Rents, rent controls and landlords

The Week in Housing 12/11/21

This week was dominated by another gloomy Daft report. Average rents (asking prices) are up year on year by 6.7% nationally, 8.3% in Galway, and 6.9% in Cork. In Dublin, they increased by 2.7%. While the Dublin figures have been reported as an increase, it is actually somewhat lower than inflation so can also be interpreted as a small decline in real terms. What got most attention, however, was the supply issue: 1,460 units available to rent nationwide on November 1st, and just 820 in Dublin.

Continuing high rent increases raise the question of why RPZ legislation does not appear to be fully effective. This is something I discussed briefly in a previous post, but is addressed in detail in this Dublin Inquirer article. The same article also digs into local electoral area level data on rent increases from the RTB, which paints a very interesting picture of geographical variation.

Returning to the Daft report, in his introduction Ronan Lyons takes a pop at those who advocate rent controls:

“Some will react to these trends with an understandable, if misplaced, search for easy solutions. A favourite is rent controls. But what this report covers is not the average rent paid by sitting tenants – who benefit from rent controls – but the average rent paid by new tenants, who invariably are not covered by such controls.”

The argument advanced here by Lyons, which is common among anti-rent control economists, is that rent controls only protect current tenants. However, in the Irish context, rents are controlled within and between tenancies, so the majority of new tenants also enjoy controlled rents, contrary to Lyons’ claim here (unless I am missing something). It is only properties that are new to the rental market which are exempt.

The concerning figures in relation to PRS raise one of the biggest unknowns in the Irish housing system: what is the level of investment from small-scale PRS landlords and what factors shape this investment. In terms of the first question, the PPR data captures the purchase of residential property by ‘household non-occupiers’, i.e. households who purchase a residential property in which they do not intend to reside. However, this includes holiday homes and other instances, such as purchasing a property for a child. Moreover, to my knowledge, we do not know how many small-scale landlords sell their properties each year. As such, we are in the dark about net levels of investment by small-scale landlords (John McCartney discusses the difficulties associated with estimating investment levels in this piece from 2017).

This is important to bear in mind when we hear comments from Government and others about regulation driving landlords out etc. While this may well be true to some extent, the reality is we simply don’t know much about what is going on.

In terms of the second question, what factors shape small scale landlord investment, we also know very little. Some economists assume that landlords are straightforward rational, utility-maximisers. But the reality is likely to be more complex. For example, landlords in some instances develop personal relationships with tenants and this may affect their behaviour. Furthermore, a really interesting piece of research from Kathleen Scanlon and Christine Whitehead found that while landlords are primarily motivated by financial considerations, they are more motivated by capital appreciation (house price increases) then rental income, and they are not inclined to compare returns on rental investments with comparable assets, such as stocks and shares (which is what an economistic analysis would assume).

These questions make a new piece of research from Scotland particularly interesting. The report, published by the Collaborative Centre for Housing Evidence, looks at how landlords experienced and interpreted the emergency measures put in place to protect tenants during the pandemic, based on a survey of 1,732 landlords. It particularly looked at the issue of rent arrears. 18% of respondents had current tenants in arrears. Of these, one third intended to pursue an eviction. However two thirds did not intent to pursue an eviction, and the report notes this was on ‘pragmatic or moral’ grounds.

83% of landlords agreed that ‘they understood personal circumstances of their tenants’ and 93% agreed that ‘they considered their tenants’ personal circumstances when making a decision about rent arrears’. Finally, 46% had offered some form of repayment or rent holiday plan for their tenants during the pandemic, and 55% supported the emergency legislation to protect tenants.

All of this points to the complexity of landlord perceptions and behaviour, and the role of inter-personal relationships in shaping decisions which may at first glance appear purely economic. In the past, I have highlighted the impact of the interpersonal relationship between landlords and tenants on tenants (see here), but it is also a factor in terms of landlords. Some of the written responses of landlords collected as part of the Scottish survey further underline the point:

 “I don’t think the legislation went far enough to protect tenants. They were, and continue to be, vulnerable to losing their home.”

“Regardless of financial income, the priority during Covid should have always been about protecting the people. I supported all decisions to protect renters, including delaying and stopping any evictions.”

“Everyone needs a roof over their head. Especially in recent times. We fully support government initiatives to protect those who are vulnerable.”

The above are hardly reflective of ‘homo economicus’, and in my view, add to the case that we need to empirically research the social, policy and economic factors that shape landlord investment behaviour.

Events

The Housing Agency conference has been running all week with some fascinating sessions. It’s not too late to register for today’s final session on vacancy and the housing stock. I am organising a webinar on the always controversial issue of institutional landlords on the 8th of December. We have very limited evidence on the impact of institutions on the Irish PRS, so I thought it would be really interesting to bring together some of the leading researchers from North America to share their insights. Register here. Also on the 8th of December, PPR Belfast are launching a new Take Back the City web platform, which looks like a fascinating initiative. On November 15th, Focus Ireland are holding a seminar focusing on homelessness in the Southwest.

What I’m reading

Following on from last week’s discussion of Singapore land policy, this report by Julie Lawson and Hannu Ruonavaara looks at loads of fascinating examples of land policy around the world.