Rundale

By Maedhbh Nic Lochlainn

‘There is nothing wrong with vulture funds… They perform a valuable service when banks need to unload a lot of debt off their books. But we are the opposite of a vulture fund. We are in Ireland for the very, very long term’ – then IRES REIT CEO David Ehrlich in The Irish Times in 2017.

Ireland’s private rental sector has changed in a number of ways in the decade since the 2007/08 financial crisis. Firstly, and perhaps most painfully, it’s gotten significantly more expensive, with average rents climbing sharply and quickly since 2010. Secondly, there’s been a noticeable increase in the amount of policy reforms that successive governments have deployed, at least in part in an attempt to grapple with spiralling rents and a lack of secure tenancy. These have included increased standardisation and regulation of tenancy registration, the introduction of rent pressure zones in which rent increases are capped,  quicker access to part IV tenancy protections, and the extension of rent review and notice of termination of tenancy periods. In some respects, these revisions to national policy have been rolled out in response to and on top of a pervasive culture of dysfunction and non-compliance, as well as exclusions and informality for student and migrant tenants in particular. The impacts of these policy reforms have in many ways been underwhelming, and there are persistent and major issues with the affordability, availability, and security of tenure in Ireland’s private rental sector.

An area where policy intervention has been somewhat lacking is in a third key change in the sector since then 2007/08 crash, and that is the arrival and expansion of institutional investment in Ireland’s private rental market. The post-crash period has seen the arrival of global capital seeking to make a profit in Ireland’s rental market, with non-household purchasers of property rising from 3.6% to 22% of residential property purchases and from 15.5% to 48% of residential landlord purchases between 2010 and 2017.  In this piece, I want to explain how institutional investment in the private rental sector is impacting Dublin and make the case for more direct regulation of the corporate landlords who are profiting from our dysfunctional housing system.

When and how did corporate landlords come to town?

Small-scale landlords make up the majority of the Irish rental market, with over 80% of registered landlords owning 1-2 properties. Prior to the 2007/08 crash, institutional investment in the private rental sector was marginal, and a combination of tax incentives and Irish banks’ access to lower cost credit following entry into the eurozone helped to shape a system of small-scale landlord investment and ownership, with buy-to-let properties operating as a form of unequally distributed asset-based welfare for small-scale landlords. In the aftermath of the 2007/08 crash, the Irish property market stalled and one of the state’s main responses to this was the 2009 establishment of the National Asset Management Agency (NAMA) ‘to deal expeditiously with non-performing property loans acquired from Irish banks’.

In practice, this meant that commercial, residential, and development land holdings were taken under ownership and then sold on at a discount. This process of disposing of ‘distressed’ debt drew institutional investment to Dublin, with global investors using the city as a landing point for property portfolio sales, acquisitions, and consolidation. Many of the largest corporate landlords who are currently active in Ireland arrived either directly or indirectly through their involvement in the buying and selling of distressed real estate assets, which I’ve elsewhere described as proceeding in three main phases of early movement (2012-2014), later arrivals (2015-2019), and a jostling for position and expansion (2019-).

While the majority of Irish tenancies involve small scale landlords, corporate landlords’ share of the rental market has been increasing, but is highly unevenly distributed, with a national focus on Dublin and an uneven geography within the city. Corporate landlords tend to acquire or sometimes build large-scale apartment developments in specific locations, with the number of units sometimes representing a significant chunk of the local rental market. As of 2019, RTB data indicated that there were 12 Local Electoral Areas in Dublin where corporate landlords held a fifth or more of all PRS tenancies. This was noted as an object of concern in a 2019 Department of Finance report, which described how, while corporate landlords accounted for less than 5% of all tenancies, in Dublin ‘some localities have professional ownership rates far in excess of the county average’ which ‘may bestow rent-setting power to an individual or group of firms’.

Successive national governments have focused on the rental sector as a key area for reform in housing policy, although the narratives about how to do this have varied. The 2016 Rebuilding Ireland Action Plan issued a ‘strategy for the rental sector’ aimed at addressing ‘the supply/demand mismatch and the associated affordability challenge’, while the 2021 Housing for All – a New Housing Plan for Ireland, which introduced cost rental pilot schemes, conspicuously does not include the rental sector as one of its ‘four pathways to achieving housing for all’.

Notably, Rebuilding Ireland’s recommendations for improving the private rental sector quite specifically set out that the delivery and supply of units at affordable rents as a key challenge, with a need to ‘encourage “build to rent”’ investment to do this. In practice, supply and affordability have remained stubbornly misaligned, despite government downgrading of building specifications for build-to-rent units and the fast-tracking of planning applications for large-scale developments (which has been criticised as a de-democratisation of the planning system).

Why size matters – and should matter – in regulating private rental

Importantly, this emphasis on adding supply, encouraging large-scale residential developments, and bridging what investors and developers describe as a ‘viability gap’ in delivering housing units already proceeds from a position in which size matters – but this is almost always tied into an argument about the supply-side of housing and the perceived benefits of the ‘professionalisation’ of the rental sector through corporate landlord involvement. The extent to which the ‘professionalisation’ of the private rental sector has actually happened for corporate landlord tenants has been questioned, as has the extent to which increasing the supply of rental housing units has had any impact on affordability, with, for example, 2-bed apartments in Kennedy Wilson’s newly built Clancy Quay development being advertised for €2,495 per month.

Size has also been understood as mattering in some sense when considering the sale and purchasing of new housing units, with policy amendments around bulk purchasing serving as a useful first step in recognising that institutional investors and corporate landlords behave and should be treated differently to household purchasers.  We also treat size as something that matters when it comes to landlords selling more than 10 units in a single development at the same time, although this ‘Tyrrelstown Amendment’ leaves open some major loopholes around market value and whether the landlord will experience the lack of terminating a tenancy as ‘unduly onerous’ or causing them ‘undue hardship’. This is an example of how many of our regulations around tenancies are to do with the landlord’s intentions and their property rights as owners, which often trump the tenant’s rights as a renter and are difficult to contest, as was recently noted in an issue of Mick Byrne’s excellent The Week in Housing newsletter.

There’s much less engagement with the idea that size should matter when regulating landlord-tenant relations. This is a problem because corporate landlord tenants face some additional barriers that tenants of small-scale landlords aren’t as affected by, and particularly when it comes to trying to assert their rights. This is not to say that the tenants of small-scale landlords have an easier time of it when trying to manage what are often uneven and practically and emotionally difficult landlord-tenant relations (more on this here). Instead, the point is that we could and should be doing more to address how corporate landlords are empowered by our current private rental sector regulatory framework.

As the majority of private rental sector tenancies in Ireland involve small scale landlords and we’ve had little to no historic corporate landlord investment, the regulations that govern the sector have been developed with this context in mind.  The tenants of corporate landlords face a number of specific challenges within our current regulatory system, and are particularly negatively impacted when it comes to the calculation of market rent, the conflict between asset management and housing affordability, and the uneven power of arbitration at the RTB (which I’ve discussed in more detail elsewhere).

The setting and stretching of market rent is particularly important here, because corporate landlords operate on a scale that gives them the de facto ability to decide what market rent is or ought to be. Although rent controls limit the amount and frequency of rent increases, ‘comparable dwellings’ are used when carrying out rent reviews. For a rent increase to be valid, the landlord must show that the rent increase is proportional to market rent for 3 comparable dwellings – because corporate landlords tend to acquire or own apartment buildings or complexes, this gives them significant control over what market rent will be in a given area.

For newly-built developments, market rent is essentially performed as what the corporate landlord decides that the rent should be, which is typically higher than rents being paid in existing tenancies in the area. Cumulatively, this means that the market rent for an area can be dragged up by corporate landlord investment, and this creates uneven rent surfaces across the city which contribute to spatial segregation and fine-grained socio-spatial inequalities.

This process of dragging up rents is a key part of corporate landlords’ business models, and their tenants are often facing up against a well-oiled machine that churns out steadily spiralling rents. One west Dublin development that I’ve conducted research on had seen 40-54% increases in market rents from 2014 to 2019. Disputes between corporate landlords and their tenants at the Residential Tenancies Board often see a head-on David and Goliath style struggle, with corporate landlords navigating the case-by-case adjudication of the RTB in a professional and sometimes ‘in-bulk’ way.

What can be done?

What’s happening in Dublin is not unique to the city, and this dynamic of post-crash private rental sector restructuring is playing out in lots of other places. One of the best interventions that I’ve seen on the subject has been Renee Tapp and Richard Peisier’s call for an anti-trust framework for housing, which recognises that ‘the consolidation of rental housing units into a few hands has negatively impacted low-income tenants, who, in the absence of a competitive market, are subject to anticompetitive effects like collusion, monopoly pricing, and eviction’. Adopting an anti-trust framework means regulating the extent to which private companies can have a controlling market share (which we should be concerned about at national and local scales) and diluting the concentrated power that investors build when pulling together a portfolio.

Here, Dublin could look to Berlin and the campaign to expropriate properties from landlords owning more than 3,000 units as an inspiring example of the scales of action that are needed. Closer to home, we could explore legal restrictions around the setting of market rent as a way of pushing corporate landlords toward a cost rental model, in which the rents that tenants pay are directly connected to the cost of building, managing, and maintaining the properties that they’re living in. Changing how we think about and regulate the setting of rents is particularly important if we’re being pushed to accept that corporate landlords are here to stay for the very, very long term, as IRES-REIT’s former CEO suggested. In other words, if we’re going to be living with this growing industry, we need to think critically about how it should be regulated.

In the absence of serious consideration about applying anti-trust protections to housing markets at local, national, and international scales, there’s a need for wider and better understanding of institutional investment in residential housing. Excellent work is being done on this area – I particularly recommend that you check out the Cities for Rent joint investigative journalism project (which the excellent Dublin Inquirer was part of), Desiree Fields and Manon Vergerio’s work on corporate landlords and market power, and this write-up of Copenhagen’s struggles against Blackstone. There’s a need for further media, academic, and activist collaboration to continue to tell (and hopefully change) this story.