Do tenancy regulations effect supply?

The Week in Housing 01/03/24

I had a piece in the Irish Examiner last week, based on this previous Newsletter, setting out some proposals to find a balance between security of tenure and investment/supply in the PRS. From a social science perspective, the underlying question around debates such as these is obviously the relationship between regulation and supply in the PRS. Politicians, lobbyists and commentators are extremely fond of pointing out that regulating the PRS will harm investment and cause landlords to ‘flee the market’. All of this begs the question, what does the research actually tell us? Fortunately, the good people over at the UK Collaborative Centre for Housing Evidence have recently produced a report reviewing the evidence.

The first thing of note is that there is very little direct research on the impact of PRS ‘non-price regulation’ (that is forms of regulation other than rent controls). Indeed, the authors could identify just one article directly addressing the issue. That really is quite shocking given the issue has a direct bearing on policy making. As the authors note, ‘..in the absence of robust evidence, policy makers and analysts frequently have to rely on theoretical assumptions and beliefs’ (which is a polite way of saying they make stuff up).

In the absence of a decent body of evidence, one way the authors address the issue is by looking at what we know about landlords investment behaviour and motivation. The first thing to note here is that there is evidence that landlords motivations differ in different contexts and according to different types of landlords. This classic article by Kemp and Kofner, for example, shows that the investment decisions of landlords in England and Germany are based on very different assumptions and drivers, with German landlords much less focused on capital gains and more focused on long term rental income streams.

On the subject of capital gains, UK research tells us that ‘a relatively small minority of landlords operate with a business model that focuses primarily on rental income. Considerably more are investing for both capital growth and rental income’. Moreover, as pensions are a big reason for investment, there are strong lifecycle dynamics associated with disinvestment, and therefore strong ‘cohort effects’, i.e. ‘we might expect disinvestment by a cohort of landlords as they reach or move beyond retirement age’. This is of course relevant for Ireland, where some commentators believe that a combination of market cycle (especially high property prices) and these ‘cohort effects’ is driving the exit of some landlords from the PRS currently.

Australian research paints a similar picture: ‘capital gains motivated property investors far more than any other factor and that in terms of selling, personal and lifecycle factors dominated and market factors were less important’.

Interestingly, a great piece of recent Australian research found that ‘tenancy law is not a significant factor in landlords disinvesting from the rental market; landlords are most likely to disinvest because they wish to sell and realize capital gains, or obtain money for another investment’. However, there is some evidence that the increasing ‘hassle’ of being a landlord can be a trigger for disinvestment, something we should of course pay attention to here in Ireland given the enormous amount of regulatory change.

Summarizing the international literature, the authors state that ‘the body of international research identifies ‘capital gains’ as the primary driver for investment decisions and ‘personal circumstances’ as the principal cause of disinvestment.’

So what does all this mean for policy making? A couple of things stand out. The evidence isn’t very clear one way or another. Obviously at some level regulation will impact investment, but we know little about the direct relationship beyond this. What is relatively clear, is that capital gains are at least as important as rental income in landlord investment, and that ‘lifecycle’ reasons, especially retirement, feature prominently in decisions to disinvest. It follows from this that people who infer that reduced rental incomes (as a result of taxation, rent controls or other reasons) will drive landlords out, or infer from the fact that landlords are leaving that rental incomes must be too low, are essentially guessing.

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Events & news

Richard Waldron, of Queen’s University Belfast, has advertised a PhD scholarship around housing and climate change. The Housing Agency have another seminar on trauma informed care coming up. On March 12th Michelle Lancione will launch his new book (For a Liberatory Politics of Home) with a hybrid event. As Lancione is running a big ERC project with a lot of the leading radical scholars in housing, I expect this book to have quite a lot of influence within that space so worth checking out if that kind of thing is your cup of tea.

What I’m reading

Check out this new Irish media platform sharing critical left analysis and collaborative writing on contemporary socio-economic, political and environmental issues. Some great stuff there already, including this piece on green politics and farmers revolt. These two recent RTE Brainstorm pieces are worth checking out, one on Marino housing estate, and one on inter-generational transfers and housing. This report sets out a roadmap for a ‘coherent housing policy’ in the UK, with lessons for Ireland. The RTB released a new quarterly data bulletin. And finally a new article on financialization and ‘co-living’, interesting as not much written on this much maligned new tenure.