Wednesday 21 February 2018

Long-term rental model to replace home ownership

Built by the Cosgrave Group, the Neptune Building at Honey Park in Dun Laoghaire is one of Ireland’s first BTR developments
Built by the Cosgrave Group, the Neptune Building at Honey Park in Dun Laoghaire is one of Ireland’s first BTR developments

Donal Buckley

Changing marriage and jobs trends are among the factors that are impacting on the type of homes that are needed in Ireland and the amount of them. The latest census statistics show that lifestyle and population trends are changing. To address the challenge this presents, the corporate landlord looks set to play an increasing role.

In particular, investors and developers of build-to-rent (BTR) apartment blocks, unlike amateur buy-to-let investors, can generate both the funding and management capabilities to adapt or upgrade such buildings to meet different demands from a range of household types.

The most recent census figures show changing Irish household trends and lifestyles. For instance, the age of first marriage has risen to an historic high. According to research by CBRE, Irish men and women are getting married at ages that are five years older than their counterparts in the US.

Matthew Walaszek, senior research analyst with CBRE Ireland, says that the 2016 census places the average age when Irish men get married at 34.3 years and at 32.8 for women. That's an increase of eight years over the period since 1980.

"Marriage is closely associated with home buying and delays in the former are contributing to delays in the latter. Conversely, later marriages are keeping young adults in rental housing longer and have contributed to high multi-family [rental] demand in recent years," he says.

This is particularly pronounced in Ireland, where people are waiting even longer to get married than in the US.

Furthermore, married couples are far more likely to purchase a home than any other household type, making up 66pc of US homebuyers across all ages.

Overall, Irish first marriages were up 4.2pc according to the 2016 census. However, this was a slower rate than the 8.7pc in the previous five years. Furthermore, the number of single people aged berween 40 and 49 increased sharply, more than doubling for women to 24pc in 2016 from 11pc in 1996.

For people younger than 35, the number of owner-occupied households has declined considerably, down 44pc from 2011.

Mr Walaszek says: "Marriage rates are just one aspect of rental and homeownership trends, and it's important to look at the whole picture. This can be attributed to a number of factors, including constraints of insecure jobs and inadequate savings amidst rigid mortgage rules.

"There has also been a cultural shift towards a more flexible lifestyle which can be obtained with renting, even if it is more costly," he adds.

These figures may also feed into the Housing Department's review of apartment standards which the new Minister for Housing Eoghan Murphy has got under way to encourage more new apartment developments.

After the crash, developers had complained that Dublin City Council's requirements for apartment sizes were skewed towards larger family-sized apartments.

Then the Housing Agency pointed out that the 2011 census showed a need for greater numbers of smaller apartments. The case for smaller units was partly based on the falls in household sizes, which were down from more than 3.1 persons per household in 1996 to 2.73 in 2011.

But city council officials argued that smaller apartments accounted for a large portion of centre city housing stock. Indeed 'shoe boxes' was the description applied to many apartments in Dublin's north quay area.

Two years ago, the then Housing Minister Alan Kelly insisted that Dublin abide by the national standards which allow more smaller units. These and other Kelly changes were aimed at reducing apartment building costs by €20,000 per unit.

However, the latest census supports those in favour of larger units as there were increases of 20,800 in the number of family households, almost 5,000 in non-family households and average household sizes rose to 2.75 persons per household.

On the other hand, commentators attribute the latest increase in household sizes to the combination of lack of supply and higher rents and also argue that more supply and lower rents would encourage an increase in smaller households.

Furthermore, one-person households and couples without children also grew over the five years, increasing by 7,815 and 9,883 respectively. So in other words the latest increase in household size may be a blip in the downward trend, which could well resume as supply increases.

Minister Murphy's review may also need to take into account research work which the Irish branch of the Urban Land Institute is undertaking on possible best practice for development of build to rent (BTR) developments.

Andrew Kinsella, national coordinator at ULI Ireland, says that BTR can deliver supply more quickly than build to sell (BTS). "With build-to-sell units the developer will deliver groups of homes in a phased release, so it takes longer to have the units occupied whereas build to rent units can be occupied as soon as they are built," he explains.

BTR is also built for long-term income and BTS is built for short-term profit. Consequently BTS developers can bid up prices for development land. This makes it more difficult for BTR developers to compete when it comes to buying the land. So BTR developers need incentives that enable them to compete. Such incentives could include reduced development levies.

In return for lower levies and other incentives, local authorities are likely to require an assurance that the BTR developer won't renege and go for a quick sale. It is believed that at least one local authority is considering a commitment that individual units in a BTR complex would not be sold individually for at least 15 years.

CBRE research shows that in Ireland, living arrangements have become more European in recent years with people more willing to rent than own. Back in 2000, four out of five people in Ireland lived in a home they owned with just 7pc of the population renting privately. By 2016, this rate dropped to 69.7pc, compared to 67.8pc for the Netherlands and 64.1pc for France.

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