What is really causing landlords to leave the Irish rental market?

The departure of private landlords from the rental market in Ireland has become a controversial central point in the housing debate. But what can we tell from the data about how many landlords are selling up, who they are and why they are leaving? And what does this all mean for the stock of properties for people to rent?

1. Landlords leaving – a drift away accelerating

The departure of private landlords from the rental market is not new, though it is speeding up. Figures produced by Sherry FitzGerald, the State’s largest estate agent, drawn from their own house sales factored up for the market as a whole, estimate that since 2013 there has been a net outflow of more than 80,600 properties from the private rental market, made up of almost 156,000 sales of such properties and just less than 75,400 purchases of investment properties.

The net outflow in 2021 and 2022 alone is estimated at around 24,800 as seller numbers, in particular, escalated. This is houses bought and sold in the market - it does not count new build-to-rent properties.

This data is interesting as it gives a sense of the balance between buyers and sellers in the private rental market. Other figures back-up the decline in the overall number of tenancies and landlords.

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Data from the Rental Tenancies Board (RTB) points in the same direction, though is calculated from a slightly different perspective. It shows a decline of almost 43,400 in total tenancies from 2017 to the end of 2021 (if we assume the same pace of departure in 2022 as 2021, this would bring the total to around 56,000).

Figures for the third quarter of last year suggest that the 2022 figure could, in fact, be substantially higher. They showed that the RTB had been informed of 47,400 notices of termination landlords in 28,450 of these the stated reason was an intention to sell the property. The RTB data would also be affected by registration of build-to-rent tenancies, so the drop off of private investors would be greater.

Finally a different series from the Central Statistics Office, using RTB and other data, estimates a loss of 64,000 rental tenancies offered by private landlords between 2017 and 2021 – this is different from the RTB data as it counts just private individuals and not companies offering new build-to-rent apartments. It shows that, in the same period, around 13,500 landlords left the market (among these were obviously some selling multiple properties).

Meanwhile companies - including BTR landlords and a few other big players - grew their tenancy holdings to around 25,000 by 2020.

So, while some of the figures are slightly out-of-date, a clear picture is emerging. Private landlords are exiting at an accelerating rate. Build-to-rent (BTR) players have filled some of this gap. But total private tenancies and landlord number are falling and this trend looks to have accelerated last year.

It looks like private tenancies fell by around 14 per cent between 2016/2017 and 2021 and the decline accelerated further last year. Might the drop now be approaching 20 per cent? And this has been through a period when the workforce and the population has expanded, pushing up demand for rental property.

2. The impact on rental supply

Landlords could sell to a range of buyers – owner occupiers, local authorities, approved housing bodies or other landlords. All have a different impact on the market – a sale to owner occupiers increases the stock of supply in the second hand home market but cuts rental supply.

Local authorities can add it to their rental stock. Landlords can rent it out again, maintaining rental stock.

In a market so starved of supply – in the rental and second-hand home sector – who existing landlords sell to obviously matters. There are no precise figures on this, but the RTB data on the number of tenancies indicates that most of the properties being sold are not staying in the rental market.

The historically low level of availability of rental properties in the Daft surveys points firmly in the same direction – just 1,100 properties were listed on Daft in February, 22 per cent down on a year earlier and way below historical norms.

A number of estate agents say that landlord sales typically go to owner occupiers. One reason why landlords have been slow to expand their portfolio by buying from other landlords is that the rental pressure zone (RPZ) rules means that they generally will not be able to increase the rent.

The RPZs have created a two-tier market. Daft figures show that over the past decade rents for sitting tenants have increased by 2.9 per cent per annum, compared to 7.1 per cent for those looking for new tenancies. Rents for sitting tenants – depending on how long they have been in situ – can easily be €500 to €600 per month below new rental levels.

So it appears that most of the landlord properties sold have gone to increase the housing stock in the owner occupier market and decrease it in the rental market. In either case someone has a roof over their head, of course. Despite this, the second hand housing market is also chronically short of supply.

The final piece in the equation is the shortage of new housing supply in all areas of the market. And combined with the RPZ rules, there is a huge incentive for renters to stay put rather than move to another tenancy, where they may face much higher rent.

3. Why are landlords leaving?

There has been much coverage around the purported reasons why landlords are leaving. Landlords complain about the regulatory burden and the limitation of the RPZs and eviction bans. Others argue that landlord sales are to cash in on current high property prices.

What does the data tell us? The CSO’s release on landlords in 2021 showed that out of 157,000 landlords, 135,000 owned one or two properties. These small landlords account for well over half of all tenancies, so they are vital players.

While the income figures in this release related to 2019, it showed private landlords had average (median) income of €50,000 and average rental income of €15,000. Only one in five relied on rent as their main source of income. Not surprisingly, incomes exceeded €200,000 on average for a small group of private landlords (around 400) who owned over 20 properties.

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So there are a large number of small landlords who work either in the PAYE sector or are self-employed, or retired. And a small number of large landlords who have significant holdings. One finding of RTB research is a lack of ambition among a group of medium-sized players to professionalise and move into the large landlord category.

The RTB research, published in 2021 and based on survey data, gives some insight into the smaller landlords. Unlike the larger players, smaller landlords are more likely to be “accidental” – in other words they originally bought the property as somewhere to live. More than half smaller landlords and 70 per cent of younger ones fall into this category.

Meanwhile, as close to six out of ten of the smaller landlords surveyed bought property in the 2000 to 2010 period, it is likely that many ended up in negative equity. Rather than selling as they moved on – for many presumably after meeting a partner - they rented out the property.

There was also an older group of investor landlords in this category who had bought with a buy-to-let property. Many of these were attracted into the market by generous government tax incentives during the Celtic Tiger years – some of which created useful supply but much of which led to development which was ill-planned.

At the time one-in-four said they would consider selling an investment property over the next five years. Most reported that they were happy with tenants and a survey of those who had sold suggested that dissatisfaction with the financial return compared to the effort involved was a key driver.

We might speculate that the increase in landlords selling since then reflects the accidental landlords now being out of negative equity and the older group of smaller landlords retiring.

Both will have been influenced on one side by higher regulation and constraints on rents and evictions and on the other by a strong rental market. The RTB research shows that, pre -2021 – many sold because they don’t want to be a landlord any more, rather than a specific reason relating to financial return or regulation. This may have changed in the meantime. But whatever the precise reason, the impact is a reduction in rental properties.

4. The policy implications

The obvious policy point is the requirement for new supply in the market – whether from new builds, vacant property being redone, redeveloping commercial property or whatever.

The Government is also reportedly considering how to incentivise private landlords to stay in the market – targeting an intervention to make a difference is not clear-cut. And there is talk of restrictions on the sale of rental property, with first refusal to the tenant or a local housing body.

This may all be worth looking at, but what policymakers also need to consider is how they would affect the decisions of current and potential landlords.

Rental policy has also led to unintended consequences – above all the Government needs to decide what kind of rental market it wants and central to this is a call on what role smaller private landlords will play in it.