banks to lend the credit. You can do nothing about the first two (we are all better off with it), but the third could and should have been regulated more.

Just to add to this:
I was looking to buy a house around '98-'99 when the prices had already risen by 30-50% in the previous few years but the banks/building societies were still offering 3.5 times the larger salary + 1.5 times the lower.

We were paying £450 per month in rent, but the absolute maximum mortgage we could get approval for was £65k with mortgage repayments of around £400 per month, which would barely have bought a run-down shack.

Luckily for us, they changed the way they work out how much you can borrow and we bought a house for £107k amid much media blustering about how the housing market was lined up for a crash. :rolleyes:

joemc99

btw Gurgle, I was in the same position in '99, maxed out with mortgage of £105k, I was told I was mad cause it was going to crash any day......

Things have changed now though, banks are giving too much away. We moved 2 years ago, and maxed out again....thats the way it goes though.

Dalfiatach

joemc99 wrote:

btw Gurgle, I was in the same position in '99, maxed out with mortgage of £105k, I was told I was mad cause it was going to crash any day......

And it started to. Property prices stalled in late 2000 through to mid-2001 (same point of the cycle we're in right now) and were starting to dip slightly. Then came Mr Greenspan and the Great Liquidity Splurge, interest rates plummeted to ridiculously low levels, banks abandoned any pretence at prudent lending criteria, and the property market went completely manic.

A "soft landing", or something like it, might have been possible in 2001. But all the gains since then have been pure frenzied bubble gains. And they will be rolled back.