Irish Property Market chat II - *read mod note post #1 before posting*

Timing belt

https://www.boards.ie/discussion/comment/117737792#Comment_117737792

An emergency sledgehammer doesn't exist... There is plenty of of land but it's not zoned for residential... Just look at the big plot of land by newlands cross where the council rejected rezoning it early this year. Council reject Hibernia lobbying over Newlands Cross rezoning (irishtimes.com)

Then even if it rezoned for residential development and planning put on the fast track this is slowed down as a lot of cases taken to the high court to challenge the planning and the fast track route.

Add on top of that pollical parties using housing as a political football and objecting to new developments..... No wonder there is a shortage of housing.

yer man!

https://www.boards.ie/discussion/comment/117738034#Comment_117738034

I get at present there is no road plan, but covid hit us like a train and the government were able to mobilize previously unthinkable measures to try and cope with it (i.e. Lockdown, quarantine, social distancing, emergency flights to China, PUP). If the political will was there, solutions could be found quickly to this issue.

The items you state are regulatory/legal barriers, declare this an emergency and begin the process of overriding some of them to get things moving. There are levers that can be pulled, at present they're just seen as unthinkable until they're not.

Amadan Dubh

It's sad what has happened to Boards.ie with the update, and this forum in particular.

In any event, here is a macro outlook from the FT and discusses central banks across the world and their apparent perspective on housing markets, looking at the typical inflation metrics as their market stability mandates and how it is difficult to measure inflation in a way which also factors in housing costs. It is of course also relevant for Ireland. These articles are typically only available to subscribers but I think it's possible to get a few free per week or else there is some Press Reader website to view it (obviously I can't copy and paste it all).

My conclusion from the article is essentially that central banks put their head in the sand with respect to housing costs and say a lot without actually doing anything to impact the market.

https://www.ft.com/content/b5ad3c30-6b51-45f6-a87e-2a1a464d2945

House prices are rising in many major economies. This FT series explores whether these increases are sustainable. Inflation-obsessed central bankers are growing sympathetic to the plight of millions of buyers squeezed out of property markets by soaring house prices. Taking action, however, is another matter.

But because house prices are not directly included in the headline inflation measures that shape central banks’ mandate in advanced economies, those institutions are not required to seek to quell prices when they rise. They have a mandate to maintain financial stability, but most do not see the housing market as a prime source of risk. Economists also cite statistical reasons for keeping house prices out of inflation measures.

The US statistical authorities estimate the change in the notional rent of homes people own. They argue that rental cost is the best estimate of the consumption of housing services, even though rental trends often differ significantly from house prices. This “rental equivalence” method was also adopted by the UK in 2017. The EU has taken a different approach. Eurostat and the ECB prefer a “net acquisitions” method that seeks to measure the changing price of purchasing homes but not the land on which they are built. They are still struggling with how to split house prices into dwelling and land.

Governments seeking a quick fix to the problem of rising housing costs face the same dilemma: raising interest rates to control house prices risks fuelling unemployment and depressing living standards, thereby undermining financial stability. Lagarde has described it as a “balancing act”. So governments and central banks will probably continue to fret about affordability — but with only limited ability to tackle it.

Graph on the uncoupling of House prices and wages from article attached. The last 20 years of economic growth is in many ways hollow and it is not outrageous in my view that we revert to where we were in 2000 in terms of house prices. The main reason for this is the answer to the question, "what happens if the QE of the last decade was stopped?" The economies of the West have been and continue to be on life support post 2008, there is no doubt about this. Even pre-covid this was the case.

Screenshot_20210812_080708_com.android.chrome.jpg

FT articles are great for comments, a big part of the reason I pay the subscription to it. Here was my favourite comment under the article, setting out why increased supply alone is not the answer;

The immediate lesson from the article is that the official definition of inflation makes no sense. It should reflect the cost of living, including housing. 

But there is a deeper lesson that the FT series has totally missed. The FT has accepted the common wisdom that the answer to housing problems is more supply. This is superficially convincing, but actually quite wrong. To say this now invites controversy, as it has become a kind of quasi-religion.

Supply is actually only relevant inasmuch as it lowers price. The ability to access any good or service is dependent on it's price. People are not unable to buy flats in London because there are not enough flats to go round. They can't afford the many that exist. So the question is - and really this is the only question - how to lower prices, for all property. And the answer is not more supply, which will only make a marginal difference. The answer is high property taxes on ownership, not just transactions, which will lower prices. A London flat that cost £1m will typically require council tax on less that 2k. So 0.2% tax on ownership. Raise that to, say, 2%. Money for the exchequer, a steady fall in property prices, more housing access.

There is no way - simply no way - to protect the house price gains on the previous generation, and have the current and next generation access housing. The entire debate is built on a delusion and aims to avoid the elephant in the room.

The 'more supply' argument is appealing because it locates the problem with someone else. If, like me, you own property in the UK, the answer to this problem is clear - we all need to lose money. It really is as simple as that. 

Topgear on Dave

The politicians here find it easier to have a rental crisis (small amount of unimportant people who only might be registered to vote) than raise property taxes (large amount of permanent residents who most certainly are reg'd to vote).

Amadan Dubh

https://www.boards.ie/discussion/comment/117741303#Comment_117741303

Interesting take on the rental crisis in the IT today; rising rents blamed for landlord exodus. Nearly seems unbelievable that rising rents would somehow make being a landlord unviable. It shows that FG have totally dropped the ball and wasted the last 10 years in power, that the renters and small landlords (i.e. probabaly 90%+ of the participants in the market) are completely unhappy with the situation. FG put their faith in the "market" and by that they adopted the policies and recommendations of the big corporate interests who have and continue to make an absolute killing, all paid for by renters who pay the inflated rents and small landlords who subsidise them with their tax.

https://www.irishtimes.com/business/construction/rising-rents-blamed-on-exodus-of-private-landlords-from-the-sector-1.4644928

Marian Finnegan, the managing director of residential and advisory at Sherry FitzGerald, the country’s biggest estate agent, cited an exodus of private landlords from the sector.

“In the past 10 years we’ve been seeing an exodus of private investors out of the marketplace. For every one investor who is coming in we’re losing two, and that exodus of stock is particularly evident outside of Dublin,” she said, arguing that big institutional investors will focus on big cities rather than rural areas of the country.

Finnegan cited the many regulations now in place and an onerous taxation burden as the reasons why so many landlords are exiting the rental sector.

On a broader level, Finnegan expects about 21,000 houses to be completed this year “hopefully”, versus “latent demand” for 35,000 to 40,000 units.

Topgear on Dave

"rising rents blamed for landlord exodus." is not how I read it.

"Rising rents blamed on exodus of private landlords from the sector"

Is what I see and seems a fair enough conclusion.

"For every one investor who is coming in we’re losing two"

Rising population and less places for rent = Higher prices

Amadan Dubh

Yes, I think you're right;

"Rising rents correlated to exodus of small landlords but correlation is not causation in this instance. Finnegan cited the many regulations now in place and an onerous taxation burden as the reasons why so many landlords are exiting the rental sector."

would be better.

Timing belt

https://www.boards.ie/discussion/comment/117741122#Comment_117741122

A lot of private landlords that were negative equity are no longer in negative equity and have been able to exit without a loss.

PommieBast

https://www.boards.ie/discussion/comment/117741405#Comment_117741405

Ultimately a market is only as good as the environment it operates within, it corrects for the conditions the government creates rather than magically solving problems joe public has.

People like my previous landlord saw that average rents of comparable pads were already 50% higher than what they could charge, which is the classic reason to exit a market in shortage.

Amadan Dubh

Not to create too much of a dump of news, but Ronan Lyons of Daft.ie has his typical detailed commentary on the Daft.ie report published this week. An interesting quote for me that stood out is his view that, even stability in prices pre-covid (i.e. smaller/no growth), still had costs at unaffordable levels.

https://thecurrency.news/articles/56531/infected-by-covid-how-the-pandemic-has-exported-dublins-property-crisis-nationwide/

It has perhaps largely been forgotten in the pandemonium of the last 18 months that both sale and rental markets had shown signs of stability, albeit at very poor levels of affordability, in the second half of 2019, only for Covid-19 to completely upend that precarious balance.

It's interesting that Ronan Lyons makes that statement because, today, Irish Institutional Property have published a report which was apparently based on analysis by the same Ronan Lyons!

https://www.irishtimes.com/business/economy/50-000-new-homes-needed-every-year-to-solve-housing-crisis-industry-report-1.4645408

The State will need to build 50,000 homes a year for the next 30 years “if its housing stock is to reflect the country’s demographics,” a new report has claimed.

The analysis by property economist Ronan Lyons and industry body Irish Institutional Property (IIP) said building on this scale would require an annual capital investment of €16 billion, most of which, it said, would have to come from overseas.

The report noted that rents have risen substantially faster than incomes: while rents are 40 per cent above Celtic Tiger peaks, on average, incomes have risen by 10 per cent in the same period.

Is there a slow acceptance finally starting to take hold that with increased supply we need to see house prices and rents forced down materially?

The Student

Why are small landlords leaving the market such a surprise to people. The tax on small landlords is ridiculous for what's involved compared to institutional landlords.

The paperwork and ever changing regulations is also an issue.

The length of time to evict is also to long. A single bad tenant can destroy a small landlord financially.

I remember multiple posts on boards wanting institutional landlords because they were more professional.

Jmc25

https://www.boards.ie/discussion/comment/117742007#Comment_117742007

The institutions are getting ridiculously favourable treatment. It's obscene actually that the government are facilitating it despite that fact that there's literally no popular support for it.

At the same time idea that a private landlord should for some reason pay less tax on their rental income than a PAYE worker and that small landlords are being taxed too highly probably doesn't have too much popular support either.

Institutions and private landlords should be taxed at the same, preferably substantial, rate.

Ray Palmer

https://www.boards.ie/discussion/comment/117741784#Comment_117741784

"Is there a slow acceptance finally starting to take hold that with increased supply we need to see house prices and rents forced down materially?"

It looks like supply is being reduced instead by the rules meant to keep rent low. It was explained this would happen and has been happening yet you still have people saying the policies are good. If 2 properties leave the rental market for each one added the new one added is allowable to be rented for more than either of the 2 leaving. So we have increasing prices regardless of the rules and less properties because of them. Still people think it is good landlords sell up. I don't expect the public to be smart but I expect our politicians and expert consultants to know and understand and not listen to public opinion.

JimmyVik

https://www.boards.ie/discussion/comment/117741617#Comment_117741617

I know a one who sold up recently and were very happy to sell even at a loss of €20k.

He always said if he had broken even he would sell then, but when it got to just €20k in the hole he decided that was it. Cut his losses and gtfo

The Student

https://www.boards.ie/discussion/comment/117742161#Comment_117742161

Grand so continue keeping the rental sector so toxic for the small landlord and see what happens.

Even Threshold and the RTB acknowledge the loss of small landlords are leaving the market.

No doubt in the future we will look back at this and realise the writing was on the wall but people did not want to listen

Topgear on Dave

https://www.boards.ie/discussion/comment/117742161#Comment_117742161

"Preferably substantial rate"

We seem to have a shortage of rental accommodation, how does taxing them into the ground solve this?

It might give some folks who ideologically dislike landlords a nice warm feeling buy does it provide extra rooms?

cruizer101

Does not taxing them increase supply?

It increases demand because if they were taxed more they would potentially not want to purchase as much. By increasing demand you increase prices and that should lead to an increase in supply but there are other issues on the supply side which are restricting supply so that even with the increased demand supply isn't increasing.

At least if they were taxed more, we would be getting money or there wouldn't be as much demand pushing up prices. I'd also add that we need to have high vacant tax rate so they don't just sit on them.

I don't see the the advantage to giving them tax breaks, can it be shown that it has directly lead to increased supply?

Jmc25

https://www.boards.ie/discussion/comment/117742415#Comment_117742415

Yeah I do understand where you're coming from and I'm not engaging in any ceremonial landlord bashing here.

If we want to direct properties from the owner occupied sector into the rental sector then tax breaks for small landlords is one way to do this.

But I don't think there's any sense in doing that at this moment in time as by driving properties from the owner occupied sector into the rental sector we're ultimately reducing supply for potential owner occupiers and pushing property prices up. This would probably push people who can't afford the resulting higher prices into the rental sector, going some way to negate any positive impact of the additional rental properties.

It's two sides of the same coin really. We don't have enough houses for those who want to buy, or rental properties for those who want to rent. Enticing small landlords back into the market (a ship which has long since sailed anyway), isn't going to fix or even materially impact the current housing situation until more houses and apartments are built.

As an aside, on a point of principle I don't think landlords should pay less tax than PAYE workers. But that's a personal, probably ideological, view which I understand people (a great deal of them landlords) disagree with.

The Student

https://www.boards.ie/discussion/comment/117742513#Comment_117742513

Pushing small landlords out of the sector is not going to help either.

Just look at a simple example. The whole property market consists of two houses with 2 couples in each house. Say one of the couples wants to buy a house. We still only have two houses. So rather than force landlord out of the market encourage him to stay while a third house is built. Then you now have 3 properties and two couples can buy a house or at a min the rent will reduce as there is not as much demand.

The above while a very simple example shows the shortsighted aapproach that people want.

Amadan Dubh

https://www.boards.ie/discussion/comment/117742236#Comment_117742236

When you say he sold at a loss of €20k, does that mean he had to settle up for €20k on the balance of the mortgage outstanding upon the sale?

Ray Palmer

https://www.boards.ie/discussion/comment/117742513#Comment_117742513

What is happening is a landlord with a 3 bed house rents it to 2 couples and a single person meaning a total of 5 people are housed. When they sell the property and it is the RPZ no investor want to buy it because the rent would have to be the same as before. Great people say we can have owner occupiers except that is a couple starting out so occupancy rate went from 5 to 2. That is 3 more people looking to rent in a market where there are now less properties to rent. As already pointed out that it is 2 rental leaving the market for every 1 new one. So we have 6 people trying to get that one property which may actually be smaller so can't house 5 people so you actually need 3 places to replace the 2 that left the market in an environment where more people are entering the market which already requires 3 properties on the rental market to deal with the regular population growth. So in summary for every 1 rental lost you want at least 4 properties available now and as the situation continues that number will increase and more landlords leave increasing the number again.

All known before the introduction of the RPZ and the additional taxes and the public love it.

Marius34

You can change all kind of rules and policies, it just moving problem from left to right. Some policies may be better for FTB, some for homeless, other for social people, but if Irelands economy will not go down, housing problem will not be solved without increase in residential construction.

Marius34

https://www.boards.ie/discussion/comment/117743284#Comment_117743284

This is very good point. I know few cases with 5/6 adults living in rental property. I don't know more than 4 adults living in owner occupied property.

Ray Palmer

https://www.boards.ie/discussion/comment/117743336#Comment_117743336

In that case it is most likely that the adults are related in the owner occupier and illustrate more demand for housing. This is causing people to split relatively common suburban home to be 2 households rather than expecting the same size home as their parents. It happens everywhere that expands and happened here with Georgian houses. People really don't get that all factors can change and a 3 bed semi is not going to remain as the standard. My mother lived nothing like me and her mother massively removed again.

The Student

https://www.boards.ie/discussion/comment/117743647#Comment_117743647

Not necessarily so. I rented out a two bed terraced house to a brother and sister and their partners and one child. None of the were related to me.

Jmc25

https://www.boards.ie/discussion/comment/117743019#Comment_117743019

Obviously this does happen in many cases with 3+ bed houses in particular. It's one of a large number of symptoms of a highly disfunctional housing market

Ultimately, a tax break for landlords won't fix the root cause of these problems - housing supply.

Landlords pay tax at an appropriate rate at the moment and the main unfairness in their tax treatment is that they pay a fair share of their rental income in tax while the REITs pay basically no tax at all.

JimmyVik

https://www.boards.ie/discussion/comment/117743086#Comment_117743086

No, He sold the house for €20k less than he bought it for after 13 years.

He reckons he lost a lot more than that on it though. But hard to put a figure on that.

He lived in it for 4 years and then rented it.

The rent never got anywhere near what the mortgage and yet he was always still paying tax and maintenance on it.

For over 2.5 years at one point he was paid zero rent on it because the tenant didnt feel like paying rent (leaving €25k of damage behind them that he had to take out a mortgage to do).

Then he had legal fees to eventually get them out.

They last tenant wrecked the place as well, but at least they moved out only owing 3 months rent.

Not to mention the locked rpz rent at below market value had an effect on the value of the house when sold.

All in all a horrible experience for himself and his family.

The biggest money pit of an experience I have ever seen anyone have the misfortune to have.

But at least he is out of it now.

The Student

https://www.boards.ie/discussion/comment/117743814#Comment_117743814

A tax break for landlords won't hurt the situation. Pushing them out when you don't have enough supply only adds to the problem in the short term.

It appears that the old ideology of landlords as been big fat cats and biting of your nose despite your face is evident.

Remember over 80% of landlords own either one or two properties. The typical PAYE earner trying to make ends meet at the end of the month.

Jmc25

https://www.boards.ie/discussion/comment/117744007#Comment_117744007

Personally I don't think all landlords are evil or obscenely rich or whatever other stereotypical views of landlords there are.

Landlords pay the same rates of tax on their rental income as a PAYE worker does on their income from employment at the moment (and as you say, many landlords are in fact PAYE workers). That's a fair situation in my view.

The benefits of such a tax break as outlined here - encouraging some landlords to stay in the market and thus facilitating a slightly higher rate of occupancy per unit on average across the entire housing market - don't do enough to make a it worth changing what is a fundamentally fair level of taxation of landlords at present.

The Student

https://www.boards.ie/discussion/comment/117744134#Comment_117744134

Okay so how do you stop reducing supply in the short term. Threshold and RTB both have reported small landlords are leaving the sector in droves. We can't build enough properties in the short term to meet demand even if existing landlords stay in the sector.

So even if you increase the tax on institutional landlords then all you do is reduce supply from them.

Raw material prices are increasing throughout the world so rather than reducing prices they will increase.

So by driving landlords out of the market you exacerbate the problem rather than trying to reduce it. (How many former rental properties when sold are returned to the rental market?). With this is a reduction in available beds to rent in an already undersupplied market.