Exodus of small landlords from the market has been greatly exaggerated

There was a great deal of noise in the run-up to the last budget about the exodus of small landlords from the market and reasons for their departure.

The Society of Chartered Surveyors got in early last spring warning that 40 per cent of sales in the final three months of 2022 involved landlords selling investment properties; squeezed out by rent controls and the tax burden.

The Irish Property Owners Association called for a reduction in the tax paid on rental income to halt the exit of smaller landlords from the rental market. They cited a report by estate agent Sherry FitzGerald which said the exit of landlords reduced the number of available tenancies by nearly 22,000 between 2016 and 2020.

Focus Ireland and Chartered Accountants Ireland added their voices to the chorus calling on the Government to introduce a raft of tax measures in the budget to encourage small landlords to stay in the rental market and ease the housing crisis.

Continued housing demand boosts Glenveagh with 2,700 homes to be delivered this year

---

The Irish Times view on the latest data on the rental market: the crisis rumbles on

---

Housing is the missing link in the debate about immigration

---

Rents for new tenancies increase twice as fast in areas outside Dublin

---

The Government response, when it came in October, was a little underwhelming: a very modest amount of income tax relief on rental income was introduced temporarily. It is worth €600 to a landlord in 2024 rising to €1,000 in 2026 and 2027.

The measure — estimated to cost the exchequer €160 million next year — is not to be sneezed at. But it is unlikely to make much of a difference to someone seriously considering selling their rental property. It was a minimalist response in the face of the warnings about an exit of biblical proportions.

It now appears that, either by accident or design, Minster for Finance Michael McGrath might have called it correctly.

This week the Residential Tenancy Board published its Rental Sector Survey. It explores the views of small landlords — defined as having one or two properties — in some depth and was carried out in 2022 by Amárach. It followed a similar exercise carried out in 2019/2020.

It took the form of a nationally representative telephone survey of 500 small landlords. Only 9 per cent of small landlords said they were very likely to leave the market in the next 12 months, with another 6 per cent saying they were likely to leave. The percentage of landlords who were unlikely or very unlikely to leave was 81 per cent.

It also found that of those who wanted to leave, less than half (45 per cent) gave the high rate of tax charged on rental income as a reason. A similar number (45 per cent) cited the fact that it was not profitable to be a landlord. Respondents could give more than one answer and it’s reasonable to assume there is a lot of overlap between these two responses. The most common response was that they didn’t want to be a landlord any more.

Of the 15 per cent who said they were likely or very likely to sell only a quarter had taken any sort of action to actually put the property on the market. The most common action was to get the property valued, which estate agents tend to do for free. One quarter of 15 per cent is less that 4 per cent and amounts to a pretty small proportion of landlords. It’s certainly not an exodus.

What people say and what people do are, of course, two different things. As well as current landlords, the survey spoke to 100 small landlords “who had left the sector”. Most of them had only a single property to let and 40 per cent of them were in Dublin. When asked for the reasons why they sold, the most common answer was simply that they no longer wished to be a landlord (60 per cent) followed by taxation (51 per cent) and unprofitability (49 per cent).

But the really interesting thing is that when they were asked what would have stopped them selling their property, just under half said nothing would have stopped them because they wanted to sell for personal reasons. Some 44 per cent said they would have considered not selling if they had to pay less tax and 29 per cent if there was less regulation. Again, they could give more than one reason. This throws some further shade on the notion that the “exodus” is driven by a lack of financial viability.

Another interesting finding was that more than half of the landlords who sold had bought their properties in the period between 2001 and 2007, as the Celtic Tiger roared. In comparison, only 12 per cent of those who bought before 2000 sold.

This implies that half of selling landlords are likely to have availed of interest-only mortgages and other sources of cheap money in the early noughties to chase the booming market. They are also the most likely cohort to have found themselves up to their neck in negative equity when the market crashed.

Many of them might only have crawled back into positive equity in the last few years, just as their interest-only mortgages expired. You would suspect that having had all the fun they could stand in the rental market, there is little the Government could have done to keep them in.

As for the majority of small landlords, it doesn’t look like they are going anywhere fast. And the €600 being thrown their way by the Minister for Finance might suffice to assuage those talking of selling — but doing little about it — to stay put.