Institutional landlords are more likely to evict

The Week in Housing 25/06/21

It was interesting to see Leo Varadkar’s comments at the Fine Gael Árd Fheis last week, saying he would like to see a 70% homeownership rate in Ireland (at the moment it is about 67%). This marks a shift away from ‘tenure neutrality’ (officially introduced to Irish housing policy in 2011) and a return to an explicit preference for homeownership, no doubt under pressure from Fianna Fáil’s branding of itself as the party of first-time buyers. I doubt it will mean much to renters in house shares, as new CSO data this week found that 76% of them don’t think they will ever be in a position to buy a home.

Anyway, I don’t think we will see a whole lot of the support for institutional landlords evident in previous administrations any time soon. As I’ve mentioned in these pages before, the Strategy for the Rental Sector, published in 2016, was more than enthusiastic about the ‘build to rent’ sector and institutional landlords, arguing that they would lead to ‘an enhanced level of professionalism’ and see ‘residents as long term “customers” rather than tenants’ (I’m pretty sure this was supposed to be a good thing). The idea that institutional landlords can mean better outcomes for tenants, when compared to small-scale ‘mom and pop’ landlords, has been key to the industry’s rise and rise over the last few years, not just in Ireland but internationally.

On the face of it, the argument makes sense. A professional organisation obviously has more potential to delivery higher quality property management than an individual with no training or qualifications, and who typically has another full time job. Moreover, institutional landlords have different business strategies to small-time landlords, and are therefore more likely (it is argued) to favour long-term tenants.

In reality, no evidence has ever been produced to support these claims in the context of Irish policy making. That said, the debate in Ireland has been hamstrung by the fact that there is very little evidence one way or another, so neither those who demonise institutional landlords nor those who support them have been able to support their arguments with hard data.

So this week I thought I’d have a look at some of the US evidence, where research is starting to emerge which can help inform the debate here (although the context is, of course, different). The US has undergone a very similar experience to Ireland since the Global Financial Crisis. There has been a remarkable rise of the ‘corporate landlord’, made possible by the fire sale of distressed property assets after the crash. The US already had a relatively large institutional landlord sector focused on apartments in cities. After the crash, institutional landlords, often in the form of private equity firms and Wall Street banks, expanded into single family housing outside of the major cities. Desiree Fields work has documented this in detail. Interestingly, there has also been recent political consternation in the US as institutional landlords have been snapping up single-family dwellings, snatching them, it is argued, from the hands of would-be first time buyers (sound familiar?)

So, what is the impact on tenants? A fascinating study published this week by researcher Henry Gomory from Princeton compares eviction rates of small-scale (less than 4 properties) and institutional (more than 15 properties) landlords in Boston. Gormory finds that corporate or institutional landlords evict at ‘dramatically’ higher rates than small ones. He also shows that this is not driven either by the characteristics of the property (e.g. being located in a poorer neighbourhoods) or the characteristics of tenants. The research finds that large landlords file for eviction 186 percent more than small landlords. In the US there is a difference between filing for eviction and actually evicting. Sometimes landlords file for eviction to obtain a court order compelling tenants to pay outstanding rent etc., i.e. as a form of leverage. But in terms of actual eviction, the research finds that again large landlords evict 126 percent more often than small landlords.

There are a couple of other important findings too. Gormory looks at cases where a property is sold by a small landlord to an institutional landlord. Such properties are associated with significantly higher average long term eviction rates. Large landlords also evict, on average, for lower levels of rent arrears. Finally, Gormory finds that, despite all this, there is evidence for higher rates of inter-personal conflict between small-scale landlords and tenants, as opposed to their corporate counterparts.

Gormory also provides a really interesting discussion of what is going on here. His argument is that small-scale landlords are driven by a mix of economic and social logics. Small-scale landlords are, of course, interested in the bottom line, but they also develop social relations with tenants that may make them less likely to evict. In the context of institutional landlords, the only thing that counts is the bottom line. The relationship with the tenant is formalised, as are the procedure’s for eviction:

“Small landlords’ relationships with tenants and flexible decision-making styles might make them draw on extra-economic considerations, such as subjective impressions of tenants, when making eviction decisions. In contrast, large landlords’ formal relationships with tenants might frame the transaction as purely economic, and their bureaucratized management practices might ignore extra-economic considerations”.

This also explains why small scale landlords are more likely to have interpersonal conflict with tenants (something I have looked at in the Irish context here and here).

In short, dealing with small-scale landlords can be difficult and messy, but dealing with corporate landlords exposes tenants to the cold rationality of the market. And the outcome is more frequent evictions.

This supports the argument made by a tenant advocate in LA in this recent piece in The Atlantic, in which it is argued that:

“[T]enants and their advocates aren’t wary of corporate ownership because it makes the cost of housing go up, but because it magnifies the imbalance of power in the relationship between landlord and tenant. The real issue is not that housing becomes more expensive, but that it becomes more precarious”. 

This is, of course, just one piece of research. And while there are some other studies supporting this, like this research in Atlanta, the evidence base is still quite small. Nevertheless, there is definitely ample cause for concern here.

Events

TCD Law School are organising what looks to be a very useful seminar on Property Law and Evictions - Assessing COVID-19's Impact on July 6th. The RTB also announced that they are launching a major new report on the PRS on July 14th. They haven’t released full details but I will include them in future issues. Finally, a few weeks ago I mentioned a UK seminar on 'Housing advice in the UK private rented sector’. The recording is now available to watch here.

What I’m reading

There was more critique of Government housing policy in this recent document from Social Justice Ireland. I also came across this really interesting piece by TASC’s Robert Sweeney on ‘modern monetary theory’ (MMT). Listeners to Rory Hearne’s Reboot Republic podcast might remember in my interview there a couple of weeks back we discussed the changing context of international fiscal and monetary policy, and what this means for housing investment. I’m not exactly an expert on these matters, and I’ve always found MMT a complete mystery, so it was great to find an accessible take on what seems to be an increasingly influential theory. Discussion of vacancy was back in the news this week too, which reminded me of this excellent report by Cian O’Callaghan and Kathleen Stokes.