Saturday 20 January 2018

Why landlords are not the enemy

'Mom-and-pop landlords have dominated Ireland's private rental market in recent decades'. Stock photo: PA
'Mom-and-pop landlords have dominated Ireland's private rental market in recent decades'. Stock photo: PA

Ronan Lyons

Within the property sector, and particularly for those who focus on the rental market, there has been a lot of anxiety recently about the decline of the amateur landlord.

These are what the Americans might call 'mom and pop' landlords, who had full-time jobs but who bought an investment property - or two - in the 1990s or more likely the 2000s. And since 2010 or so, they have been leaving the rental market in droves.

Mom-and-pop landlords have dominated Ireland's private rental market in recent decades - although it should be noted that it wasn't always that way. The way the Irish rented sector is regulated means that a tenant can be told to leave for a number of reasons, including if a family member wants to live in the house - the proverbial 'niece up from the country to study in UCD' clause.

This, of course, has meant that to many, amateur landlords are a bête noire - a symbol of everything that is wrong about the Irish rented sector. I think this is misplaced, as the vast majority care about their tenants and the vast majority of tenants in Ireland report having a very good relationship with their landlord.

At the same time, the exit of many has led to calls for measures to bring them back. I also think this is misplaced. Amateur landlords should remain a key part of Ireland's rented sector. But I do not think it is healthy for Ireland to return to a situation where they dominate it.

In most European and American cities, it is the professional landlord that dominates the market. These are a completely different beast. They are companies that are interested in a long-term return on providing accommodation. Since the crash, a number of professional landlords have entered the Irish market - including Kennedy Wilson and the publicly listed 'real estate investment trusts' or REITs.

These providers of accommodation fill an important hole in the Irish landscape - they build apartments. Most Irish developers grew up building estates of houses and only later in the bubble did they get into apartment building. And then, apartments that were built were typically sold on to mom-and-pop landlords. Irish developers were simply not interested in the '30-year play' that being a professional landlord involves.

Now, of course, Irish developers that survived the crash are short on equity and thus even more likely to stick to what they knew best in the good times: building estates of family homes. Building apartments is more like building office space than building houses. Instead of dripping houses on to the market and using the money to finance further building, apartment blocks - like office blocks - are all or nothing.

Unfortunately, large corporations with unfamiliar names building apartment blocks in Ireland seems, at first glance, too close to the 'vulture funds' that have started haunting political debate. They are, however, very different and it is important that public debate distinguishes between those here for a fast buck and those who are here for the long haul.

There are both advantages and disadvantages to the professional landlord. The disadvantage is obvious. Unlike the amateur landlord, they are certainly going to review your rent regularly to make sure that it is in line with the market.

This is where rent regulation comes in. This is not a problem for professional landlords, once there is no uncertainty.

Either they can reset the rent once a year, or once every two years or only increase it in line with the market. Whatever the system, it needs to be a system that is stable. Uncertainty merely leads to postponed investment, which hurts renters in a starved market more than it hurts the landlords. The advantage to professional landlords is perhaps less obvious but, in my opinion, outweighs the disadvantages.

Unlike the amateur landlord, the professional landlord doesn't have a niece coming up from the country to study in UCD next September. As long as you pay your rent, you have nothing to worry about.

The professional landlord is all about maximising occupancy. This has led to the rise of apartment blocks with a host of amenities for tenants: from gyms and cinemas to meeting rooms, office space and guest accommodation for relatives. The more they can offer you on site, the more you are willing to pay. Professional landlords also build at scale, which means building high quality for lower cost.

Unfortunately, companies that provide high-quality accommodation to thousands of people in other cities around the world are looked on by policymakers in Ireland as just as toxic as the developers that drove Ireland's property bubble. Therefore, they have been largely ignored when pointing out serious flaws in Irish housing policy.

An example I became aware of recently was in relation to fire safety in apartments. An international developer proposed using sprinkler technology, rather than fire doors, on the grounds that it was cheaper, safer and freed up the internal layout to match consumer preferences better.

Even when international experts were brought in to confirm scientific studies attesting to the safety of sprinklers, the local authority refused to change its now out-of-date standards.

It is easy to be cynical and say that these companies are only looking out for their shareholders' interests. This is true. But their shareholders are - by definition - looking for a long-term return, and this is best done by providing good-quality accommodation.

We don't need to heed their advice unquestioningly - but we also shouldn't ignore it.

Ronan Lyons is assistant professor of economics at Trinity College Dublin and author of the Reports

Sunday Independent

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