Should the Government increase support for landlords?

The Week in Housing 02/09/22

Small-scale landlords leaving the rental market appears to have become the latest flash point in our interminable housing crisis, and there have been numerous suggestions from Government members that the forthcoming budget will see action on this important issue, including the potential for reduced taxation. The so-called ‘landlord exodus’ crystalises a lot of what’s wrong with our housing system. It links longstanding problems of undersupply, the challenges tenants face finding a home (especially at this time of the year) and the troubling return of homelessness driven by evictions.

It is, however, a thorny issue. The woes of landlords – and whether they should get tax breaks from Government – are often dismissed by those who have observed the inexorable rise of rents over the last decade and who are more concerned with the challenges faced by ‘generation rent’. On the other side of the argument, are those who emphasise supply above all else and who, consequently, see investment by small-scale landlords as crucial to resolving the crisis.

It’s easy to get muddled thinking through these dilemmas, so we need to unpick what is at stake here, especially if the Government has any hope of getting any future policy interventions right.

At the heart of the confusion is the fact that there are two very different issues here, each of which needs to be considered separately: supply and residential instability.

Let’s start with the supply issue. This is what has received most of the focus in the debate thus far, unfortunately much of it confused and confusing. The first problem is the data. The focus has been on small-scale landlords leaving the market, yet there is no accurate data on this. Recent RTB figures suggest that notices of termination issued by landlords have increased by 58% in the first half of this year, compared with the previous six months (Focus provides a useful graph presenting these figures here). Over half of these terminations are linked to sale of property. While this data is certainly concerning and needs to be taken seriously, notifying the RTB of notices of termination is a relatively new requirement and therefore the increase could reflect a greater number of landlords becoming aware of, and complying with, the requirement, rather than an increase in the actual number of evictions due to sale of property. It also relates to a very short time period and doesn’t tell us if the current rate of landlord exit is significantly higher than the medium or long term trend. Finally, the recent increase follows a period in which evictions were banned for more than a year, and so we would expect a sharp rise all things being equal. The idea that the RTB data shows landlords are fleeing the market due to taxation, regulation etc. really requires quite a bit of scrutiny.

This is not to suggest, I hasten to add, that landlords are not selling – it is simply to say that the data is patchy.

Moreover, if what we are interested in is supply, we should be focusing not just on how many landlords are leaving the sector, but also on how many landlords have entered the sector, i.e. the net change. We know, for example, that institutional landlords have grown rapidly in recent years. But more generally we don’t actually know how many landlords invest in residential property in a given year. The PPR data can tell us how many residential properties are purchased by households who do not intent to occupy them in a given month, but this includes both small-scale landlords and purchases of holiday homes and other cases. It would be very helpful if the stamp duty returns process (which I understand the PPR is based on) were amended to record rental investment purchases specifically.

Some have used Buy-to-Let mortgage figures to claim that landlord investment has collapsed, but BTL mortgages have been few and far between since the financial crisis of 2008, and only provide a partial picture of the market. In fact, BTL mortgage issuing has remained more or less static over the last decade (a recent report published by the Institute of Professional Auctioneers and Valuers and the Irish Property Owners Association showed that BTL mortgages equaling €115 million were issued in 2014, which is actually lower than last year’s figure of €143 million).

So the picture is sketchy. We do know that there is an issue, mainly via anecdotal evidence from landlord organisations, estate agents and homeless charities, as well as the decline in registered tenancies, but we know little about the precise nature of the problem.

Moreover, there is also a problem with how the impact of landlord property sales on supply is understood in much of the debate. When a landlord sells a property, it does not reduce the supply of housing. Assuming landlords aren’t practicing some kind of scorched earth policy, the house goes back on the market thus adding to the amount of available properties.

True, it may be purchased by an owner occupier rather than another landlord, thus reducing the stock of rental properties. But all of the research shows that a large majority of renters want to become homeowners and, therefore, if properties are moved from the rental to the homeownership sector, this could actually be of benefit in terms of our housing stock better reflecting the type of housing people want.

Does this mean landlords are irrelevant to supply of housing? Certainly not. Landlords impact supply in the sense that net investment by landlords creates investor demand, which should play a role in stimulating supply. From this point of view, supporting landlords is better viewed as a demand stimulus rather than as a direct supply side intervention. However, we should at the very least be asking if focusing on demand stimulus is the best option in a context where the major problem is that supply isn’t responding to demand fast enough.

These arguments, however, only take us so far. We also need to consider the other side of this issue: residential instability. This is the issue that homeless charities have been most vocal about. Irrespective of the impact on supply, when a landlord terminates a tenancy to sell a property, it can trigger a crisis for the tenant, one which can potentially end in homelessness. Indeed, this has been the main driver of homelessness for many years. In my view, the problem of landlords leaving the market is more usefully understood as an issue for residential stability, rather than in relation to the vexed question of supply.

So what does this mean for policy? The key point is this: supporting landlords to remain in the market to sustain supply is bad idea, supporting them to stay in the market to reduce residential instability (i.e. protect tenants) is a good idea.

As argued above, the role of landlords leaving the market in the wider supply issue is far from straightforward, and supporting them to keep their homes in the rental sector, when both tenants and Government say their focus is homeownership is, at the very least, problematic. The Government’s hope, or so they claim, is that by supporting landlords, supply can be increased, which in turn at some later point will increase availability of properties, lower rents and reduce homelessness. But this is a very indirect and uncertain way for policy to achieve those objectives.

There is a danger, for example, that reducing taxation on landlords would result in landlords, including the vast majority who have no intention of leaving, increasing their profits, but with little or no impact on net investment and/or the actual construction of housing. Alternatively, reducing taxation for all small-scale landlords could make it easier for landlords to outbid first time buyers. So we would increase the supply of properties in the private rental sector, but reduce the amount available for first time buyers, and hence simply expand the size of the least popular and most problematic form of housing we have, at the expense of homeownership.

But this does not mean all is hopeless. By reframing the issue as one of residential instability, policy can have a positive impact. The difference here is that any intervention from government, including reduced taxation, should be focused on keeping people in their homes, rather than gambling on positive supply effects. But for this to work policy needs to be cleverly targeted. For example, any new reduction in taxation for small-scale landlords could require them to give up their right to terminate tenancies due to sale of property, as well as some of the other common reasons for eviction. Other approaches include Government purchasing properties from landlords who are leaving the market and converting them into social or cost rental housing, or supporting tenants to purchase those properties themselves through shared equity or similar schemes.

In short, we need to adopt an approach that recognizes that landlords exiting the market is a problem, but which understands the specific nature of that problem and, more importantly, puts tenants at the heart of its solution.

Events

The UK based Public Policy Exchange are hosting an important Webinar on the 22nd of September, looking at supporting renters through the cost of living crisis.

What I’m reading

CACHE have come out with another cracking report, this one looking at the resilience of the housing market in the context of both the global financial crisis and the pandemic. A new Irish publication from Rachel McCardle looks at the politics of Dublin squatting through the lens of ‘temporary autonomous zones’. Two new books came to my attention recently, this one just published is an essay on the meaning of home, while this one looks at the politics of the private rental sector. An interesting read here in Jacobin about a successful tenant rent strike in Oakland, California.