Irish Times opinion piece: "Why are private landlords selling up despite record rents?"

[Brendan Burgess]

Why are private landlords selling up despite record rents?

Statistics on monthly payments are skewed and Rent Pressure Zones can dampen prices

www.irishtimes.com

Daft and RTB figure that the average rent is €2,000 in Dublin is wrong as it's new tenancies only.
Existing tenancies are probably €1,500 for a one bed with many paying well below this.

It is now accepted, and documented in RTB reports, that 6,824 private landlords left the market between 2018 and 2020, bringing numbers down to 165,736.
...
What is not often understood is how this differential impacts the value of one’s property when selling on. A tenanted property rented at 50 per cent of market rent, will achieve only 50 per cent of the market value of that property as an investment property.

This forces affected landlords to end tenancies and gain vacant possession so that they can achieve market value by selling the property to an owner-occupier. The tenant has to find another property at much higher rent or face becoming homeless, adding to the problems for the State.

 

[Brendan Burgess]

A good summary of the issues, although some of his claims are dubious.

I doubt that a property with 50% of the market rent will achieve only 50% of the market value as an investment property.

I do agree that it couldn't be sold as an investment though and buyers will be limited to those buying it as their home.

Brendan

 

[PebbleBeach2020]

There are three issues for small landlords in Ireland from what I can see:

1) the tax on rent is unfairly treated as income. The rate of 52% on rental income less expenses needs to be halved and brought down to maybe the lower rate of tax (20%) plus USC and PRSI. This should be done on a basis of reducing rents pro-rata so that renters also benefit in saving money. Say someone rents for €2,000 per month and the landlord has 'expenses' of €400 per month. The remaining €1,600 a month, the taxman takes €800 and the landlord takes €800. If we reduce the rent to €1,700 (15% reduction in rent) and the landlord has 'expenses' of €400 per month. The remaining €1,300 a month is taxed at say 30%, the taxman takes €390 and the landlord takes €910. The government tax take is taking the big hit here, whereas the landlords net income to going up nearly 14% and the renters rent cost is going down 15%.

2) the problem of small long-term landlords stuck with properties on rents way below current market rent. By and large, these small landlords didn't increase rents annually (to the benefit of the renters) cause they were, by and large, happy with the tenants. These are the landlords that are being driven out of the market and are the very type of landlords we should be looking to retain and attract into the sector. They are landlords who are fair and sympathic to tenants and renters and are more concerned with having decent tenants in their property who look after it and respect it, rather than getting tenants in to maximise their profits/rental income. A system of bringing these properties up closer to market rent than they currently are, is required and would benefit everyone. Tenants wouldn't /may not be evicted and properties sold, if this carrot was there for the small landlord.

3) Problem tenants and refusal to pay. Quite simply, if you have a tenant in a property who refuses to pay, then you should be able to get them out of your property easier and quicker than it currently takes. Also, any damage done should be taken or reimbursed to the landlord for repairs etc from social welfare payments or a court order against the tenant. Respect works both ways and we need to weed out the bad tenants and the bad landlords in equal measures. Also, there needs to be a record on the RTB for landlords to use, to look up tenants to see their rental history and possible issues in previous agreements. A bit like your credit history, you will find it easier to rent a property if you have rented before and there were no issues etc.

The three issues, won't fix everything, nothing will do that. But they would help renters and landlords in equal measures as in addition to providing a stable base and buy-time for the longer term issues such as increasing supply to be resolved. Putting the above in place for a definite 5-year period would at least provide confidence to a marketplace that is reeling from uncertainty and the constant annual government interference and meddling around the edges.

 

[NoRegretsCoyote]

the tax on rent is unfairly treated as income. The rate of 52% on rental income less expenses needs to be halved and brought down to maybe the lower rate of tax (20%) plus USC and PRSI. This should be done on a basis of reducing rents pro-rata so that renters also benefit in saving money. Say someone rents for €2,000 per month and the landlord has 'expenses' of €400 per month.

It doesn't have to be that complex. A landlord values their home for LPT. If it's a rental they pay 1% LPT, if it's not they pay the owner-occupier rate.

No messing about with allowable expenses or deductions or mortgage interest or anything like that. Just the exact same tax for every rental property. Very easy to calculate, very difficult to avoid.

 

[Peanuts20]

There is another reason, the accidental landlord who for various reasons ended up in negative equity, never wanted to be a landlord in the first place but had to rent as they couldn't cover the shortfall if they sold. As time passes, as property prices recover and perhaps outstanding debt was reduced, they're doing what they always wanted to do, sell the property

 

[noproblem]

Problem tenants and refusal to pay. Quite simply, if you have a tenants in a property who refuses to pay, you should be able to get them out of your property easier and quicker than it currently takes. Also, any damage done should be taken or reimbursed to the landlord for repairs etc fro social welfare payments or a court order against the tenant. Respect works both ways and we need to weed out the bad tenants and the bad landlords in equal measures. Also, there need to be a record on the RTB for landlords to use, to look you tenants to see their rental history and possible issues in previous agreements. A bit like your credit history, you will find it easier to rent a property if you have rented before and there was no issues etc.

Very good analysis of this huge problem and totally agree. Too much of this happening and not enough being publicly written or spoken about it.

 

[T McGibney]

It doesn't have to be that complex. A landlord values their home for LPT. If it's a rental they pay 1% LPT, if it's not they pay the owner-occupier rate.

No messing about with allowable expenses or deductions or mortgage interest or anything like that. Just the exact same tax for every rental property. Very easy to calculate, very difficult to avoid.

So if you incur a large rental bad debt or a loss caused by a tenant wrecking your property and leaving it unrentable for months, you'd still pay income tax on non-existent income?

I can't see this one flying.

 

[Lockup]

There is another reason, the accidental landlord who for various reasons ended up in negative equity, never wanted to be a landlord in the first place but had to rent as they couldn't cover the shortfall if they sold. As time passes, as property prices recover and perhaps outstanding debt was reduced, they're doing what they always wanted to do, sell the property

Disagree. In the past, accidental LL's stayed on. I would have stayed only for unable to get tenant out when they stopped paying.

 

[argolis]

There are three issues for small landlords in Ireland from what I can see:

1) the tax on rent is unfairly treated as income

I agree with points 2 and 3, I think they're largely responsible for landlords exiting - they certainly affect me along with the fear of further restrictive legislation. There's probably a large amount of landlords exiting now because they're now finally in positive equity and have the option to sell, for a variety of personal reasons (myself included). I disagree with point 1 though. Rental income is income and should be taxed as such.

Just because you lower the rate of tax on rental income, landlords aren't going to be overcome with generosity and lower existing rents as in your ideal scenario. Market demand determines rent levels, not taxes. Landlords can charge lower rents if they want but more than likely, they will pocket the extra savings. While that may have an effect of attracting in/retaining some landlords, it's a tax subsidy. We'd be better off fixing the other two problems and they'd cost less to the exchequer. If you're not going to leave it up to landlords to decide to do it of their own accord, when you say "If we reduce the rent" I'm not sure who you envision enforcing and monitoring rent reductions on an on-going basis and how much that'll cost.

If there was an equitable way of setting rents e.g. I was free to set a market rent once the current tenants left, AND there was some security in being able to evict bad tenants within 3 - 4 months, then I'd have been more tempted to stay but as it is, I'm out.

 

[Marco 1972]

There is a review due by budget time, if l remember right, regarding tax treatment small scale landlords under the Housing for All document, also the need to alleviate the housing crisis and now the unknown unknown in terms of housing provision of Ukrainian refugees seeking accommodation may expedite matters in this regard.....

 

[Tadaima]

There are three issues for small landlords in Ireland from what I can see:

1) the tax on rent is unfairly treated as income. The rate of 52% on rental income less expenses needs to be halved and brought down to maybe the lower rate of tax (20%) plus USC and PRSI. This should be done on a basis of reducing rents pro-rata so that renters also benefit in saving money. Say someone rents for €2,000 per month and the landlord has 'expenses' of €400 per month. The remaining €1,600 a month, the taxman takes €800 and the landlord takes €800. If we reduce the rent to €1,700 (15% reduction in rent) and the landlord has 'expenses' of €400 per month. The remaining €1,300 a month is taxed at say 30%, the taxman takes €390 and the landlord takes €910. The government tax tax is taking the big hit here, whereas the landlords net income to going up nearly 14% and the renters rent is going down 15%.

2) the problem of small long-term landlord stuck with properties on rents way below current market rent. By and large, these small landlords didn't increase rents annually (to the benefit of the renters) cause they were by and large happy with the tenants. These are the landlords that are being driven out of the market and are the very type of landlords we should be looking to retain and attract into the sector. They are landlords who are fair and sympathic to tenants and renters and are more concerns with having decent tenants in their property who look after it and respect it than getting tenants in to maximise their profits/rental income. A system of bringing these properties up closer to market rent than they are is required and would benefit everyone. Tenants wouldn't /may not be evicted and properties sold, if this carrot was there for the small landlord.

3) Problem tenants and refusal to pay. Quite simply, if you have a tenants in a property who refuses to pay, you should be able to get them out of your property easier and quicker than it currently takes. Also, any damage done should be taken or reimbursed to the landlord for repairs etc fro social welfare payments or a court order against the tenant. Respect works both ways and we need to weed out the bad tenants and the bad landlords in equal measures. Also, there need to be a record on the RTB for landlords to use, to look you tenants to see their rental history and possible issues in previous agreements. A bit like your credit history, you will find it easier to rent a property if you have rented before and there was no issues etc.

The three issues, won't fix everything, nothing will do that. But they would help renters and landlords in equal measures as also provide a stable base and buy time for the longer term issues such as increasing supply to be resolved. Putting the above in place for a definite 5 year period would at least provide confidence to a marketplace that is reeling from uncertainty and the constant annual government interference and meddling around the edges.

Number 3 was the main reason I left the market and sold up.

 

[Peanuts20]

Disagree. In the past, accidental LL's stayed on. I would have stayed only for unable to get tenant out when they stopped paying.

I can name at least 3 people in the last 18 months who were accidental landlords and sold as soon as they were in a position to get out of it.

 

[Lockup]

I can name at least 3 people in the last 18 months who were accidental landlords and sold as soon as they were in a position to get out of it.

so can I but there was no temptation to stay on as LL's.

They got the opp to get out but it was a gun to their head with all the regulations and anti LL stuff going on. Rents are very high ATM but yet everyone is leaving. Thats because they have one or two properties (massive risk with the current overholding environment). REIT are buying the properties which proves if the model is ok for some.

Alot of ppl are leaving because of contagion which wouldnt exist if the gov had not played virtue politics with the housing market. Its just the other side of the same coin really. I disagreed with you since you only referenced the carrot and not the stick

Look at the last post by

Tadaima​

 

[NoRegretsCoyote]

you'd still pay income tax

It wouldn't be income tax, it would be a wealth tax.

Rental income is currently treated like it's a return on your labour whereas in reality it's mostly a return on your capital.

My idea needs fine-tuning I'm sure and some way to take account of losses. But a much better system would include:

1. No deduction for mortgage interest, tax system should be indifferent towards how you finance the asset;
2. No incentive or disincentive to work from having a separate rental income;
3. No PRSI on rental income - it's really regressive that a person who doesn't work but owns two rentals is accruing a state pension as cheaply as someone working full-time on the minimum wage;
4. No capital gains so no rush for the exit like at the moment when prices are buoyant;
5. Simplicity - very easy to administer and police.

 

[Brian McD]

You have to so careful taking in tenants, the amount of people we say no to and the questions / documentation we require put off lots of tenants but that’s OK as then you only get the ones that have all their ducks in order. The amount of bad people out there is shocking when you dig down into their stories / motivation for moving. As a LL you are operating in treacherous waters. I can really understand people getting out when they can and REIT’s focussing on the top end of the rental market - these tenants typically work for multinationals & typically have a shorter stay. But REIT’s are driving the high rental prices & all follow as demand massively outstrips supply.
Will probably sell also at some stage & invest proceeds into a diverse pool of European equities. Less hassle & better real inflation adjusted over the longer term