The right moves: Expect more Tyrrelstowns
The housing crisis is a function of economics and failed political policy but another force at play is "behavioural", that is, how landlords and tenants are responding to the deepening crisis. With up to 40pc of Dublin's accommodation now rented rather than owned, how landlords and tenants behave will influence how this crisis develops.
A good example of this arose in a conversation with two friends last week. Both are "accidental landlords" who bought four-bed semi's in the same estate when setting up family and kept those houses as investments when they moved to bigger houses. One of the houses is let to four nurses at €1,500 per month and the other is let to a family at €1,200 per month. The latter landlord is under financial pressure and is anxious to increase the rent to the market rent. However the family say that they cannot afford this and that there is nowhere else for them to go. The landlord believes this and has found his tenants to be very decent, but he now has a moral dilemma. Does he put the tenants out and improve his own family's income, or does he continue to accept well below the market rate, to his own family's cost?
I believe that the number of private landlords with this moral dilemma is not appreciated and that there is a huge level of "forebearance" on rent increases taking place in the market. However with rents having increased to levels even higher than their peak in 2007, and certain to rise further, how long landlords will continue to act like this will affect the level of homelessness and indeed, how tenants will respond.
The controversy this week at Tyrrelstown, where a number of tenants have received notices to quit from their houses which are security against loans bought by a fund controlled by Goldman Sachs, is the same issue on a larger scale. Property owners can receive higher rents or prices with vacant possession and our legislation is relatively weak as regards security of tenure for tenants. Goldman Sachs is operating exactly as investment funds do - maximising profits in an entirely legal manner. This was entirely predictable.
The Tyrrelstown case is a good example of why Nama and overseas banks have sold their loan assets in large portfolios. Firstly, it is the only way to get through the huge scale of these distressed loans but it also puts a third party in the firing line when the time comes to start taking profits and tough decisions have to be made.
The management company at Tyrrelstown - Twinlite - informed tenants their leases will not be renewed and served the tenants with notices to quit. Could an Irish bank or Nama issue notices to quit to their tenants under similar circumstances? No chance.
Part of the reason that these loan books are sold at discounts is that not only is the purchaser going to have to manage the properties and the process of extracting a return, but they are also likely to have to handle PR firestorms.
I believe we are at the start of a long series of similar cases, as rising rents tempt the investors to realise a return on their investments by gaining vacant possession. Indeed Nama, on behalf of the taxpayer, remains one of the biggest landlords in the country, so there is still a long way to go in unwinding this mess.
Faced with a dire shortage of rental property, tenants are being forced to react. Anecdotally, tenants are "doubling up" with two families sharing single houses. I predict that the results of next month's census will show a significant intensification of the density at which people are living. As tenants become used to such arrangements, ironically, I suspect that Dublin City Council's policy to provide large "multi-family" apartments in the city centre, will see families outbid by groups of "singletons." Other tenants are trading "distance for space" and undertaking long commutes.
I can see an increasing number of employers forced into buying houses and offering accommodation for a minimum of one year, in order to attract employees to the cities, especially in Dublin.
The entire mess is caused by a lack of supply of rental stock. The State must urgently provide social housing as the private sector won't do that. If there is another general election soon, the housing crisis will be the main issue, yet no party shows much sign of understanding the issues. The big fear is more politically convenient moves such as more rent controls, which are already making the situation worse. Turbulent times ahead.