Back Where We Started

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First Time Buyer writes;

We woke up to the news today that Dublin property prices are predicted to return to pre-crisis prices by February 2020 – a mere 2½ years away.

The caveat of course is that this prediction has been made by “experts” Savills, who its fair to say have a bit of a vested interest in the property game.

Nevertheless you have to ask yourself, how did a country with the worst housing-market crash in the world return to such a place.

Fine Gael wisely advised us ‘to make sure that we don’t repeat the mistakes of the past’ and promised to “prevent that boom and bust cycle that bedevilled us for so many years”.

They told us they were different from Fianna Fail and that “there will be no return to the past where tax incentives for developers drove supply.”

The problem though is that rather than give tax breaks to developers to BUILD, they gave tax breaks to investors to BUY; 7 Year capital gains tax exemptions, introducing tax-free REITs, encouraging the use of tax free SPVs, QIAIFS and ICAVs.

OK but all that was done to ‘kick start’ the property market and the government have learned their lesson, right?

Wrong.

Successful lobbying by interest groups such as the Residential Landlords’ Association created the myth that landlords were leaving the market due to the the ‘stringent costs’ of running a rental property. Landlords it seems, are also allergic to paying taxes.

The government, believing the hype, immediately increased tax relief on mortgage interest meaning landlords could now deduct 80 per cent of the interest paid on borrowings on a rental property up from 75 per cent previously, with “full interest deductibility” to be restored for landlords by 2021.

So what can we expect in Budget 2018?

The Department of Finance recently held a consultation on the “tax and fiscal treatment of landlords” and our new Minister for Housing, Planning and Local Government, Eoghan Murphy has publicly stated that he thinks we need to “look at new measures to support and/or encourage landlords”.

Lessons learned? I don’t think so.

Property prices on track to surpass Celtic Tiger highs by 2020 (Irish Times)

Rollingnews

67 thoughts on “Back Where We Started

  1. edalicious

    This idea that landlords would be getting out of the game now when rents are at the highest they’ve ever been is literally unbelievable.

    1. Fact Checker

      A landlord’s incentives are driven by after-tax yield vis-a-vis alternative investments.

      Gross rents are only a part of this arithmetic. Tax regime, regulation, interest rates all play a big part too.

    2. Rob_G

      If a problem tenant decides stop paying rent altogether and overstay, it can take up to two years to evict them.

      While a large institutional landlord could probably absorb the hit, a small-time or accidental landlord (who had to continue paying the mortgage in the meanwhile) would be sunk, so I can understand these type of landlords wanting to get out of it.

        1. Hansel

          Happens all too often unfortunately. I know someone who manages on behalf of small private landlords. Unpaid rent is one issue, badly damaged houses are entirely another issue.

          The PRTB are of very little help when the poop hits the fan and ultimately the landlord usually ends up footing the bill. Put it this way, if I had five properties then I’d expect one to have a bad tenant of some kind: not paying/damaging the property/causing local disturbance/etc.

          I’m not a landlord or in the business, thankfully.

          1. Cian

            No. There are 105,000-odd registered tenancies last year. RTB received 4,800 applications for dispute resolution (60% from tenant, 40% from landlord). So 5% of tenancies resulted in a dispute resolution request.

            * 1,400 were rent arrears; For landlords 1.3% of tenancies result in rent arrears. [if you had 75 properties 1 would be problematic]
            * 1,100 were invalid notice of termination. For tenants 1% resulted in landlords (trying to) kick them out illegally. [1 in 95 tenancies]
            * 1,040 were deposit retention. For tenants 1% resulted in landlords keeping too much of the deposit. [1 in 101 tenancies]

            https://www.rtb.ie/docs/default-source/annual-reports/annual-report-2016.pdf?sfvrsn=2

          2. Cian

            oops, there are 325,000 tenancies *in total*; so all my numbers are wrong by a factor of 3. it is 3 times LESS likely than I mentioned above.

          3. Rob_G

            Yes, but if you are a landlord who owns one property and your tenant decides to stop paying rent for two years, you are 100% ƒ**ked.

            So I can see why the risk might not be worth it for this type of landlord.

        2. Cian

          Rob_G – the banks have the same problem.
          Our laws aren’t written to be able to evict people. Remember how difficult it was for the bank to get the €7m house Gorse Hill on Vico Road from Brian O’Donnell?

          This is a problem with the law, not the RTB.

          1. Hansel

            With respect Cian, your numbers don’t refute anything I wrote whatsoever.

            You say “For landlords 1.3% of tenancies result in rent arrears.” This is all according to the RTB. Who goes to the RTB? If you’ve got a criminally connected family on your property are you going to pursue them via the RTB? If you’ve got a heroin addict, impoverished student, someone whose marriage has just fallen apart, whose partner has just died etc etc etc. I could go on and on about all the different ways I’ve heard of people not getting due rent.

            Now give me the in-depth statistical analysis, but this time include the vast majority of landlords who don’t go to the PRTB, because in general the stock response will be a copy-and-paste “nothing we can do, they have no money, sorry about that”.

            Yes there’s a problem with the law, but the PRTB is a joke. Both landlord and tenant are mostly unprotected by this paper tiger. It’s not rosy for either side at the moment, we have a totally dysfunctional rental market. I wouldn’t want to be a landlord and thank my lucky stars that I’m not a tenant.

          2. Brother Barnabas

            Slightly misleading example. Gorse Hill was about ownership – bank said O’Donnell owned it, O’Donnell said Vico Trust owned it – not a straightforward repossession.

          3. Jake38

            The ability to enforce a contract in the farce that is the Irish legal system is ranked 90th in the world (Global Competitiveness Report, World Economic Forum). This is just one example of this disgraceful situation.

          4. Cian

            @Hansel;
            The RTB say that 1 in 164 tenancies have a problem tenant [1,920 in2016].
            You said 1 in 5 – which suggests that for every landlord that goes to RTB there are 32 that don’t… which would imply that there are 63,000 ‘problems tenants’ each year.

            Frankly, I believe RTB over you.

          5. Hansel

            Cian,

            I can’t reply to your below comment due to Broadsheet not providing me with a “Reply” button.

            Your comment is 100% logical – I’m simply an anonymous broadsheet commented and my one-in-five comment is both a top-of-my-head number and based on an extremely small dataset (~300 ish).

            But remember two things: Firstly, I do not have a horse in this race, I do not have a vested interest of any kind whereas the PRTB does, in that If they correctly reported every landlord that had no trust in their services whatsoever, it would be effectively admitting that they’re useless. Secondly, unfortunately there’s probably no “true” way to count people not bothering trying to recoup losses via the PRTB.

            So yeah, I’m happy to concede I don’t have statistics and only have anecdote to back up my point.

          6. Cian

            @Hansel : thanks for your comments – it’s been refreshing.

            As for the RTB – I think they do what they can – but they must stay within the law. The State is actually powerless to prevent people from causing damage. If a [poor] person caused €3,000 damage to a business and was brought to court – the judge can’t *force* them to repay the owner – because they don’t have any money.
            If a [poor] tenant doesn’t pay rent for months and ends up owing €3000, the RTB can’t force them to repay the landlord – because they don’t have any money.[1]

            [1] the judge might get them to pay €5 a week for the next 10 years. :-(

  2. Diddy

    HAP offers LLs a nice little tax break also..not sure how much but very attractive. Once your on the property owning side of the housing mess equation the view is very rosy indeed. This will keep FG elected

    1. scottser

      100 per cent of your mortgage interest becomes tax.deductable if you sign up to HAP. And if you rent a room in your house you get 14k tax free per year.

      1. b

        interest rates are very low at the moment so the difference between having 80% tax deductible and 100% isn’t huge

        if it was HAP tenants wouldn’t have the problems they have trying to rent when landlords are opting for private tenants ahead of them

        “Once your on the property owning side of the housing mess equation the view is very rosy indeed. This will keep FG elected”

        People need to get out of the mindset that if you own a property you’re well off, such short memories, and the maths, tax burdens and cash flow doesn’t stack up for many people

        1. Yeah, Ok

          Owning property is still the only way to build wealth in Ireland because of our ludicrous taxes on other investments. Until that is sorted people will continue to speculate on property. It perpetuates the situation we have now.

  3. b

    Rents are at their highest but prices are also getting back to a point where many ‘accidental’ landlords and small time overborrowed landlords are tempted to get out of the property market they’ve had a bad experience in. There is certainly anecdotal evidence of landlords ending tenancies to sell up and also larger REITs taking more apartments so it’s not quiet a myth that they are leaving the market or moving to airbnb where the money is easier.

    1. martco

      well I’ve def noticed a load more for sale boards going up recently

      This is prob the time…between now and wherever the edge of the cliff is for those with the money to be making even more money just buying and flipping the properties

      dysfunctional world

  4. TheRichList

    I’m a landlord and I don’t have an allergy to paying in tax. I end up paying 50% of the rental income in tax so even though the rent is well covering the mortgage, I break even at the end of the year. Tax returns are due soon, fun times.

    1. Brother Barnabas

      Well then you’re doing in wrong. If there’s an outstanding mortgage, you shouldn’t be paying 50% on the total income.

      1. b

        rental income is the taxable portion so he’s right

        you take the rent you receive and deduct any expenses management fees etc and 75% of your mortgage income and you have to pay the tax on that figure at your marginal rate

        so while the mortgage may be covered, you’re still writing a big cheque to revenue whether you’re allergic or not

        1. Brother Barnabas

          Rental income is the total rent received, not the taxable portion.

          Mortgage interest relief is 80%.

          Don’t ever contradict me again. Ever.

          1. b

            well i should have specified it was net rental income (though i did explain it was rental income minus expenses)

            but let’s quote the revenue website “You pay tax on your net rental income. This is the total rental income minus your total rental expenses.”

    2. scottser

      Sign up to HAP or RAS with your council. You can even lease it long term 20 years if you want. You’d have the mortgage paid off and you’ll have paid buttons for your property in that time.

    3. Gorev Mahagut

      I don’t understand this. If your mortgage is being paid every month then, month by month, you owe less to the bank and you’re closer to outright ownership of the property. At the end of the year your net wealth has increased. You’re not breaking even, you’re getting wealthier. Or am I missing something?

      1. BobbyJ

        You’re spot on.

        The problem is that a lot of Irish landlords think that they should not only have their mortgage paid for them but that they should also have a nice few pound in their back pocket each month. Crazy mentality.

      2. b

        You’re right on a purely financial look at it, it’s a long term investment that could be paid off before you retire and provide you with an income then.

        But if its not an investment you planned on that basis alot of people really don’t like the risk and stress of dealing with tenants, sweating another crash, impeding your ability to get a mortgage on a family home (that’s a key point). Also it’s an investment that needs cash flow, you have to pay cash for your tax liability and any improvements for example. You don’t feel wealthier and there is downside risk, at certain times in the cycle its going to be an illiquid asset that needs investment.

        1. Gorev Mahagut

          It’s tough alright, that is my point. Businesses can go sour and sometimes you need to cut your losses and get out. But what do you propose? We could bring in all sorts of tax reliefs to help the “accidental landlord” but it’s well-known that this kind of protectionism creates a distorted, inefficient market and the poor end up paying the price – a heavier price than they pay now. Rent caps would keep property prices down and stop wild fluctuations in house prices, stopping people getting trapped by negative equity when they need to move or trade up. But the accidental landlords (who claim to be victims of these fluctuations) are the very people fighting against this, on no better argument than the sunken-cost fallacy. Meanwhile, they are the smokescreen behind which the vulture funds hide. And the poor suffer what they must.

      1. Col

        I know. It’s frightening though. Some people think they’re getting wealthier because the price of their house is higher than they paid.
        I just didn’t think we’d end up back here. At least not so fast. I don’t know what I can do.

      2. martco

        I think there’s another good bit to go before troubles arrive…,.don’t think we’ve got to the bit yet where people are buying off line drawings and Jamie & Louise Redknapp are in town

        1. Boj

          I’ve seen some staggering queues around the new Adamstown areas and at their ‘marketing suite’. No doubt people are buying off the plans already.

  5. Fact Checker

    No empircal support for the view that private landlords are leaving the market. The only reliable data on this comes from the Census.

    Numbers of private rented dwellings.
    2011: 305,377
    2016: 309,728

    +1.4% over five years.

    That said, 2016 was a period of substantially higher demand for rentals, so vacancies resulting from in-between lettings (aka voids) would have been lower.

    So a reasonable conclusion is probably that there was no change over the five-year period.

    1. Cian

      According to RTB Annual Report 2016, for 2015 & 2016 we ha
      Total number of tenancies 319,609 325,372 +1.80%
      Number of landlords 170,282 175,250 +2.92%
      There were 1.8% more tenancies in 2016, but 2.92% more landlords!

  6. mikier

    Do tell Brother Baarnabas, I am also an accidental landlord and in the same boat as TheRichList. After you pay your mortgage, which is not tax deductible – only 80% of the interest is (which can be fairly low), you really don’t come out with much after all is added up.

    I don’t see apartment prices going back to 2006 levels, I would sell up if I could but I am in such negative equity it’s pointless. It appears that people don’t want to live in apartments outside the city centre and everyone who does wants a 3 bed house semi-d with a garden – which is fair enough but if I put my apartment up for sale there is little interest, unlike in the last boom where it would be snapped up – I just don’t see this happening as people don’t want apartments for the most part.

    1. Brother Barnabas

      I wasn’t suggesting landlords are making a financial killing – I know that’s not the case for the most part (although REITs most certainly are). All I was doing was correcting a statement that a landlord had to pay 50% tax on rental income, which isn’t the case.

    2. Gorev Mahagut

      “After you pay your mortgage… you really don’t come out with much after all is added up.”
      But you pay your mortgage: you owe less, you are closer to outright ownership of the property, i.e. you’re getting wealthier.

      How did you become an accidental landlord? You buy an apartment, you don’t want to live in it, you don’t want to do the work of being a landlord (and it is work). You think it’s just going to give you free money every month and you get upset because you were wrong about that.

      By your own account have somewhere to live, you have a mortgage on an additional property, said debt is being paid (i.e. you’re getting richer), and on this basis you appeal for sympathy? Either I’m missing something or you’re insane.

      1. mikier

        I became an accidental landlord as I moved to a larger home and the apartment I bought was in 200k negative equity 5 years ago when I moved, so I held onto it as no one wants to buy it. Plenty of people in the same boat but get treated as if we are some kind vulture fund. Majority of accidental landlords would get out once they can cover themselves for what remains on the mortgage.

        I never said I wanted sympathy. I don’t make a profit after tax but yes the asset is being paid off. Personally I would like to get the hell out of it as you say it’s hard work but I can’t afford to take the hit. People, maybe rightly, don’t want to live in apartments, my point is the market is nowhere near what it was back in the last boom for apartments so I was making an observation that it appears everyone now wants a house from my experience of trying to sell.

  7. Joe Small

    I bought a year ago after spending a year looking and felt I’d left it to late. Its painful to see unsustainable double digit growth – its not in anyone’s long-term interest.
    It seems the damage was really done back in 2012 when nothing was done to stimulate a dead market. These things need several years run-in time. If you try build a lot of houses quickly, you’ll overheat the economy and house quality will inevitably suffer. No easy answers at this stage.

      1. Fact Checker

        That policy was pretty much adopted in the boom time, or toward the end, when tens of thousands of new apartments were being built every year.

        No one though the removal of a number in the low thousands would make a difference.

        1. Cian

          it was a typical Irish solution to an Irish problem.
          Granted some of the bedsits were hovels – but rather than enforce the minimum standards that existed at the time, and improve the bedsits to a acceptable level, new ‘higher’ standards were introduced – one of which was the removal of bedsits.
          These new standards aren’t enforced either, so there are still landlords renting out hovels. :-(

  8. Mark Mywords

    Eoghan Murphy has publicly stated that he thinks we need to “look at new measures to support and/or encourage us.. i mean landlords”.

    It feels like our government are 50% self-serving, 50% inaction. Housing crisis along with anything else going wrong in the country, is met with TD’s telling the press that they are ‘committed to solving this” and then nothing is done. then when they do something, it’s with their interests in mind and not the country’s. incredibly frustrating. once you get into the Dail, it seems like its your retirement already, you dont have to do anything, just a few taglines for the press, then home before lunch. do that for a few years and retire on ridiculous pensions. it also seems this will never ever change.

  9. Catherinecostelloe

    Surely its not a good time to buy? I saw a property 325,000euro about 6 years ago. It sold 200,000…. If put on market today would stay region of 200,000. Bubbles burst and its only shortage that’s inflating house prices .

    1. Col

      But there’s also the problem of rental prices. If a renting couple have a baby and need more space, they will face the highest rents in the history of the state (not everyone can move back in with their parents).
      That’s not sustainable in the long run.

    2. Rob_G

      If you like the property, you see yourself staying there a few years, and you can afford the repayments, it’s a good time to buy. House prices going up and down doesn’t really matter; after 20 years, your property will end up being worth more than you paid for it, anyway.

      1. Nigel

        A lot of people were told negative equity didn”t matter then got stuck with mortgages they couldn’t afford on houses they couldn’t sell.

        1. Rob_G

          Like I said, it doesn’t matter unless you are planning on selling.

          If you ended up “stuck with a mortgage you couldn’t afford” – well, that could only really come about through losing your job, which is a whole other problem in and of itself.

          1. Nigel

            Yeah but lots of people losing their jobs and lots of houses going into negative equity were pretty much simultaneous, so it’s not a good idea to think of them as completely separate phenomena.

          2. Rob_G

            True.

            If you buy a house, there is a chance that you will end up in negative equity, but most of the time, this is not the case, and you end up with (positive) equity.

            If you don’t buy a house and rent instead, you have zero risk of ending up in negative equity, but you also forego the chance to build up equity.

            If you end up losing your job (and can’t find another one right away), you are going to be in trouble eventually, whether you are renting or buying. Historically, buying a property to live in for 10 or 20 or 30 years is generally safe bet, and it still is.

  10. nellyb

    Affordable, convenient and not too long commute would have alleviated some of the problems. At least in Dublin.
    Well connected public transport infrastructure would have made apartment living outside city centre quite attractive for a section of population. As it stands, renters who can’t afford city centre prices are in catch 22 situation – they can rent in outskirts, but then they have to face monthly cost of car loan, recurring cost of car insurance, road tax, nct and fuel. Public transport is poor even within Dublin post codes. Once you get into Co.Dublin and beyond – it’s pretty much infrastructural wilderness.
    This is not a rocket science, it’s bloody damn obvious. Why this has not been addressed over the past 20+ years? Probably because decision makers aren’t personally exposed to the pain of your average Joe, Dublin or elsewhere.
    Dublin needs metro, compulsory land purchases and intelligent planning. None of this features in Irish Times.

    1. Cian

      Are you really trying to say that there has been no investment in transport infrastructure in the last 20 years?
      rail investment since 1997:
      – 2000 DART extended to Greystones & Malahide
      – 2004 Iarnród Éireann placed orders for 200+ carriages/engines
      – 2004 Luas opened + additional spurs in 2009, 2010, 2011
      – 2007 Docklands railway station opened
      – 2009 commuter trains began to run from Mallow to Cork
      – 2010 services began from Dunboyne to Dublin Docklands

      1. Hansel

        2009 commuter trains began to run from Mallow to Cork: think you mean Midleton here? A great service, a shame they haven’t yet done similar on the north side of the tunnel: the money simply ran out before they could do Monard and Rathpeacon.
        It’s been shameful that it resulted in land hoarding around the line, particularly in Carrigtwohill, though.

      2. nellyb

        “that there has been no investment in transport infrastructure in the last 20 years” – that’s what YOU are saying. We’ve also invested a lot into HSE, invested a lot into Irish Water – need I continue?
        Dublin network is mostly star shaped, anything between the axes is patchy if exist at all, especially beyond M50 ring. It forces people to travel to city centre and backward along the axises. Blanch, Mulhuddart – name a few – them type of places are inefficiently/insufficiently served. But obviously that is an unfamiliar situation to you. It is not an insurmountable problem, all it needs is a bit of care and a bit of planning, there is plenty of engineers around.
        It’s bewildering you can’t make the inference yourself. Sheltered life? Congrats.

  11. Kolmo

    What about making all mortgages – non-recourse mortgages – if the arse falls out of the market and the value of the asset collapses or reduces, then the amount owed reflects the current reduced market value, this would stop banks adding petrol to the fire like they are doing now and it’ll free people to sell the assets off quicker instead of jailing them in the mind-melt horror of negative equity until the bubble returns, reducing the accidental/involuntary landlord situation and all that mess, freeing up properties to sell, thus eventually stabilising the ‘market’. The banks won’t like it, but they ain’t your friend.

    1. Rob_G

      If you think saving for a deposit is difficult now, it would be even more difficult if you had to provide a 50% deposit under the system you are proposing.

      1. martco

        re. that point it’s all down to what we want as a society type question, isn’t it? Is personal property (the family home) to be viewed as:

        a) a commodity/asset for trading like its shares in Ryanair
        or
        b) a home for living in

        so in the tax system the rules it’s not consistent…for many it’s a + b above but yet no tax on the profits made

        what would happen if the profits on the “family home” got taxed I wonder?

      2. Kolmo

        Why 50%? There would be less market based risk if the short-term bubble incentive is removed/reduced, currently it is inevitable that a shock will kill the market and we are only paying 10-15% of a deposit..

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