Effect of rent controls? Higher rents and reduced supply

Ten years ago in 2012 I moved into an apartment renting at €1,500 which was market price at the time. I didn't stay too long before buying a house but if I had the landlord would probably have let the rent alone even as market rents took off in 2014 and 2015. Then rent freezes and RPZs came into effect from 2016 (and subsequently Covid freeze and then the 2% absolute limit). The precise calculations are beyond me but I think the most the landlord could have legally increased the rent under the various regimes since 2016 was about 20%, so from €1,500 to €1,800.

I still get daft alerts for the area and the odd time an apartment in the complex comes up it lets for €2,800 now, a full €1,000 above what I would be paying if I'd stayed there for the last ten years. Rent controls have their place in the short term, but there is just no good reason why existing tenants should be privileged so much over new tenants simply by virtue of having the been there for many years. The bigger question is what is the landlord supposed to do? Legally, the landlord is down a gross €12k a year, a full 35% below market rate. This is a lot of money! Prices are rising all over the economy at the moment because producers need to do so to stay in business and customers can sustain it. If coffee was fixed at 2012 prices you would find most coffee shops would just close as it wouldn't be worth it. You either have a market economy or you don't.

So for a landlord stuck 35% below market rent what are you supposed to do? If a tenant leaves the most obvious thing to do is sell up. If you want to stay a landlord ironically enough the best thing is to leave it idle for 24 months and then let it again at market rates. If there is repainting/refurbishing after a long tenancy there is going to be void time anyway (say 2 months). So you lose 22 months rent at the old rate but can let again at market rate of €1000 higher. After five years you've broken even and are re-established at the higher rate. This is a big upfront cost though with a relatively long payback time. Another option (again if you are a really committed landlord) is to sell one property and buy an identical one that hasn't been subject to rent controls and take in market rent. These are the kind of financial gymnastics a committed landlord is expected to exercise just to stay in the market. It's no wonder so many just throw up their hands and walk away.

I think @Sarenco is broadly correct that rent controls have made a bad situation worse. I think the tax question is still a bigger factor, there is just a lot more tax on income and capital gains than there was 15 years ago. Added to that there is a huge cohort of landlords leaving at the moment. This is the 2002-2008 accidental landlord cohort which is not out of negative equity and can get rid of the albatross around its neck. The other is is professional landlords who bought 2011-2014, held for seven years and can avail of a full CGT exemption. Why would these latter landlords stay in the game stuck well below market rents with a capital gains tax shelter being eroded year on year?

In any case landlords will always be selling and a bigger issue is why so few are buying. For me the tax treatment compared to pension assets is a huge difference, particularly the CGT exemption. Something like the German system where there is no CGT payable if a landlord buys and lets for at least ten years would be a very good idea in the Irish context and I think would tempt some landlords back in.

One was they extended tenancies to 6 yrs. That was notice to quit for many right there.
There is no evidence that this is behind a material number of notifications to quit. Many landlords don't even know of the existence of this provision.
 
Surely that would add to the supply of rental properties?
No, it means there are fewer rental properties available on Daft, which, for some strange reason, is the golden metric in all of this.
I’m not arguing that rent controls are responsible for problems in the supply of housing more generally.
Okay, and I argue that an additional 360,000 people in the country and a reduction in average household size over the last 32 years which on its own consumes an additional 12,000 housing units a year without housing a single extra person are bigger drivers in our housing shortage.

That's 12,000 units a years consumed due to a reduction n average household size and, since 2016, 22,000 units a year consumed by population growth. I think those are bigger factors than rent controls.

I’m simply arguing that rent controls are the primary reason for the dramatic reduction in the supply of rental properties that we have seen since 2016.
I'm arguing that, as outlined above, over the medium term we need 36,000 units a year to stand still and that demand is outstripping supply.


On the supply side our planning system and gross State inefficiency have made things far worse, as has a dysfunctional and structurally incompetent construction sector. Building regulations have made things worse. Minimum unit sizes have made things worse.

Banning bed-sit's have made things worse. Rent controls have made things worse.

The main driver in all of this is the inability of the construction sector, constrained by the State but primarily by it's own massive shortcomings, to keep pace with demand.
 
I didn't dispute the Rental controls exacerbated the situation. Its just not the primary reason.

But you've been down that 12k, or 7k after tax all the years before this. It didn't make it unviable all the years before its unlikely to make it unviable afterwards. The income vastly exceeds any increase in costs in that time. Unless it wasn't viable before the RPZ anyway. In which case this is all moot.

If a tenant stops paying rent and it take up to 2yrs to get them out 2800x24 you are down 67,200 plus legal cost, plus any damage they've done in the mean time. Which could be in the tens of thousands. 7k is small potatoes in context.

There cannot be any significant number in negative equity now. https://www.independent.ie/business...ity-end-in-sight-for-homeowners-37944309.html

If you are small LL with one property you aren't chasing a big property portfolio or you'd have done it by now. It supplemental income and a pension. The preferential tax treatment isn't going to make a huge difference to supplemental income. You were happy enough to get into it was the return you were getting. Makes no sense this would tip you over the edge.

Rent controls create a two tier market for tenants. Long tenants won't move, as this stagnates the market. New tenants bear the brunt of it. It creates a stability for long term tenants. Which is what people are looking for. Being last in the door your entering a market you know has no capacity due to supply issues. You're literally trying to squeeze your gallon into a pint pot. There is no fix for this except supply, or go somewhere else. Even if you got rent at the same price, there is no where to rent. But without RPZ the rent would be even higher. As there is no supply. RPZ at least stops rises for existing tenants which is glass half full or empty depending on your perspective.

The supply issue comes from a variety of reasons but RPZ isn't the sole reason for anything.
 
Okay, and I argue that an additional 360,000 people in the country and a reduction in average household size over the last 32 years which on its own consumes an additional 12,000 housing units a year without housing a single extra person are bigger drivers in our housing shortage.
I don't think there is any doubt that there has been a very significant increase in demand for rental properties in recent years. You just have to look at the increase in rents commanded by new rental properties as evidence of this increased demand.

Remember, increasing prices are just a signal that there is more demand than supply. In a healthy market, that signal draws out new supply, driving prices back down.

However, we are not seeing additional supply of rental properties coming on stream. On the contrary, we are actually seeing a net reduction in the rental market stock as landlords exit the market, which is perverse at a time of increased demand and rising prices.

This has resulted in us moving from a challenging, supply-constrained, rental market in 2016 to a full blown crisis today.

So what changed in the intervening period?

Planning delays, challenges in the construction sector, etc, delay an adequate supply-side response but they don't result in an actual reduction of rental stock.

The bedsit ban was introduced back in 2013 so that's not the culprit.

Additional regulatory controls have been introduced since 2016 around notice periods, etc., but these are not particularly material.

The taxation of rental profits hasn't changed to any material extent since 2016.

So that leaves rent controls as the primary (not the sole) reason for us moving from a challenging situation in 2016 to a full blown crisis in the rental market that we are witnessing today.
 
Best 2016 change I found was a drop in transactions, (buying and selling I assume)

(Not a site I like to quote)

https://d1trxack2ykyus.cloudfront.net/artwork/0e3bcc87e922fdb9/medium_image.png

Even the rent price doesn't quite follow the RPZ 2016 by location.
https://i2-prod.buzz.ie/incoming/ar...osts-Facebook-and-Blog-Formats_Graphic-15.jpg
 
Again, on 1 August 2016 there were 3,600 properties advertised to rent nationally on daft.ie.

On 1 August 2022 there were only 716 properties advertised to rent nationally.

That’s an 80% reduction in advertised rental properties over that period.

I would suggest that is a statistically significant reduction.

Statistically its not unique to 2016~2022 period.
 
Again, on 1 August 2016 there were 3,600 properties advertised to rent nationally on daft.ie.

On 1 August 2022 there were only 716 properties advertised to rent nationally.
I don't doubt the underlying trend, but I think the magnitude might not be as large as you say.

For properties in an RPZ coming back to the market:
  1. If you're a landlord, tenants who are quitting will probably have friends who will want to take over.
  2. If you're an agent, why bother advertising? You will get massive excess demand at the rent-controlled price. You have a list of potential tenants as long as your arm already who will take it at the rent-controlled price.
Remember the median tenancy in Ireland is 3 years, the mean is 5 years and RPZs have been in place since 2016. The typical tenancy ending is most likely rent controlled and if you are not selling as a landlord you probably don't need to advertise on daft to find a tenant.

The listings I follow on daft (not a representative market by any means) seem new to market judging by the asking prices. Properties are still changing hands I would think a much higher share is off market than 2016.

I am not for a moment doubting that rent controls are a) bad; b) leading to a fall in supply. But the magnitude is probably not as large as the figures above suggest.
 
his has resulted in us moving from a challenging, supply-constrained, rental market in 2016 to a full blown crisis today.

So what changed in the intervening period?

Planning delays, challenges in the construction sector, etc, delay an adequate supply-side response but they don't result in an actual reduction of rental stock.

The bedsit ban was introduced back in 2013 so that's not the culprit.

Additional regulatory controls have been introduced since 2016 around notice periods, etc., but these are not particularly material.

The taxation of rental profits hasn't changed to any material extent since 2016.

So that leaves rent controls as the primary (not the sole) reason for us moving from a challenging situation in 2016 to a full blown crisis in the rental market that we are witnessing today.


Our population increase and the fact the immigrants are more likely to rent than buy will have a major impact on demand for rental units.

The numbers of available units is a reflection of demand outstripping supply. Have the number of units rented as a proportion of the overall housing stock decreased? That would be a better indication of the impact of rent controls.
 
Does anyone have statistics on the age profile of the people who bought buy to let's during the boom? The one or two property landlords who also had a day job. It strikes me that a large proportion of the people who had the means to buy during the boom are getting to retirement age. Therefore positive equity, age profile and the fear of a Shinner government making it impossible to evict a tenant are all big factors in why landlords are selling.
 
Sorry, I’ve no idea what that means.

Could you re-phrase?


Again, on 1 August 2016 there were 3,600 properties advertised to rent nationally on daft.ie.

On 1 August 2022 there were only 716 properties advertised to rent nationally.

That’s an 80% reduction in advertised rental properties over that period.

I would suggest that is a statistically significant reduction.

The general trend does not align with 2016. You've just cherry picked data out of context.

2012.
it is increasingly evident that there is a shortage of rental properties on the market in urban areas, and in particular Dublin,” Ronan Lyons, Economist with Daft.ie

2014
According to Daft.ie (which is owned by the Distilled Media Group) the rent increases are related to very tight supply, with fewer than 1,500 properties available to rent in Dublin on February 1, compared to over 6,700 on the same date five years ago.
 
Our population increase and the fact the immigrants are more likely to rent than buy will have a major impact on demand for rental units.
Nobody is suggesting otherwise.

RTB data (with all its imperfections) shows a very significant reduction in registered tenancies over recent years.
 
Nobody is suggesting otherwise.

RTB data (with all its imperfections) shows a very significant reduction in registered tenancies over recent years.

It actually rose between 2018 and 2019. Then we had covid and lock down for 2yrs.
From Number of Private Tenancies Q4 2017 - Q4 2020 it has fallen approx 5%.
 
In the last year alone, the number of newly registered tenancies has declined on a year-on-year basis by 32%, per the latest RTB index.

Is anybody seriously suggesting that the recent landlord exodus is a myth?!
 
From Number of Private Tenancies Q4 2017 - Q4 2020 it has fallen approx 5%.
That is "very significant" though! The over-15 population grew 5% over those three years. So population growing 5% and private tenancies falling 5% is approximately 10% less rental properties per adult. That's a fall of 3% per year - quite a lot and in my view not sustainable!

What's been happening in the two years since? The RTB seems to have stopped producing statistics as it moves to annual registration. Census results should be out later this year which will most likely show more than a 5% drop in private tenancies April 2016 to April 2022 - we already know the adult population grew 9.5% over the period.

A 3% fall per annum per capita in private tenancies is a) a big number; b) telling you that something is very wrong on the supply side.
 
In the last year alone, the number of newly registered tenancies has declined on a year-on-year basis by 32%, per the latest RTB index.
Okay, that's a much more relevant statistic.
Is anybody seriously suggesting that the recent landlord exodus is a myth?!
It certainly isn't a myth. The question is why it's happening. Are rent controls a bigger factor in that exodus than positive equity i.e. taking their profit, age profile and fear of the next government?
 
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