A vision for Ireland's Private Rental Sector

The Week in Housing 02/02/24

I have been researching and writing about the Private Rental Sector for the best part of ten years. Over that time, it has been frustrating to see much policy reform and many good ideas implemented, and yet we find ourselves confronting many of the problems we were talking about in 2014. This piece sets out a proposal for a path forward for the sector. It will attempt to set out a way of framing the challenges in the sector and a set of ideas that can underpin policy to overcome those challenges. Although the ideas below may seem straightforward enough, I’ve put a lot of time into developing them, so I would particularly appreciate your support in sharing this piece with anyone who may be interested. For the same reason, I’d really appreciate feedback, either via the comment function below or via email. I should advise readers that this post is longer than usual.

The point of departure for my analysis is that the PRS will not, and should not, continue in its current form. The sector houses a fifth of households nationally, a quarter of those in Dublin, and a quarter of those with 2 children. Between a third and a half of all tenancies are in receipt of a rent subsidy. In my view, a housing sector which is (a) that big; (b) houses many children; and (c) houses many low-income and disadvantaged households, cannot continue with the current level of insecurity. We’ve seen a raft of reforms since 2016, but they have been constrained, and indeed undermined, by the overriding focus on investment and supply. This is what has prevented the Government from providing robust security of tenure for tenants, leading to a series of piecemeal reforms (longer notice periods, more procedure around the issuing of notices, more enforcement powers for the RTB etc.), which have created a rather muddled situation which servers neither landlords nor tenants. It has also created a constantly changing sector, which hampers investment and sucks up the time and energy of policy makers and the RTB.

With the PRS at the heat of the housing crisis, and the homelessness issue, Government will have to grasp the security of tenure bull by the horns sooner or later.

The question is, how to do this?

On the one hand, (and as I have argued before) are those who emphasize security of tenure above all else. On the other, are those (which includes the current Government) who emphasise investment and supply, and prioritise these over security of tenure. It should be obvious at this stage that we need an approach that can bring together these two priorities and find a balance between them. This balance, which I set out below, will not be perfect, and there will likely be very few who see it as entirely satisfactory. But it is a vision which can meet most of the core objectives we should have for the PRS, is realistic, and is politically feasible.

First principles

Before outlining my proposal, it is worth sketching out some of the ‘first principles’ which underpin my thinking. My approach begins by considering what the core aims of the PRS should be. The PRS has one main strength as a tenure: low barriers to entry and exit. Accessing social housing or homeownership involves either long waiting lists (the former) or large upfront capital, expensive transactions costs, long waits etc. (the latter). Exiting social housing is reasonably easy, but exiting homeownership is very difficult, involves high transactions costs, and can be financially damaging depending on the time in the market cycle. The PRS should, therefore, remain a sector which is reasonably easy and fast to get into and out of. By its nature, it is a tenure which caters best for those households (a rather small minority), who value flexibility over security.

However, and this is what is often missed, the PRS is still a form of housing and therefore needs to provide at least some degree of security of tenure, i.e. a reasonably stable, predictable environment in which people can create a life for themselves and their children. Security is a key feature of ‘home’ and is decisive for wellbeing, as the now enormous international literature on this attests. Every country that has run the experiment of providing limited security of tenure to private tenants has seen the exact same results: residential instability, evictions, homelessness etc. Security is therefore not an optional ‘add on’ but a core feature of home.

Depriving tenants of security leads to unacceptable levels of residential instability in our housing systems (with all the associated impacts and costs) and creates an unacceptable inequality between the housing tenures. At a very basic level, it simply impossible to argue that children growing up in the PRS have no right to a predictable home while those in social housing, cost rental and homeownership do enjoy that right.

Still on the theme of ‘first principles’, a second benefit of the PRS (i.e. why one would wish to have a PRS within the housing system in the first place), is that it can ensure investment in housing is greater than it would be absent a PRS, and because it ensures a more efficient allocation of the housing stock. With regard to the former, there are obviously a cohort of firms and households for whom investment in the PRS is attractive, while other forms of housing investment (such as development) would not be. In particular, the PRS allows households to allocate some of their savings towards housing investment.

With regard to the latter, the PRS reduces the level of vacancy within the housing stock. This is because there are many circumstances in which an individual can own a dwelling which they do not reside in. These include:

• The owner is moving to another country for an undefined period of time

• The owner is moving in to their partners house for an undefined period of time

• The owner is returning to live with a sick parent to be their carer for an undefined period of time

• An inherited house is in probate

This means, however, that in addition to being homes, PRS properties are also assets. At the end of the day, their provision relies on their ability to generate income and/or capital gains for investors, and for investors to be a position to obtain that income and/or realise the value of the asset.

It can, of course, be argued that homes should not be assets. This is a perfectly legitimate position (although not without its own problems). If we take such a view, we can then adopt a policy approach characterised by ‘reforming the PRS out of existence’, for example introducing life time security of tenure, permanent rent freezes etc., without regard to impact on investment. This approach was in effect implemented in many European countries during the twentieth century, leading to a steady decline in the proportion of households living in the PRS in most countries.

For the purposes of this piece, however, I am assuming that we, as a society, want to have a PRS of some size (albeit perhaps smaller than it is today).

So, assuming we want to maintain some level of investment, how do we balance this with the need to provide secure homes?

There are two core components to my vision.

1)      An approach to security of tenure which, as much as possible, delivers secure homes to the majority of tenants, while at the same time allowing landlords to recover their properties within a reasonable time horizon.

2)      Introducing a new short-term PRS subsector, which is separate and distinct from what I will call the mainstream PRS.

Below I develop each of these aspects in turn.

Balancing security and investment: six-year, full security tenancies

In order to identify the optimum balance between security and investment, we need to consider what is at the core of these two opposing priorities. At first glance, it might appear that the only or main value of security of tenure for tenants is the ability to live in their home for a long time period. But in reality, it is more subtle than this. There are three different things at stake with security of tenure:

1.       The actual length of time a tenancy can continue

2.       The predictability of the tenancy. This includes the extent to which the tenancy can only end under defined circumstances and subject to some sort of regulatory oversight; what these defined circumstances are and how predictable they are; and to what extent these circumstances are under the control of the tenant

3.       The relationship between tenant and landlord, i.e. the extent to which the tenant depends on the landlord for continued access to their home determines the intensity of the power asymmetry between the two. The international literature is extremely clear that this asymmetrical relationship is one of the main factors impacting tenants’ housing experiences.

With these considerations in mind, my proposal is the introduction of what I call ‘six-year, full security tenancies’. This can deliver, for most tenants, much of what they need in terms of security of tenure. This tenancy would be based on the existing structure set out in the Residential Tenancies Act, with two changes. First, within the tenancy period (i.e. six years) there would be no grounds for eviction other than:

(a)    Rent arrears

(b)    Severe anti-social behaviour

(c)     Damage to the property beyond normal wear and tear

In other words, the only grounds for eviction would be breach of tenant obligations. This of course means that landlords cannot terminate a tenancy due to intention to sell the property or family use. These two provisions, in my view, are incompatible with the core requirement for PRS homes to provide some degree of security. The problem with these grounds (in addition to the fact that they are frequently used), is that (a) they are unpredictable, i.e. there is no way for the tenant to anticipate the timing of the termination; and (b) they are entirely beyond the tenants control. Moreover, because they relate to the intentions of the landlord, which obviously only the landlord can know, they are very difficult for the tenant to contest.

I also propose removing the current ‘probation’ period, whereby landlords can evict without grounds within the first six months of a tenancy, a provision which defies all logic or reason.

The various grounds that allow landlord initiated, within-tenancy terminations ensure that there is zero security of tenure for tenants in Ireland, because no tenant can be certain they will not receive a notice of termination tomorrow.

Within the six-year tenancy period, the tenant would therefore enjoy complete security of tenure, without exception.

The downside is that the tenancy period is limited to six years. The rationale for limiting the tenancy period relates to the investment side of the argument, which I return to below. But it is worth highlighting here that while the six year period is not perfect, it has the following benefits:

1.       During the tenancy period the tenant enjoys complete security of tenure

2.       The ending of the tenancy period is predictable and known in advance. Tenants thus have a very long period within which to either negotiate a new tenancy with their landlord, or plan their transition to a new form of housing. It is the unexpected nature of tenancy termination which all too often leads to crises for households, causes enormous (and needless) stress, and places households at risk of homelessness

3.       The proposed security of tenure arrangements are extremely clear, which makes invalid terminations or illegal evictions much easier to contest for tenants. One of the main issues with security of tenure arrangements currently is that it is simply too complicated for tenants to know whether or not the notice of termination they have been served is valid. By removing all of the grounds for tenancy termination which are beyond the tenants control, the situation is dramatically simplified. This would also reduce the volume of disputes brought to the RTB

Let us turn now to the investment issue. For landlords, the key issues are to be able to (a) obtain an income from their rental property; and (b) be able to, should they choose to, realise capital gains (i.e. sell their property). The ability to obtain an income implies that landlords require some ability to effectively collect rent, for example being able to issue a notice of termination for rent arrears. I can’t imagine there will be too much controversy on that point. The key challenge, therefore, relates to the realisation of capital gains, i.e. sale of property. As we know, this is currently the most frequently cited grounds for termination.

The implication of this is that landlords need to be able to recover their properties, i.e.  terminate tenancies, in order to sell. There are of course other reasons why landlords might wish to recover their property, such as personal or family use. The point is that landlords need to be able to recover their property. For those advocating for greater security of tenure for tenants, this is the key challenge to be overcome.

My argument is that a six-year time horizon gives a reasonable time period within which landlords can recover their property. For a household or firm considering investing in rental housing, they can consider whether or not it is feasible for them to wait for six-years before recovering their properties. If, after six years, they no longer wish to be landlords, they can recover their property and sell without issue.

The six-year, full security tenancy, then, aims to balance tenants’ need for security with landlords need to recover their property.

There are two possible objections to this argument.

The first is that landlords do not need to evict the tenant in order to sell their property. More research is required in this area, but my view at the moment is that this is not viable for the following reasons:

1.       I believe their will be a large proportion of landlords for whom the inability to recover their property in order to sell will be an enormous disincentive to investment, and therefore will risk unduly damaging the PRS at a time when we can ill-afford to do so.

2.       Our financial system is structured around the principle of vacant possession, and it is unclear that landlords would be able to obtain mortgages to purchase a property which is currently not vacant.

3.       If landlords are required to sell with tenant in situ, they cannot sell to homeowners, further reducing the availability of housing for purchasers and hampering the (in my view desirable) flow of dwellings form the PRS to the homeownership sector.

The second possible objection is that a six-year time horizon will be too long for some landlords. I return to this below, but for now I just want to point out there is a benefit to driving out short-term investors on the grounds that it would reduce instability and volatility in the mainstream PRS.

Most importantly, we can overcome this objection via the second major component of my proposal, to which I now turn.

Once-in-a-lifetime, short term tenancies: accommodating ‘accidental landlords’

The introduction of six-year, full security tenancies would act as an obstacle to ‘accidental landlords’ putting their property on the rental market. As noted above, there are a variety of circumstances in which an individual may own a residential property which they do not reside in, such as they move in with a partner for an undefined period of time, or the house is in probate or similar. In some cases, the six-year time horizon would not necessarily represent an obstacle for such landlords. But for many, this would be too long a wait to recover their property, meaning they may choose to leave it vacant for a period.

To avoid this eventuality, my proposal involves the creation of a new, more short-term PRS sub-sector to operate in parallel with the mainstream PRS described above. This will involve the issuing of specific licenses for landlords, allowing them to let their dwellings outside of the six-year, full tenancy framework described above. Dwellings let under such a framework would be similar to the current tenancy terms of the PRS, but with some important changes. Here are the key provisions:

·         A maximum tenancy term of two years, after which point the landlord must either exit the PRS, or convert the tenancy in to a six-year, full security tenancy

·         Provision for within-tenancy termination including (in addition to breach of tenant obligations) for sale of property or family use.

·         A once-in-a-life time clause, i.e. each individual can apply for a short-term rental license once in their life.

The rationale for the creation of this short-term subsector is simple. There are a cohort of ‘accidental landlords’ for whom a six-year tenancy term is unsuitable. The short-term tenancy subsector allows landlords, much like the current system, to recover their property at any point within the tenancy, under certain conditions.

Currently, the entire PRS legislation is set up to accommodate this cohort, something all tenants pay the price for. There is simply no reason for this, when this cohort can be accommodated outside of the mainstream PRS, thus protecting the vast majority of tenants. Moreover, the once-in-a-lifetime clause ensures that the short-term sector is not abused. As the situations which give rise to accidental landlords are quite limited, it seems reasonable that households would have only one opportunity to avail of the short-term rental license.

Of course, tenants in this sub-sector will have significantly worse security of tenure. One would hope that this sector would be primarily made up of those households for whom long term security is of least importance, such as students, recent migrants etc. But nevertheless, this remains a noteworthy limitation of my proposal.

Conclusion

The above proposal is designed to ensure the majority of tenants enjoy a reasonable degree of security of tenure, without unduly undermining the availability of PRS housing. The centre piece of this is a six-year, full security tenancy, which balances the tenants need for security and predictability, with the landlords need to recover their property. Because this will act as an obstacle to short-term, accidental landlords, the second component of my proposal is the creation of a short-term, once-in-a-lifetime rental license for the minority of non-investor landlords, again protecting the availability of PRS housing.

Of course, despite how these provision have been designed, their may be some negative impact on investment in the sector. Currently, there is no way of estimating what this impact would be, as we have neither the analytical frameworks nor the data to anticipate the impact of any PRS policy reform on supply (which may come as a surprise, given the level of certainty many commentators express in relation to these issues). I think it is, however, reasonable to assume that the negative impact would not be dramatic.

Most importantly, however, in my view we simply have no choice. Continuing with the current level of instability in the PRS, given its central role in the housing and homelessness crisis, and the complete lack of security experienced by the more than 300,000 households in the sector, we simply have to address the security of tenure issue for once and for all. The proposal outlined here allows us to do this, while limiting, as much as possible, the negative impact on investment.

The proposal outlined here, finally, is designed to work in tandem with a number of other aspects of housing policy, specifically: effective rent controls; robust regulation and enforcement; and increased supply of social/cost rental and homes for purchase.

Events and news

Brett Christophers is one of the most influential figures in critical geography/urban political economy, and he’s speaking in Trinity on February 15th. Register to attend in person here, and online here. This conference in February looks at women’s participation in the built environment professions. This event looks at new planning act and the implications for judicial review. And finally, the Housing Agency are holding this seminar on trauma-informed care in homelessness services.

What I’m reading

The Housing Agency have put together a very useful reference document of key housing publications in 2023. The ESRI have a new report on housing supply, summarized in this RTE Brainstorm piece. New research from Focus Ireland on trends in adult homelessness.