Dept of Housing's review of the PRS

The Week in Housing 06/09/24

Just a quick note to say I had the honour of acting as rapporteur at Threshold’s fantastic conference yesterday - I hope to write about what came out of the day ASAP. Also, we’ll be launching our report on the cost rental sector in Ireland next Thursday - details in the image below. I’ll be sharing some analysis/findings from the report in this Newsletter over the coming weeks.

Welcome back to The Week in Housing after the summer break. It’s been a busy summer of new research and evidence, especially in terms of the PRS. Coincidentally new evidence was published in relation to two of the Oireachtas Committee meetings I’ve spoken at in recent years. As readers will no doubt be aware, there was more light cast on the imaginary landlord exodus, this time from the RTB data arising from their shiny new register of tenancies. I will try to return to this soon enough, but the short version is that the number of tenancies and the number of landlords are both growing, and the proportion of tenancies held by institutional landlords is now a whopping 11% giving our rental sector the dubious honour of being among the most financialized in Europe. I don’t have the figures to hand, but I think only Iceland, Sweden and Switzerland are ahead of us.

The other new release was from the CSO investigation of the discrepancy between Census 2022 data on the size of the PRS and the RTB’s register of tenancies. Again I hope to return to this in more detail, but the TLDR version is that the CSO estimate the final difference between the two data sets at 73,002 tenancies, and also estimate that 47,754 (65.4%) of these are ‘possible informal rental arrangements’ and 25,248 (34.6%) of them are ‘possible formal rental arrangements’. The methodology by which they arrive at this is somewhat odd by my reading, and you’ll note the heavy reliance on the word ‘possible’ in how the data is presented. In general they don’t seem to have been able to pin point the cause of the discrepancy with too much certainty, but it seems that the conclusion is yes there are likely at least 25,000 non-compliant landlords, and there are another large cohort who may be non-compliant or who may fall into the category of landlords who are not required to register.

As interesting as the above evidence is, there was even bigger news for PRS-watchers over the summer: the Department of Housing published their much anticipated (by me at least) review of the private rental sector. It comes at a very interesting time, with the Housing Commission report (which I wrote about here) only recently published and a general election on the horizon. It’s publication (July 16^th) was also impeccably timed as it coincided with the summer holidays of practically everyone who might have been in a position to respond to the report. But, better late than never, here I am with my response to this important review. The publication of the report presents a unique opportunity to get a sense of what the current thinking is within the Department, and in the wider policy making world, so I thought it might be interesting to unpick some of the ways the report addresses the major issues in the sector. Below I discuss the main topics in turn.

The ‘B’ word

If there is one word I have come to loathe when it comes to PRS policy it’s ‘balance’. That word, referring to the relative importance of landlords and tenants in the sector, is used at least ten times in the report. The review argues that:

“The overarching perspective of the review is to ensure we have a system of market rental in Ireland which provides certainty and fairness to both the renter and the property provider”

This, in my view, should not be the ‘overarching perspective’ as the focus should be on providing quality homes. As I’ve argued before, a report on homeownership would never frame the challenge of housing policy as providing ‘fairness’ to both homeowners and developers, or of ‘balancing’ their needs.

Institutional investment

It is very noteworthy that the review is bullish on the importance of institutional investment for the supply of rental housing. If we compare it to the likes of the Rebuilding Ireland document, there is less emphasis on the idea that institutional landlords can provide better quality, more professional and more secure housing. But the Department’s view on the importance of institutional capital to supply couldn’t be clearer:

“An increase in [housing supply] targets would involve an increased funding requirement of €20.4b per annum. Institutional investment is a critical piece of this overall investment – indeed, it is a well-established and normal facet of housing investment in our European neighbours and beyond. Without it, activity in the housing market would be much reduced and the pressure already facing renters and prospective home-owners would increase significantly. The overriding purpose in attracting this private capital is to increase the supply of housing.”

I thought it noteworthy that this echoes quite closely the approach taken in the Housing Commission report, which suggests to me that there is a reasonably strong consensus within policy-making circles on this subject. Notably, however, there is no reference to empirical evidence on the actual housing outcomes associated with institutional landlords. We are now almost a decade into a policy of promoting the role of institutional landlords in the PRS, and to my knowledge we have yet to see any discussion from policy makers on the empirical evidence that would support this policy (watch this space for a forthcoming review of the international evidence on the topic). To be fair, critics of institutional landlords haven’t been too concerned with the absence of evidence either. The Department of Finance are currently conducting a review of the role of funds in Ireland, and this will include some exploration of their impact on housing, so the outcome of that will be very interesting to see.

Security of tenure

Of the four main pillars of the PRS (the other three being affordability, supply and enforcement), security of tenure has been subject to the least meaningful policy action. It was therefore disappointing, to say the least, to see it receive so little emphasis in the Review. There are some positive signs; the Review notes that ‘tenure should not be a source of disadvantage for renting households, therefore tenure security in the rental sector must be sufficient’. But the most substantial section on this issue is much less promising:

“Whereas the introduction of tenancies of unlimited duration and narrowing grounds for terminating a tenancy has minimised this disadvantage [of insecurity] when compared to owning one’s own home, additional strides could be considered in the future to further increase security of tenure if it were deemed to provide an important social objective. Where landlords, including institutional investors, own larger numbers of properties, there may be grounds to reduce the reasons why a tenancy is terminated. This could include wider use of provision for sale with a tenant in situ, particularly for professional landlords with multiple properties. As measures to further remove grounds for no-fault evictions could impact on constitutionally held property rights, these would need to be carefully considered, including any necessary compensation such an impact might warrant” (my emphasis).

Note here the contrast to the much more strident tone of the Review’s comments on institutional investors, which are described as a ‘well-established and normal facet’ of other European housing systems. Tellingly, when it comes to security of tenure there is no parallel reference to the fact that much greater protections for tenants are a ‘well established and normal facet’ of the PRS in most Western European countries. Similarly, note the cautious language here - ‘additional strides could be considered’ -, and that the report caveats this by saying ‘if it were deemed… an important social objective’. The latter phrase is weirdly out of synch with the Report’s own inclusion of security of tenure as one of the major policy priorities for the sector.

It is also telling that the meagre reforms of security of tenure that are mooted, which are limited to institutional investors, are heavily caveated with reference to the constitutional property rights of landlords. Again it is noteworthy that the support for institutional investment is not caveated with any such acknowledgement of the rights of tenants.

Perhaps most revealing of all, in the final chapter on ‘Potential avenues for Policy change’ there is no mention of security of tenure whatsoever.

At the risk of being accused of cynicism, my reading of all this is that the prevailing view within policy making circles continues to be that some amount of lip service needs to be paid to security of tenure, and that small reforms may be possible as long as they don’t step on the toes of landlords, but ultimately it is not a priority area.

RPZs and rent regulation

On a more positive note, the sections dealing with the RPZs and rent regulation make for very interesting reading. I was especially interested to see that the Review appears to embrace what many would call a heterodox housing economics perspective, which departs from the neoclassical thinking which often dominates discussions of rent regulation. The Review notes that:

“[I]t is important to be cautious when considering the transferability of literature from other jurisdictions, especially given that rent controls vary considerably … Some housing economists tend to emphasise that housing markets are far from the frictionless, competitive models often assumed, and are noted for a high degree of friction, delayed supply responses, and a tendency towards disequilibrium. It seems, therefore, that it is very difficult to make a comprehensive judgement as to the overall efficacy of the price control system derived from the international literature. It is also difficult to assess the Rent Pressure Zone system purely based on the Irish literature”.

This perspective seems to me to be quite influenced by Gibb et al.’s recent report on rent regulation (which I wrote about here), which I think is very interesting given that Gibb represents a very nuanced and empirically oriented type of housing economics.

The Review does however make some important critical points in relation to the RPZs, and again there is plenty of nuance:

 “As price controls persist and deepen in a given market and the controlled rent prices fall ever further below what would be market determined prices, the concern is that such risks [reduced supply and investment] grow in magnitude. The greater the positive impact in terms of preserving affordability, the greater the risk of negative consequences, as the regulated rent price moves further from what would be the market price in the absence of the controls. A complication is that the downsides of price controls are difficult to observe while price controls are in effect. For instance, it is not possible to directly observe the residential units which would have been built or the maintenance which would have occurred in the absence of the controls. Notwithstanding that such effects may be unobservable, it seems likely that difficult to detect, marginal changes such as under investment in maintenance are occurring annually, which may build up over time to become major challenges for the rental sector, particularly given the current calibration of the Rent Pressure Zone system”.

I read the above section with great interest. I think it should be read in conjunction with the Housing Commission’s similar critique of the RPZs. We should also be cognizant that new CEO of IRES has been much more vocal in opposing the RPZs, which may signal a new phase of more concerted action by industry to bring them to an end. Overall, there seems to be a widely held emerging view that the RPZ measures cannot go on forever because the gulf between new tenancies and existing tenancies is growing too great, and there is too much disincentivising of investment in renovation and maintenance of existing tenancies.

The Housing Commission report advocated for some kind of ‘reference rent’ system, whereby rent increases would be pegged to some kind of market average. This Review does not provide any concrete recommendations on what could replace the RPZs, but instead suggest the Housing Agency should conduct a comprehensive analysis.

Anyway, I can’t help getting the feeling the RPZs’ days are numbered. Unwinding the current set up, however, will be a major headache, both technically and politically. If our next Government is led by Fianna Fáil or Fine Gael, it seems likely that they might try to tackle this issue early in their tenure, to avoid the inevitable political fallout close to a general election.

Three quick final points. First, the Review places considerable emphasis on cost rental as a solution to the affordability issues in the PRS. Second, it is very encouraging to see a frank recognition of the compliance issues in the sector. And finally, it is also encouraging to see the Review’s skepticism with regard to the imaginary landlord exodus which our elected representatives seem all too willing to believe.

Events & news

This years annual Simon Brooke seminar on disability and housing will take place on September 19th. On the 25th of September Focus Ireland will hold a major policy conference on ending homelessness - not to be missed.

What I’m reading

The Simon Community published a useful analysis of the new RTB tenancy register data. Some nuanced new UK research on the relationship between house building, landlord investment and rental inflation. And finally a couple of good piece in TheJournal.ie, this one critiquing the tax cuts for landlords in last year’s budget in light of the new RTB evidence, and this one by Eoin O’Broin setting out some of Sinn Féin’s ambitious promises for renters.