While a cooling of the rate of house price inflation is generally to be welcomed, the flood of supply to the market of properties brought for sale largely by small private landlords, and its impact on property inflation in many areas, is in fact a cause for concern.
Because these are the people whose properties are supplying house shares and apartment lets at the cheaper end of the rental market.
Their departure has been ongoing for some time, but since the beginning of the year, it has developed into a stampede with a third of properties for sale in some locations coming from landlords. And it’s leaving the rental sector to be dominated by the big funds which are unaffected by rent caps on their first lettings and who are, for the most part, asking top dollar for smaller homes.
Estate agents in Dublin are saying that houses in some locations are now not achieving automatically hiked asking prices. For example, if the guy down the road put his house on the market at €400,000 and got €420,000, until recently it would be typical of the next vendor to put theirs on at €430,000 and get €430,000. But now they’re more likely to get €425,000 or €422,000. While many vendors are now not achieving their asking prices, it doesn’t mean actual sale prices are falling. But it’s definitely a sign that some steam has been taken out.
And when the landlord flood of property to market dries up, expected increases in interest rates, general inflation and continued global economic woes are likely to ensure that the level of increases experienced previously are unlikely to return in this market cycle.
Most of the landlords selling up are people with one-to-three investment properties and many of them acquired these properties to let out for income instead of a pension.
If I were one of these landlords I’d be very fed up indeed. Likely my property would be located in a pressure zone and therefore, despite general inflation hiking at 8pc, my rental income has been capped for years. Likely too I’ve had some bother with tenants withholding rent and/or refusing to leave. If I was in a situation like that, I know it could take over a year to get tenants out using the official process I’m offered. So my risks, as well as my costs, have increased greatly in the last five years.
I’d also look at two other factors. One is the amount of planning permissions for build-to-let blocks, which account for 90pc of the schemes dealt with by An Bord Pleanála in the first quarter of the year. I’d be thinking, “these people get preferential tax treatment and as time goes on there’s going to be more of them flooding the lettings market. I can’t compete with this”.
Next, I’d be looking at the capital values of my properties, which are high at the moment. But even in a shortage, general economic woes developing are unlikely to keep increasing them. The general economic outlook is grim right now. So if I’m going to cash in my chips, now is as good a time as any.
And I’d also reckon the high prices we have now are largely the direct result of an unprecedented near decade-long accommodation shortage. And that this artificial shortage will likely be rectified at some point in the future.So when the time comes that there are enough houses for everyone who wants one, then that very fact will mean values across the board are going to have to come down substantially.