THE MINISTER FOR Housing Simon Coveney indicated last week that he is not going to introduce rent regulation or rent certainty as it might deter the supply of private rental accommodation. This shows that it is the new Irish landlords – the wealthy global real estate funds – that are influencing housing policy and not the needs of the hundreds of thousands of tenants facing spiraling rents and evictions.
The current housing crisis is not an accident. It is a direct result of the particular strategy for economic recovery pursued by successive Irish governments in response to the 2008 property and financial crash. These policies have focused on demonstrating to the international markets that Ireland’s banking and property crash has been solved through two things: Ireland’s bad bank, Nama, being a success and wound up early, and by the Irish banks becoming profitable again.
This strategy required firstly, a re-inflation of Irish property prices (rental prices in particular, plus tacit government support for future increases in property prices and rents) and secondly, the attraction of international property investors and vulture funds to buy up the toxic loans and assets off Nama and the Irish banks. All other issues – particularly the impact on Irish housing and its affordability for citizens – were not given a priority in policy. The ‘economy’ came first. And yet this approach has left us with a housing crisis which is a social emergency with major economic implications.
Nama has been the government’s key vehicle to attract international investment by selling off key residential and development land assets at knock-down prices. But they also sold key residential property on the basis of future rising rents and prices.
The influence of REITs
The other key measure introduced by government to attract international property investment funds was the low tax regime for Real Estate Investment Trusts operating in Ireland. In 2013 Michael Noonan made rental profits arising in a REIT exempt from corporation tax. This was on top of other existing tax avoidance and reduction loopholes available to investors (such as the Section 110).
As the housing crisis developed and worsened in 2014 and 2015 the government found another major argument in defence of this approach. According to government these new REIT investors and international global property funds would play a major role in addressing the ‘supply’ crisis in the private rental sector.
But the problem with that approach is that this particular investor is seeking high returns – which requires high rents – which means policies to keep rent affordable, such as rent regulation, are not seen favourably by them. And this is what we have seen happen.
In the run-up to last year’s Budget it was reported that there was a possibility of rent regulation (which would link rent increases to inflation) and increasing security of tenure being implemented. However, following intense lobbying, including by a major US real estate investment company, the government instead introduced the two-year rent freeze which has done little to stem the rising rents.
In a letter to Minister Noonan on 30 September 2015 which was later published by the Irish Examiner, Peter Collins, the managing director of US real estate investment company Kennedy Wilson Europe, wrote:
Investors and their funding banks will see the new proposed regime (some form of rent certainty) negatively . This will certainly limit and, potentially eliminate, future investment.
The government doesn’t want to change this
From the government’s perspective, their policy is working in attracting in big investors.
Michael Noonan, speaking at the Oireachtas homeless and housing committee in April this year explained:
This intervention [the favourable tax regime for REITs] has been successful in encouraging large-scale investment into the commercial and residential property markets. There are currently three REITs operating in Ireland… [and] it is estimated that the market capitalisation of the three REITs is now approximately €2.3 billion.
In 2011, Ireland had one landlord with more than 400 properties, and now there are five. There are two REITs amongst Ireland’s biggest 20 landlords. There has been a 27% increase since 2011 in landlords with 20 or more tenancies since 2011 (926, up from 730).
These big investors are making major profits from Ireland’s housing crisis. Kennedy Wilson started investing in Ireland after the crash and now has €2bn of assets in Ireland. A representative of the company told the Irish Times last month that “Dublin is the most attractive property market in Europe”. Kennedy Wilson is now one of Ireland’s biggest landlords as it has over 1000 rental units.
Irish Residential Properties REIT (Ires) generated net income of €5.5 million between July and the end of September 2016. This compares to €3.6 million for the same period last year, a gain of 53%. They told the Irish Times earlier this month that the current housing crisis, with a “deep imbalance between demand and supply in Dublin’s housing market” means their profit outlook is “very positive.”
And global wealth funds from across the world are looking at Ireland, and Dublin’s property in particular, as a potential site for investment. The PWC Europe 2017 Emerging Trends in Real Estate report shows how government policy has been successful in making Irish private rental property an attractive global asset. The report notes that “REITs are seen as good investment”. And the private rental sector is a “compelling opportunity because of the limitless demand.” And in particular, cities like Dublin are seen as good investment locations:
One of the biggest changes is the way that residential is now viewed by institutional investors and their desire to have at least part of their portfolio in this sector. In addition to established multi-family markets in Germany, Denmark, Sweden and the Netherlands, an institutionally backed build-to-rent, or private rented sector (PRS), is beginning in Ireland.
One US investor described the attractiveness of investing in the private rental sector in Dublin:
“The private rented sector in Dublin is a home run,” he said.
The report stated that equity is flowing into Europe “from all corners of the globe and all types of investors” and “residential is on the radar and is undervalued because it gives long-term, stable returns.”
There is an alternative
I have shown here how successive government policy has led to a deeper commodification of Irish housing and the attraction of investors who expect high returns and thus high rents and low levels of tenant’s rights. This is a disaster for the provision of affordable housing in Ireland as it is locking in the existing high and unaffordable rents into the future.
This housing crisis also worsens and reproduces our already unacceptably high levels of economic inequality. We now have low income households and younger generations spending a significant proportion of their low and moderate incomes on rent which is flowing to the renter class of the Irish and global wealthy.
An alternative approach is available to government. Introduce rent regulation and security of tenure which would provide affordable housing and attract in a different type of investor – the global pension funds and ethical investment funds willing to take lower levels of guaranteed returns over a longer term, which would respect, and expect, high levels of tenant’s rights. Secondly, the State must lead in an emergency development programme of ‘not-for-profit’, de-commodified, affordable mixed income housing provision – from social to cost rental to shared ownership and cooperative housing.
Dr Rory Hearne is a senior policy analyst with the independent progressive think-tank TASC.