For generations, the Irish rental market was not built by funds. It was built by ordinary people: the teacher who kept the first house after moving, the farmer who bought a flat in town, the couple whose one rental property was their pension.
Those landlords are now leaving, and leaving in numbers. Residential Tenancies Board figures show approximately 11,100 notices of termination issued in the first half of this year. In the most recent quarter, half of them were because the landlord intended to sell.
I see it every week. A large share of the homes we bring to market are former rentals. First-time buyers are snapping them up en masse, which is to be welcomed, but small investors are noticeably absent from viewings.
I have met hundreds of these landlords over the last few years, and they all say the same thing. The tax is too high. The regulations are too stringent. Their rights as property owners have been diminished, and they have lost control of an asset they paid for. As they see it, they do the work, carry the risk and hand half the profit to the State.
They have a point on tax. A small landlord on the higher rate hands over about 52 per cent of rental profit in income tax, USC and PRSI. The capital on the mortgage is then repaid from what remains. Net profit on rent therefore can often run close to zero. For many it’s the hope of capital gains that keeps them in the game. For all the talk of high rents, the largest single beneficiary of many tenancies is the State. By contrast, a large property fund or investment trust pays nothing on the rent itself, with 20 to 25 per cent withheld when it is paid out to investors.
They have a point on regulation too. Each rule has a rationale, but together they tell a small owner that the risk is theirs and the control is not. Selling up is not a protest. It is a rational decision.
In the past, smaller landlords were often slow to raise rents, preferring a steady income from reliable tenants who were seen as custodians of the property, protecting its value over time.
Ironically, Government policy punished these landlords. Rent pressure zones locked those who had kept rents low and rewarded those who had regularly increased rents. Resale values were also negatively impacted.
With the increasing financialisaton of the housing market along with apparent State backed favouritism for institutional investors, the question needs to be asked; is the small landlord worth saving and if so, is there any political will to do so?
Landlords with 100 or more tenancies now hold 15.6 per cent of private tenancies nationally, the highest on record, and almost 30 per cent in Dublin. Outside Dublin the figure is 3.9 per cent. Institutional capital has a role. But a fund can reprice a thousand homes in one decision, and it will not build in Tuam, Loughrea or Clifden. In the west, if the small landlord goes, nobody takes their place.
So, what can be done to keep them? Here is my proposal:
First, tax the small landlord on the same terms as the institutional one. There is no case for taking 52 per cent from the couple with one house and 25 per cent or less from a fund which could have thousands of units rented.
Second, relieve capital gains tax where a rental property is sold to another landlord with the tenant in place. The owner gets an exit, the tenant keeps a home and the State keeps a tenancy.
Third, make the deal conditional and time-limited. Tie the reliefs to long-term letting and review them after five years against one measure: are small landlords still leaving?
By the time you read this, the Budget will have been delivered. Judge it on one question: does a small landlord in Galway have a reason to stay that was not there last week? If the answer is no, the for-sale signs will keep going up on rented homes, supply will keep shrinking and rent hikes will follow. If the small landlord continues to leave the renters will miss them most.
They are not the problem in the Irish rental market. For most of our history, they were a large part of the answer.
