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e h t n o s l a s o p o r P : Y R UMMA VES I CUT XE E g n i v a e L t o N e r ’ e yW b r o t c e S d e t n e R e t a v i r P
We r e No t L e a v i n g . c o m/ Al l Mo d Co n s
Executive Summary The Private Rented Sector in Ireland Today The nature of tenure in Ireland is changing. The owner-occupied sector rose from 53% of households in 1946 to a high of 79% in 1991. Since then, there has been a decrease in the proportion of households in the sector. According to Census 2011, just under 28% of households rent: 7.82% from local authorities, 18.5% in the private rented sector, and the rest from voluntary and cooperative bodies. Landlords With two-thirds of landlords owning one property, 85% owning one or two properties, and 90% with less than four properties, being a landlord in Ireland is very rarely a day job. In fact, 65% of landlords work fulltime and 16% part-time. It is also often an unofficial job. Landlords are more likely to be male (61%) than female (36%) and to be married, in a civil partnership or a long-term relationship (83%) than single (10%). They are generally older (average age is 51 years) and Irish (95%, with the majority of the remainder coming from the UK). The average time spent as a landlord in 2014 is 9 years. 61% became landlords because they considered property a good investment or because they were looking for an additional source of income. Just over a third are what the PRTB terms ‘accidental landlords’: 19% had to move as their first home is in negative equity and they could not sell it; 8% moved in with a partner and rent out the first property; and 7% inherited the property. According to the PRTB, 29% of current landlords plan to sell the property as soon as possible, 62% plan to remain as landlords but not buy any properties, 4% plan to stay on as landlords and increase their portfolio of properties, and 5% are undecided. There has been relatively little large-scale residential property investment in Ireland. However, this could change with the legislation for Real Estate Investment Trusts (REITs) in the Finance Act 2013. A REIT is a property investment vehicle that sells like a share on the stock exchange and invests in real estate directly. REITs are not liable for capital gains tax, the sales of property tax, or corporate profit tax on income. Questions have been raised about the longevity of REITs if other, better-performing, investment opportunities re-open, how REITs will tackle the issue of supply, and the advisability of tying residential tenancies to the financial markets. Tenants The profile of tenants is generally young: the largest cohort (35.5%) is those aged between 25 and 34 years of age, with the next largest group (15%) aged 35 to 44. However, the profile of those renting is far from homogenous and is changing. This is reflected in increases in demand for certain types of properties, such as family homes as many who might have once gone into the owner-occupied sector feel reluctant to gamble their savings on a mortgage. There are also what are termed ‘DOODs’ (Don’t Own or Drive), which are ‘well-educated, well-travelled, demanding, employed people’ (Sirr, 2012) who choose to rent rather than own. The reasons for choosing renting include: the relative cost (of particular importance for those aged 25-34); the user cost less average rent; and individual traits, such as education, marital and family status (61% of those in private rented accommodation are single compared to 35% of owner occupiers), labour market status (28% of heads of households in the private rented sector are classified as professional, managerial or technical, compared to 37% in owner-occupied and 10% in local authority housing), migration status, and region. 32% of households in the private rented sector rely on direct housing supports from the State. Deposit Protection In 2013, 32% of applications received by the PRTB were from tenants claiming that some or all of their deposit had been unfairly withheld by their landlord. The problem of deposit retention is likely to be more serious: a survey by USI showed that 40% of students have had their deposit withheld but only 9% of those had pursued their landlord through the PRTB. Landlords are treating deposits as their own personal income rather than as a security. Illegal deposit retention can have a particular impact on low-income tenants as it can stop them from moving on and put them at a risk of homelessness when they don’t have a deposit to rent a new home. Recommendations The tenancy deposit protection scheme based on the custodial model, which the Government committed to in the Programme for Government and which the Minister for Environment, Community & Local Government stated was soon
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to be introduced in legislation, should be brought in as an amendment to the Residential Tenancies (Amendment) (No.2) Bill 2012. The scheme should be fully run by the PRTB, based on the knowledge of the sector which that body has built up over the past decade. The Bill must legislate for a specific timeframe within which the landlord (or agent) must hand over the deposit to the PRTB, as well as a specific timeframe for the return of the deposit. An accessible dispute resolution mechanism should be made available to landlords and tenants. Fines and sanctions against landlords who do not register tenancies with the PRTB must be followed through.
Standards & Conditions Only 46% of tenants survey by RED C for the PRTB were satisfied with the condition of the property they lived in. Minimum standards are regulated for and are supposed to be enforced by the local authorities. However, local authorities rarely carry out inspections and, even when they are carried out, inspections rarely lead to conviction: there were 21,223 inspections carried out in 2013, 47% of properties did not meet minimum standards but legal action was initiated in just 11 cases. Recommendations Enforce the legal obligation of landlords in regards minimum standards through the issuing of a Certificate of Compliance with Minimum Standards, which can be funded through an increase in the fee paid by landlords when registering the tenancy. Enforce the legal requirement for a property to have a BER (energy efficiency) rating in order to be advertised for rent. Present free workshops for landlords explaining the rights and responsibilities of their position. Security of Tenure Only 45% of tenants surveyed for the PRTB were satisfied with the security of their rental situation. RED C surveyed estate agents for the PRTB and found that, while 7-12 month rental agreements are the most common in Ireland, agreements for longer leases are in demand. 46% of estate agents said that tenants wanting a longer lease was one of the most common issues they have to deal with. Security of tenure also presents itself in the knowledge of how much the tenant will be paying; 45% of tenants surveyed by the RED C agreed they would be more likely to rent long-term if there was a possibility of rent stability. Arrears and receiverships for Buy-to-Let (BTL) mortgages are another, more recent, cause of the lack of security for tenants. As of March 2014, there are 39,000 BTL mortgages in arrears (27% of all BTL mortgages). The recent PRTB report found BTL mortgage arrears to be one of the biggest challenges to housing supply. Threshold has found that receivers are ignoring the Residential Tenancies Act 2004 (RTA) by treating tenants as illegal occupiers, seeking to remove tenants without giving appropriate notice, collecting rent but refusing to honour obligations, and informing tenants to approach the former landlord for return of deposits. There is currently no resolution strategy in place to deal with this and the RTA is not protecting tenants. Recommendations Tenancies should be normally unlimited, with fixed-term tenancies permitted in specific situations, for instance where the landlord has legitimate future plans for the building (as in Germany). Unlimited tenancies should only be terminated by landlords for a small number of reasons, e.g. in cases where the tenant endangers the property or where there is default on three successive rent payments. The landlord should be obliged to give three months’ notice of termination of a tenancy. Security of tenure should be guaranteed in cases where the property is sold to a third party. A Code of Conduct for Mortgage Arrears for BTL mortgages should be introduced, as suggested by Threshold. It should include a clear timetable, sanctions for bank non-compliance, and independent oversight. Further reporting by banks on BTL mortgages should also be included. There should be a write-down on mortgage debt for both primary residences and BTL properties, with the aim being to protect the home of the sitting resident. A system whereby BTL mortgage properties can be brought into public ownership should be introduced. Rising Rents It is unsurprising that only 37% of tenants in the private rented sector surveyed by RED C said they were satisfied with the amount of rent they are paying relative to the property. According to the PRTB Rent Index, in the first quarter of 2014 the annual rate of increase nationally was 3.5%. The annual increase in Dublin was 8.4%, showing a stark regional divide.
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Some commentators have explained away the increases as a ‘return to normalcy’ after the economic crash. This is based on the assumption that rents up to 2008 were ‘normal’, a strange belief seeing as the entire housing market at that time is now recognised to have been vastly over-inflated as a result of speculation. Another assumption is that rents are rising in line with the cost of living. According to the PRTB, a sustainable rent is about 30% of net income. The PRTB has found that the current proportion of their income that tenants are spending on rent is the highest proportion of income allocated to rent since 2008, when rents were at their peak. This has led to an issue of affordability, especially for low-paid workers. Workers in wholesale and retail, admin and support services, arts, entertainment, and recreation, and accommodation and food have experienced the worst affordability problems. Rent increase have many and varied results, including the large number of adults still living with their parents. In Census 2011 over half of 20-24 year olds, a quarter of 25-29 year olds and one in ten 30-34 year olds were living with their parents. 41% of adults living with their parents are in work. Rising rents, the cap on rent supplement, and the lack of suitable rented accommodation are being blamed on the rising number of people becoming, and staying, homeless. Recent months have also seen a rise in families becoming homeless. Recommendations Rent should be controlled between, as well as within, tenancies, with the initial rent in new contracts regulated. The initial rent should be set according to a points system, as operated in the Netherlands. The PRTB should extend their current rent index to include a ‘quality points’ system, with properties being awarded for facilities, square metre, and local amenities. The initial rent for a unit should be calculated based on this index. Rent can be increased more than the sanctioned amount if the landlord has increased costs or has undertaken maintenance work on the unit. Rent increases should be capped at a maximum of 15% over a 3 year period. Rent should be reviewed no more than once in a 12-month period and tenants should be given 2 months’ notice of rent increases. Rent controls must be coupled with increased security of tenure.
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