Tuesday, 9 April 2019

Questions (73, 101, 111)

Eoin Ó Broin


73. Deputy Eoin Ó Broin asked the Minister for Housing, Planning and Local Government his views on the significant increase in the number of institutional investors in the residential property market and the impact this is having on security of tenure and affordability; and if he will make a statement on the matter. [16413/19]

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Mick Wallace


101. Deputy Mick Wallace asked the Minister for Housing, Planning and Local Government his views on the increased number of bulk sales of apartments by developers to REITS or investment funds; his plans to counter this and the effect it has on the first-time buyer and rental markets; if he has had discussions with his colleague, the Minister for Finance, with regard to same; and if he will make a statement on the matter. [16351/19]

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Jan O'Sullivan


111. Deputy Jan O'Sullivan asked the Minister for Housing, Planning and Local Government his views on the fact that investment and private equity firms are buying entire new apartment developments; if he has had discussions with his ministerial colleagues on addressing the advantages these firms have in order to ensure a level playing field for other potential purchasers; and if he will make a statement on the matter. [16330/19]

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Oral answers (13 contributions) (Question to Housing)

As the Minister will be aware, during the past two years we have lost approximately 12,000 rental properties according to the Residential Tenancies Board as a result of accidental buy-to-let landlords exiting the market. We have also seen a significant increase in the level of institutional investment in recent years, both with respect to building and the buying up of blocks of apartments. Is the Department undertaking an analysis of these two trends within the private rental sector and, in particular, their impact both on price in terms of affordability for new entrants and on security of tenure?

I propose to take Questions Nos. 73, 101 and 111 together.

I thank the Deputies for their questions. There are approximately 340,000 tenancies registered with the Residential Tenancies Board, RTB, of which approximately 310,000 are private rented tenancies. The majority of landlords, just over 70%, own just one property, with a further 16% owning just two properties. Almost 86% of the registered rental housing stock is owned by landlords with fewer than ten properties, reflecting the fact that the overall proportion of the rental stock held by institutional investors is relatively low.

Historically, the private rented sector in Ireland has been largely made up of small-scale landlords, who will continue to provide the bulk of private rented accommodation. However, a more diverse sector, which includes institutional investors specialised in providing and managing rented residential property on a larger scale, provides additional stability and less exposure to property market risk and volatility. Institutional investors can also help provide the range of tenancy options that households need across their lifecycles. The fact that institutional investors are entering the rental market, with a clear long-term focus on their investment, provides security for tenants who can be confident that their landlord is committed for the long run.

It is important to recognise the positive effects that institutional investment can have in terms of the supply of housing, not least given the scale of housing development envisaged under the national planning framework over the period to 2040, particularly apartment developments in the main urban centres.  It is worth noting that a recent report on institutional investment from the Department of Finance clearly points to the benefits of professionalising the sector, realising economies of scale, and a resultant improvement in regulatory and taxation compliance standards.

That report also notes that it would not be correct to assume that the properties being bought by institutional investors would otherwise have been bought by first-time buyers, with the suggestion being made that much of the stock would likely have been purchased by buy-to-let investors with access to equity, either through their household or business wealth.

I am committed to improving security of tenure of tenants and I have brought forward additional measures in this regard for Committee Stage of the Residential Tenancies (Amendment) (No. 2) Bill 2018, scheduled for later this week. These include providing new powers to the RTB to investigate and sanction landlords who engage in improper conduct, including non-compliance with the rent increase restrictions in rental pressure zones, which are the areas where institutional investment tends to be concentrated.

The legislation will allow the RTB to initiate an investigation without the need for a complaint to be made. It will also require the annual registration of tenancies with the RTB and significantly extend the notice periods for tenancy terminations by landlords. The annual registration of tenancies will provide improved data on the profile of landlords in the market, including institutional landlords and will be of benefit to my Department in keeping the market under review, ensuring that we facilitate the positive impacts of institutional investment, while addressing any broader issues that may arise. 

An aspect of the Minister's reply that concerns me is that it does not address a particular part of what is happening in the rental sector not only here but globally, which is certain types of institutional investors with certain types of business models have a very clear role in driving up the price both of land and of rent or purchase properties but also they can add to increasing levels of insecurity. I am not against institutional investors if they have a long-term reasonable yield return to provide security of tenure and reasonable rent for landlords, as exists in other European member states, but the business logic particularly of vulture funds that are looking for short-term high-yielding rents is having a particularly problematic impact on large cities. It is happening in New York, London and elsewhere in Europe and we are beginning to see it here. We are having a disorderly exit of accidental buy-to-let landlords from the rental market, which we have seen during the past two years according to the Residential Tenancies Board, and an under-regulated entry of short-term investment funds into the private sector, which is having a destabilising effect. Is that something the Minister and his Department are looking at and, if not, will he give a commitment to start doing so?

A site adjacent to the Central Bank Currency Centre in Sandyford, and owned by the Central Bank, was placed on the vacant site register by Dún Laoghaire-Rathdown County Council in 2018. That site is bounded to the north by sports pitches and to the south by the M50 slip road. The Central Bank appealed its inclusion on the register and stated: "The site creates a security buffer enabling surveillance particularly of adjoining public roads." An Bord Pleanála accepted this argument in its decision and it became a vacant site. The Carmelites own a site of approximately 3.45 ha on Ballinteer Road which is valued at more than €21 million. They said that they had planning permission for a carpark on that site but it was never used as a carpark. An Bord Pleanála accepted that it was a vacant site because they had planning permission for it. That is nonsense because the Minister will not be able to catch the sites in this regard.

With regard to real estate investment trusts, REITs, I had an argument with the then Minister, Deputy Noonan, here on 16 January 2014 about what REITS would do to property in Dublin. I said they would drive rents up through the roof. He said it would not happen and that I was exaggerating, but it has happened. They have been an unmitigated disaster with respect to the supply of housing and rental properties. Why does the Minister not admit it?

My question follows on from Deputy Ó Broin's question regarding short-term versus long-term institutional investment. To what extent has the Minister and his Government colleagues had discussions on this issue, to what extent are they able to control the way in which these investments may enter our market, make money and then leave, or to what extent can he ensure that we get the long-term professional landlord system we see in other European countries that can provide stability for tenants? Has the Minister been able to get any reassurances in that regard?

I thank the Deputies for their questions. Briefly, to respond to Deputy Wallace's comment, of course we can find individual sites and make a judgment based on an individual site for the scheme as a whole but it would be wrong to do that because we know under the vacant site levy that we have more than 300 sites now on the register-----

The legislation is rubbish.

-----but more than 40 sites have now seen construction and development because of the levy.

Moving on to the questions with which we are dealing, overall the impact to date has been very minimal. If we consider 2017, less than 1% of transactions were from large foreign institutional investors - that is based on either 2017 or 2018 data. Approximately 4.5% of tenancies are under the control of or the administration of these foreign institutional investors but it is growing. Part of the reason for that is because of the changed guidelines around build-to-rent to attract more finance in to invest in more apartments, building and development. It is good we are doing that because I believe we would all agree that we want to move away from the instability we currently have, because of our over-reliance on small individual landlords, to a more stable, mature and European style rental sector. That means larger landlords making a longer-term play but we want them to make that play based on what we might refer to as a steady Eddie, a reasonable rate of return that does not allow for gouging. That is why there is some comfort in knowing that the vast majority, if not all, institutional investors have invested in rent pressure zone areas where we do have strict regulations and they will get only stricter when we agree the legislation coming through the House.

The difficulty is that we replace one level of instability with another level of instability. Again, I draw the Minister's attention to what is happening in a number of large European cities, where large institutional investors are not long-term professional landlords in the way the Minister has described but short-term funds looking for short-term gain. Of course, here, for those particular investment vehicles, we do not charge tax on the rent roll or capital gains tax when they have flipped a property at a later stage, and depending on how they are structured, they may not even pay dividend withholding tax. We are inviting in the very short-term types of investment in the residential property market that will lead to ever greater levels of instability.

I repeat my question to the Minister as he has not answered it in the first two rounds. Will the Department look at the specific impact of these types of investment vehicles? Again, I stress I am not against long-term sensible investment in the rental market so long as it is producing security for tenants in terms of security of tenure and rent certainty. That is not what is happening in other jurisdictions and my worry is that, as these funds start to enter our market, we will replace the instability of the small accidental landlord with the instability of the large institutional vulture fund, which is very bad for our rental market.

I have lost count of the number of initiatives on housing that have been brought in since we were elected to the House. One thing has not changed: housing remains unaffordable. The Government is not tackling the fact the supply of housing in this country is dysfunctional. It is double the price of mainland Europe for a three bedroom house within 30 km of the capital city. That is the truth. Why is it like that? There are two aspects. There is land banking, which the Government refuses to tax in a proper way, as other countries do, and there is a fellow called the developer who does not build anymore and who is looking for between 60 and 80 units. The Government needs to tax land banking. Some 10% of the housing stock is social housing when it needs to be about 30%. The Government needs to get interested in providing a serious amount of social housing. It should tax land banking and have 30% of the housing stock as social housing, and that will go some way towards addressing the dysfunctional nature of the supply of housing in this country.

In his initial reply, the Minister suggested he did not think these institutional investors were competing with first-time buyers. Will he tell us why they would not be or where the building is for first-time buyers of apartments in particular? He suggested this is a different set of properties.

I thank the Deputies. In reply to Deputy Wallace, the housing sector in this country was dysfunctional for decades and it broke completely following the financial crisis. What we are trying to do now is rebuild it in a way that is sustainable so it will not crash again. There is a levy on vacant land and that is what we discussed in the previous question. In regard to our ambitions around social housing, one in four of every new homes built last year was built for social housing. That is an ambition that no previous Government has had and we are going to continue that into the years ahead under the national development plan.

I am sorry I did not come back to Deputy Ó Broin's question but Deputy Wallace brought us into other areas. In regard to this particular area, the ownership of a property does not abrogate a tenant's rights in regard to the rent controls we put in place or a lease agreement they may have. We have brought in much stronger tenancy protections in recent years and we are only going to strengthen them in the coming weeks. Of course, this is something we keep under review in terms of making sure that, as we transform the Residential Tenancies Board, RTB, and make it a proper independent regulator of our rental sector, it can have a proper view of exactly what is happening in the market. That is why the annual registration of individual tenants is so important to allow them to build up a proper knowledge base of exactly what is happening on a real-time basis, year in, year out, in our rental sector. Of course, we keep it under review and I have discussed this report with the Minister for Finance, Deputy Donohoe, which was one of the Deputy's earlier questions.

In response to Deputy Jan O'Sullivan, the view of the Department, which prepared the report, was that it would not necessarily be the case that had an institutional investor not come in and bought, say, 50 apartments in a single scheme, this would mean that 50 people who were going to be first-time buyers might have bought them instead. The likelihood, on its analysis, is that they might have been bought by individual buy-to-let investors, which would perhaps further reinforce the instability we have seen from having such a large share of individual landlords control such a large part of the property sector for rent in this country.

My apologies to Deputy Clare Daly. I should have called her on Question No. 71.