A professional landlord has vested interest in making your life easier
Published 16/06/2015 | 02:30
In recent months the rising cost of renting a house or apartment in Ireland has never been far from the headlines. Whilst the implications this has for people trying to find a home are complex and varied, the solution is supply.
Ireland needs a new model of urban planning that allows a wider range of apartment types to be built, and removes some of the constraints that add to the cost without necessarily improving occupier experience.
The old model that relied on buy-to-let landlords over-extending themselves to buy a handful of cookie cutter two-bed apartments is dead and gone, and that's probably for the better.
What the Irish market requires is more professional landlords, ready to build in quantity the developments of quality and variety we need. Real Estate Investment Trusts (REITs for short) are amongst the providers that can step into this space, and it is an area that the company I lead, Hibernia REIT, would like to invest more in.
The problem is that at the moment, planning constraints make it uneconomical for us to invest in the market. If Hibernia were to invest in a new-build set of apartments, it would take three years to complete, after which we would likely earn a 5pc yield.
That can be achieved for our investors today simply by buying a Grade A office block.
Basic economics says to improve the yield, either rents need to rise or the cost of building needs to reduce. Two changes could make all the difference.
The first is reduce the requirement to have so many "cores" (that's the lift and stairwell units to gain access to apartments). Under the current regulations it is difficult to get more than four apartments per core, whereas in the majority of other European countries you can get eight to 10.
The second is to reduce the requirement for every apartment to have an associated car parking space. In city centre locations, having parking spaces for just one in three apartments can be entirely adequate, and aligns with wider government transport and environmental targets.
When I talk to HR directors from some of the big technology companies with offices in Dublin, one of their biggest concerns is whether the highly trained staff they are looking to recruit (often from overseas) can find the kind of apartment accommodation located close to work that they desire.
The average 26-year-old Googler wants a stylish affordable apartment located close to their work. It doesn't have to be huge, it doesn't need a parking space, and one lift between eight apartments is just fine.
Unfortunately I can't get planning permission for that kind of development. So the Googler looks elsewhere, perhaps to a shared house in the suburbs, thereby driving up rents for other people, or perhaps making the decision that the job in Ireland isn't for them.
If you're young, highly mobile and tech savvy, your idea of fun probably isn't getting a bus out to a housing estate in the suburbs because you can't find a nice funky studio in Dublin's Docklands.
Another of the Irish REITs, Ires REIT, is the biggest of the new "professional landlords" with more than 1,500 apartments. Last week the company's CEO David Erlich echoed my concerns about the sums not working when it comes to investing in new rental schemes. He argued that the planning regulations were the equivalent of requiring us to build everyone a Mercedes, when many are happy with a simpler Nissan.
My only criticism of his argument is that it might be taken to suggest that professional landlords will provide a product that is somehow inferior. Far from it. Consider the difference between renting from a buy-to-let investor on whose goodwill you are depending to get the broken shower fixed, and a professional landlord, who has a dedicated team to deal with issues straight away.
Consider the way a professional landlord, owning the whole complex, has a vested interest in ensuring common areas and gardens are well maintained, rather than buy-to-let investors who begrudge every penny they pay to a faceless management company.
Consider the professional landlord who has spare apartments available for short-term rent when your relatives come to visit. Sounds far-fetched? It's already a reality in Kennedy Wilson's Clancy Quay development in Islandbridge, with two "guest apartments" available per block.
Encouraging professional landlords is not a question of favouring Boston or Berlin. Residential REITs are commonplace in both the US and Germany. In the US a company like Home Properties has more than 38,000 apartments for rent.
In Germany, Deutsche Annington manages a staggering 200,000 residential units and has a market capitalisation of €10.6bn.
These are long-term providers of quality accommodation who are making good investor returns whilst also providing much needed rental supply. Ireland has a clear problem in the residential rental sector, and an effective solution is within our grasp.
Kevin Nowlan is CEO of property company Hibernia REIT.
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