JAMES NUGENT says that the Government’s continual meddling is making the business of being a landlord impossible.*
There are two sides to every story. Here’s mine: in 2006, I purchased a small house as an investment for €610,000, paying €45,750 in stamp duty. Having been vacant for seven years, it needed significant work – costing €110,000. And so my landlord days began.
Since then, I have had a number of tenants. I have been lucky – they have all paid their rent on time and generally looked after the house. Today, though, it is still worth less than I paid for it. I had a tracker mortgage, so I was fortunate.
Nevertheless, the rent has never covered the mortgage – and that is before I paid the income tax due on the rent. Despite this, I have always viewed the house as a pension.
However, the Government has again and again changed the rules. Firstly, I used to be able to claim 100% of the mortgage interest as a taxable allowance. In 2009, it was reduced to 75%.
Secondly, a property tax was introduced, which now costs me €573 a year. It is not deductible. Furthermore, all of the rent is classed as “unearned” and subject to PRSI, even though it is used to pay down debt.
So, my reasons for buying have been eroded by Government intervention. Meanwhile, the Residential Tenancies Board (RTB) has increased its registration fees. In isolation, none of these matters are material. Together, they make the decision to become a landlord very questionable.
My current tenant arrived in June 2012, paying €1,450 per month – €100 per month less than the asking price. I have always been relaxed about the rent and took the view that it was better to have a good tenant instead of a market-topping rent.
After two-and-a-half years, I spoke to the tenant about increasing the rent. By then, the market rate would have been about €1,800 monthly. My tenant told me that he hoped to buy a house before Christmas. I agreed to leave the rent alone for a further six months, telling him that we would review it afterwards.
In June 2015, we agreed a €100 increase. It was still below the market rates, but it was done to help him and his family to save for a deposit. It was also done as a short-term measure.
Less than four months later, the Government changed the rules again and imposed a two-year rent freeze. Naturally, I felt a little stupid.
Roll on another year and there has been yet another intervention. This time it is a 4% cap on increases. In June next year, I would be able to increase the rent to a maximum of €1,676 per month. Meanwhile, my Lisney colleagues tell me the house would command about €2,100 per month if it was newly let.
The Government suggests the cap is temporary. Given my experience, I don’t believe them.
Whether it is popularly accepted or not, private landlords provide much- needed houses. Five years ago, they supplied nearly one in five of all houses. Local authorities provided only 7.82%.
The State abdicated its responsibility to provide housing for years and now it is punishing landlords for doing so. Given what has gone on over the past few years, it’s hardly surprising that up to 40,000 of them have quit since 2012. There has been a clear Government policy to discourage individuals from becoming landlords.
It has worked. However, it has failed to realise that most one-off landlords want steady, reliable tenants, not rapidly rising rents. In contrast, most institutional landlords are focused on regular increases, since they get rewarded for it. It is hardly surprising that there is a rental crisis.
However, the solution is not to penalise those providing the supply. In 2015, my investment generated a before-tax return of 2.05%.
For me, the decision to sell up is easy. Being a residential landlord provides poor returns; it is time consuming and it carries risk. It is certainly not worth the reward. Being a landlord is a business. However, continual Government interference means it is a business in which I no longer have any interest.
When I sell up, the house will not be bought by a new landlord – since the new rules state that the rent the new owner would be entitled to collect is linked to the rent I collected. As such, it is likely there will be one less rented property available.
Even before the latest changes it was clear to us in Lisney that an exodus by landlords had already started. More than a quarter of all our sales this year were houses sold by investors getting out of the market. Just one in seven of our sales went to investors.
A client has compared the Government’s actions as being like that of a referee who changes the rules of the game at half-time.
Not many will turn up to play next time.
*This article originally appeared in The Irish Times.