Are landlords really fleeing the Irish housing market?

Analysis: We keep hearing that landlords are leaving the rental sector in droves, but is this actually the case?

The stories we tell about housing matter. Stories make some courses of action, such as potential policy fixes, seem impossible or foolhardy, and make others feel like common sense. They are how we make sense, as a society, of the complexity and competing agendas within our housing system.

One of the most common stories we hear in Irish housing debates is that of the 'landlord exodus'; the idea that landlords are leaving the rental sector en masse, causing a collapse in supply. Given how often we hear this story, it may come as a surprise that the most recent data suggests the sector has actually been growing. It’s important to figure out what’s going on here, because how the Government views this issue will impact the policies they adopt, such as introducing tax breaks for landlords, which will in turn impact the nature of housing in Ireland.

So, is the private rental sector growing or shrinking? Is there a ‘landlord exodus’? And how does all this impact the big issues in Irish housing? Let’s take these issues in turn.

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There are two main sources of data on the size of Ireland’s private rental sector: the Census and the Residential Tenancies Board register of tenancies. Until this summer, our Census data was from 2016, and therefore most people relied on the more update RTB figures. The RTB data tells us that there has been steady decline in the number of tenancies registered, from almost 320,000 in 2016 to 276,000 tenancies at the end of 2021. Moreover, the RTB figures show that there has been a decline in the number of properties registered every year since 2016.

However, new Census data for 2022 was released this summer, suggesting that there in fact 330,000 households in the private rental sector, 54,000 more than the RTB data. This suggests that that the number of dwellings rented from a private landlord has increased by 7% since 2016. This includes increases in all four Dublin Local Authority areas.

The discrepancy between these two data sets means that people on both sides of the debate can cite evidence suggesting that the private rental sector is either growing or shrinking, depending upon what policies they want to advocate for.

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There are some differences in how both bodies collect data which might help to explain the difference.

(i) The census form is filled in by the tenant, RTB registrations are made by the landlord

(ii) The census data may include ‘licensees’. These can include people who are renting a room in the same dwelling as their landlord, or some forms of student accommodation. Licensees are not, technically, ‘tenancies’, and are therefore not registered with the RTB

(iii) Some tenants of Housing Associations (the not-for-profit approved housing bodies that provide a large proportion of new social housing) may be mis-categorising themselves as private tenants in the census data, thus artificially inflating the figure.

The third is the most important issue. The number of approved housing bodies tenancies has increased quite significantly since the last census, but the number of households categorising themselves as such in the census doesn’t appear to reflect this. On the other hand, it is not clear why these tenants would all of a sudden start making this mistake when completing the census form, given this has not been an issue in the past (there has been no change to the way the questions is asked on the census form).

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The other possible explanation is that the fall in RTB registrations does not reflect the fact that the rental sector is getting smaller, but that more landlords are deciding not to register their tenancies. The project of reforming Ireland's private rental sector began in 2016, the year RTB registrations start to fall.

Since that year, rent limits have been introduced (and subsequently strengthened), the length of tenancies has been increased and the RTB have been given much stronger enforcement powers to tackle non-compliant landlords. International evidence suggests that non-compliance can increase as regulation grows, as more landlords seek to operate in the ‘black market’ in the hope, for example, of evading rent regulations. In summary, it is not entirely clear what’s going on and more research is needed to figure out whether or not that private rental sector is growing or shrinking, and what the level of non-registration is.

In the meantime, there are a few other aspects of the ‘landlord exodus’ narrative that need clearing up. Despite the fact that the ‘landlord exodus’ is equated in the public debate with a fall in the supply of rental accommodation, landlords can leave the market without causing a reduction in the number of rental properties. This can happen if departing landlords sell their properties to other landlords, or if the exit of their properties from the market is offset by new properties entering the market.

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What matters, then, is what is called net investment in the rental sector. Unfortunately, there is no accurate data on this. What we do know, however, is that there has been a dramatic increase in institutional landlords since around 2016. It makes sense then to think that the exit of small landlords has been, at least to some extent, off set by the arrival of a new type of landlord.

We also need to note that eviction bans were in place during the pandemic and last winter. The current spike in notices of termination issued by landlords wishing to sell may be related to the backlog of landlords who could not do so during the eviction bans.

However, regardless of whether or how landlords exiting the market impacts supply, it definitely does impact their tenants because tenants are almost universally evicted before sale of property (a right granted to landlords under the Residential Tenancies Act).

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Just when you think this issue couldn’t get any more complex, there is also a debate about whether or not landlords even contribute to the supply of housing in the first place! It seems obvious that landlords put properties on the rental market and therefore increase supply. However, some people argue that landlords do not necessarily increase the supply of housing as they merely purchase existing housing, rather than building new ones. Likewise, if landlords leave the market, the supply of housing does not actually fall, as the house they sell doesn’t disappear, but goes right back into the market (either as rental property or an owner occupied one).

This issue is particularly complex, but it’s worth drilling down into. Rather than focusing on whether or not landlords increase the supply of housing, lets focus on how the private rental sector impacts the supply of housing, as this can make the issue easier to get our heads around. The existence, and size, of the private rental sector impacts supply in the following ways:

(i) It reduces the vacance rate because there will always be some cases where the owner of a property does not wish to reside in that property. The existence of a rental market allows that property to go back into the market rather than lying vacant. For example, if someone inherits a house which they are not ready to sell, or if they move in with a partner but are nor ready to sell their former home, or if they move abroad for a number of years but hope to return to live in their property. In all these cases, the private rental sector allows these properties to made available to others.

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(ii) The private rental sector creates an investment opportunity for institutional landlords. These landlords can access finance from financial markets, and turn that finance into investment to purchase properties. Note, they usually do not build any houses themselves, but they do purchase newly built stock. This form of investment is directly related to supply, because the existence of institutional landlords makes it much easier for developers to sell newly built apartment blocks. In many cases, developers even enter into arrangements (such as ‘forward funding’) with institutional landlords before shovels have even hit the ground.

(iii) The private rental sector allows households to invest in housing. Without this option, households would not be able to channel their money and savings into housing investment, so the overall level of investment in housing would be lower. Most landlords are household investors, so this is particularly important.

The last point is where all the controversy is - and for good reason. This is because small scale landlords can be understood as both a form of supply and a form of demand. This is what is called ‘investor demand’ (as opposed to consumer demand). When a household takes some of their savings and goes out into the property market to purchase a property, this represents a form of housing demand. They compete with other potential purchases, including first time buyers, and can, depending on the context, bid up prices.

Tax breaks for landlords might seem an obvious way to increase supply of rental properties, but it can also increase demand for housing

This happened on a mass scale during the buy-to-let boom at the heigh of the Celtic Tiger, as shown in research by Michelle Norris and Dermot Coates. On the other hand, when landlords purchase a property and then put it on the rental market, they increase the availability of rental property and therefore act as a form of supply.

This is one of the reasons why policy making can be so tricky. Introducing tax breaks for landlords might at first seem an obvious way to increase the supply of rental properties, but it can also increase demand for housing, leading to higher house prices and more competition for would-be homeowners.

Dr. Michael Byrne is a lecturer in political economy at the School of Social Policy, Social Work and Social Justice and Director of the M.Sc in Equality Studies course at UCD. He compiles a weekly newsletter about Irish housing.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ

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