[Extract from a guest column in The Times Focus on Social Housing Will Make the Rental Crisis Worse ]
I am not a betting person, but if I was, I would have bet on Simon Coveney or Leo Varadkar becoming our new Minister for Housing. Once the position was to become a full ministry, it was inevitable that it would be one of impact, right up there with Finance and Health. Of course, the law of unintended consequences means that real progress by the newly-elevated department might be hampered by the game of politics but it remains to be seen how this will play out.
Over the last few years, we have had two hugely effective Junior Ministers in the role; Former Junior Minister Jan O’Sullivan made significant inroads into our ‘ghost estates’ crisis by prioritising safety first and housing need (both private and social) as a close second. Her tenure was short but effective. Similarly, Former Junior Minister Alan Kelly actually put together the bulk of this current Government’s housing strategy. While his tenure was even shorter than his predecessor’s, it is validated by the fact that his strategy outlived his ministry. All said, the industry as a whole has welcomed the elevation of the position to a full ministry and the appointment of Minister Coveney.
On the day the cross-party Action Plan for Housing was launched by Minister Simon Coveney, it was well received by many. Homelessness was identified and addressed in a real and actionable way. Similarly, the plan to take social housing issues of delivery and urgency were identified and addressed in large part. But moving into the private housing arena of the private rental sector and the delivery of residential units, the plan is a little less clear.
Attempts over the last year to control the rental market actually had the opposite effect in the short term. In December, the Residential Tenancies (Amendment) Act 2015 increased the rent review period for landlords from 12 months to 24 months. What this effectively means for tenants is that their rent cannot be increased until 24 months after the start of the tenancy or after the date of their last review. What we saw in practice is that rents jumped in the last quarter of 2015 as landlords increased the listing prices of new tenancies and reviewed (upwards) any existing tenancies in advance of the legislation taking effect.
This is the all-too-common law of unintended consequences. By setting out to protect tenants, the legislation motivated landlords, en-masse, to institute a hike.
Just a few months ago I was writing about how Dublin rental prices were ‘close to’ their peak prices of 2008. This week it was confirmed that we have now passed that peak by five percentage points. Rental prices in Dublin are now higher than ever previously recorded. Stock, or the shortage thereof, is the main driver for this. In the action plan, Government clearly spelled out how they intend to deliver 12,000 of the 25,000 units proposed annually. While it was not articulated in the plan, the remaining 13,000 must come from property developers across the private sector. This part of the plan is certainly light in detail and this is a problem.
This government is failing young, working people who cannot even aspire to home ownership in this country. Let me be clear, it is absolutely appropriate that homelessness is prioritised; it is also right that social housing is set on a sustainable programme; however, it is not right that we forget the current generation who are working on a treadmill while their hopes of being able to buy their own home gets no closer.
Part of the problem I see is that Government does not appear to know who these people are. They have not taken the time to identify and define this class of buyers so how can they possible expect to serve them? So, what does a first-time buyer today even look like?
I have been dealing with home-buyers and investors for about a decade now and two years ago a first-time buyer was denied a mortgage due to the fact that he was self-employed in the entertainment industry, an unfamiliar area for Irish underwriters. This buyer decided to use his €50,000 saved deposit on an investment property, a house in Carlow that he purchased outright. Today, the house is worth more that twice what he paid for it and is owned mortgage-free. Would you consider this man to be a first-time buyer or an investor? In reality, he was both. And this is not uncommon. There are many would-be buyers, recent emigrants, who have been away for seven or eight years and are ready to buy property in Ireland. They have amassed savings of anywhere from €50,000 to €200,000 plus and they are sending that money back to Ireland not to buy a family home but to have a property that is index-linked to the market they tend to buy in when they return. In fact, this wave of buyers are becoming the most active in the marketplace, despite estate agencies not embracing the existing technology to facilitate on-line viewings and purchases. Also, to add insult to injury, Dublin is one of the few marketplaces in the world where first-time buyers, private investors, institutional investors, local authorities and housing non-profits all compete for the same stock.
The only way that the first time buyers win is by overpaying and this further distorts an already-dysfunctional market. Private investors tend to know, understand and expect value. This type of buying behaviour actually helps the market to function properly.
Institutional investors take a different approach that is not helpful in the current market by paying over market value to secure a large number of units within the same building, thereby distorting so-called ‘market value’. Homebuyers and first-time buyers in particular, in their frustration and lack of experience, tend to use their pre-approved funding limit as a target, irrespective of value. This is the single most destructive buying behaviour for both the buyer and the market.
I don’t entirely blame the Government for not understanding today’s buyers, they are a complex group. Let me tell you about a couple, we’ll call them Mick and Mary. Mick and Mary, who are in their early 30’s, got married a few months ago. Mick, a project manager, hails from Clare and Mary, a school teacher, is from County Sligo. Both working in Dublin, they are currently renting a duplex in a Dublin suburb. So far, so straightforward. Except that Mick owns a beautiful family home in rural County Clare that is untenanted. As a young, accidental landlord, Mick had trouble renting out the property when he had to move to Dublin for work as demand is still low in many rural areas. What he learned is that the only tenants seeking rural accommodation were those evicted from local authority housing. In his naivety he let the property and had a stressful period of dealing with nightmare tenants and a subsequent period of costly repairs, followed by a sustained period of expensive vacancy. His four-bedroom house stands vacant in a beautiful part of the country while he works in Dublin in order to pay the mortgage to keep the house. Of course, while he is working in Dublin he must pay rent. This rent is almost double the mortgage payment on his rural house and in exchange, he gets a two-bed apartment that doesn’t fit a double bed in the second bedroom. That doesn’t sound too bad until you hear from Mary who cannot even consider starting a family in a building with no elevator and no outdoor space. Their landlord is a friend who emigrated to Australia for work; Mick and Mary live in constant fear that their friend will return home as their combined wages could not cover the mortgage on the house is Clare and ever-rising market rent. And before you question why they are keeping the rural house, the unfortunate situation is that the house has been on the market for more than two years now. There is no doubt that they would live in their own house if there was even the possibly of work for both of them but this is simply not the case. They are feeling hopeless in their housing situation but continue to save towards the deposit on a family home of their own, in a part of the country where they can both be assured of employment. They spend time house hunting but they know, deep down, that their dream is getting further and further away from them. How do you suppose they reacted to the Action Plan for Housing? I can tell you, they were angry. They feel neglected, ignored and thoroughly let down by successive governments. They feel penalised for working. The proposed first-time buyer’s grant did nothing to convince them that a real solution is in sight; why give a monetary grant when there are so few new homes to bid on that the intense competitive bidding would exceed the value of the grant? While the names above are not real, let me assure you that the circumstances are all too real. What’s more, these are not exceptional circumstances and they very much reflect the changing profile of residential buyers/investors.
It might well be an astonishing concept, however, for the first time in decades, the interests of intending Irish buyers are best aligned with those of the absent property developers rather than Government.
If the Government’s solution to the prevailing chronic lack of housing supply focuses solely on the delivery of social housing units, then the rental crisis will continue to spiral out of control and commencement notices for new private planning developments will remain limp at best. Delivery of suitable new units, for both the private and public sector, is the only way out of our current crisis.
Carol Tallon, Author of the Irish Property Buyers’ Handbooks and regular columnist www.CarolTallon.com