A spiral out of control

Global real estate funds, rental crisis & government policy

Rory Hearne11/11/2016

The Minister for Housing, Simon Coveney, indicated yesterday that he is not going to introduce rent regulation/certainty as it might deter the ‘supply’ of private rental accommodation. This shows that it is the new Irish landlords – the wealthy global real estate funds – that are influencing housing policy and not the needs of the hundreds of thousands of tenants facing spiraling rents and evictions.

The current housing crisis is not an accident. It is a direct result from the particular strategy for economic recovery pursued by successive Irish governments in response to the 2008 property and financial crash.

These policies have focused on demonstrating to the international markets that Ireland’s banking and property crash has been solved through, firstly, Ireland’s bad bank, NAMA, being a ‘success’ and ‘wound up early’, and secondly by the Irish banks bank becoming profitable again.

This strategy required two things – a re-inflation of Irish property prices (rental, in particular, and government indicated support for future increases in property prices and rents) and the attraction in of international property investors and vulture funds to buy up the toxic loans and assets off NAMA and the Irish banks.

All other issues – particularly the impact on Irish housing and its affordability for citizens – was not given a priority in policy. The ‘economy’ came first. And yet this approach has left us with a housing crisis which is a social emergency with major economic implications.

NAMA has been the government’s key vehicle to attracting in international investment by selling off key residential and development land assets at knock down prices. But they also sold key residential property on the basis of future rising rents and prices.

The other key measure introduced by government to attract in international property investment funds was the low tax regime for Real Estate Investment Trusts operating in Ireland. In 2013 Michael Noonan made rental profits arising in a REIT are exempt from Corporation Tax. This was on top of other existing tax avoidance and reduction loopholes available to investors (such as the Section 110).

As the housing crisis developed and worsened in 2014 and 2015 the government found another major argument in defence of this approach. According to government these new REIT investors and international global property funds would play a major role in addressing the ‘supply’ crisis in the private rental sector.

But the problem with that approach is that this particular investor is seeking high returns – which requires high rents – which means policies to keep rent affordable, such as rent regulation, are not seen favourably by them. And this is what we have seen happen.

In the run up to last year’s budget it was reported that there was a possibility of rent regulation (linking rent increases to inflation) and increasing security of tenure being implemented. However, following intense lobbying by one of Ireland’s newest and largest landlords, US real estate fund Kennedy Wilson, the government instead introduced the two year rent freeze which has done little to stem the rising rents.

In a letter to Minister Noonan on September 30 2015, the Kennedy Wilson Europe managing director Peter Collins wrote: “Investors and their funding banks will see the new proposed regime (some form of rent certainty) negatively . This will certainly limit and, potentially eliminate, future investment.”
From the government’s perspective, their policy is working in attracting in big investors.

Michael Noonan, speaking at the homeless and housing committee in April this year explained,
“This intervention (the favourable tax regime for REITs) has been successful in encouraging large scale investment into the commercial and residential property markets. There are currently three REITs operating in Ireland - Green REIT plc, I-RES REIT plc and Hibernia REIT plc. With subsequent rounds of capital raising since flotation, it is estimated that the market capitalisation of the three REITs is now approximately €2.3 billion. I-RESREIT plc, which is purely focused on the residential market, has a property portfolio consisting of 2,087 apartments.”

In 2011, Ireland had one landlord with more than 400 properties, and now there are five. There are two REITs amongst Ireland’s biggest 20 landlords. There has been a 27 percent increase since 2011 in landlords with 20 or more tenancies since 2011 (926, up from 730).

These big investors are making major profits from Ireland’s housing crisis. Kennedy Wilson started investing in Ireland after the crash and now has €2bn of assets in Ireland. They say “Dublin is the most attractive property market in Europe”. They paid no tax on their profits in Ireland in 2015. Its rental income here rose to £19m from £13.9m. Kennedy Wilson is now one of Ireland’s biggest landlords as it has over 1000 rental units.

Irish Residential Properties REIT (Ires) generated net income of €5.5 million between July and the end of September 2016. This compares to €3.6 million for the same period last year, a gain of 53 per cent. They explain that the current housing crisis, with a “deep imbalance between demand and supply in Dublin’s housing market” means their profit outlook is “very positive.”

And global wealth funds from across the world are looking at Ireland, and Dublin’s property, in particular as a potential site for investment. The Price Water House Cooper Europe 2017 Emerging Trends in Real Estate report, also shows how government policy has been successful in making Irish private rental property an attractive global asset. The Report notes that “REITs are seen as good investment”. And the PRS (private rental sector) is a “compelling opportunity because of the limitless demand.” And in particular, cities like Dublin are seen as good investment locations:

“One of the biggest changes is the way that residential is now viewed by institutional investors and their desire to have at least part of their portfolio in this sector. In addition to established multi-family markets in Germany, Denmark, Sweden and the Netherlands, an institutionally backed build-to-rent, or private rented sector (PRS), is beginning in Ireland”.

One US investor described the attractiveness of investing in the private rental sector in Dublin:
The PRS in Dublin is a home run,” he said.

The Report stated that equity is flowing into Europe “from all corners of the globe and all types of investors” and “residential is on the radar and is undervalued because it gives long-term, stable returns.

I have shown here how successive government policy has lead to a deeper financialisation (commodification) of Irish housing and the attraction of investors who expect high returns and thus high rents and low levels of tenant’s rights. This is a disaster for the provision of affordable housing in Ireland as it is locking in the existing high and unaffordable rents into the future.

This housing crisis also worsens and reproduces our already unacceptably high levels of economic inequality. We now have low income households and younger generations spending a significant proportion of their low and moderate incomes on rent which is flowing to the rentier class of the Irish and global wealthy.

An alternative approach is available to government. Introduce rent regulation and security of tenure which would provide affordable housing and attract in a different type of investor - the global pension funds and ethical investment funds willing to take lower levels of guaranteed returns over a longer term and respect, and expect, high levels of tenant’s rights. Secondly, the state must lead in an emergency development programme of 'not-for-profit', de-commodified, affordable mixed income housing provision – from social to cost rental to shared ownership and cooperative housing.

Posted in: EconomicsHousing

Tagged with: commercial rentsNAMAreal estate fundsRent controlrent crisisspiralling rentsvulture funds

Dr Rory Hearne     @RoryHearne

Rory Hearne

Rory Hearne is a postdoctoral researcher in the Maynooth University Social Sciences Institute (MUSSI), working on the Re-Invest Participatory Action Human Rights and Capability project in relation to social investment with a particular focus on homelessness and water infrastructure.

He has a PhD in political and economic geography from Trinity College Dublin. He is also a former policy analyst with TASC and has worked as a policy researcher and community development worker with Barnardos on social housing regeneration and human rights in Dublin's inner city. He was lecturer in human geography in the Department of Geography, Maynooth University and has researched and published extensively in the areas of housing and social housing, political economy, human rights, social movements, and politics.

He is author of Public Private Partnerships in Ireland (2011) and co-author of Cherishing All Equally (2016). He is also a regular economic and social analyst on various national media.



Newsletter Sign Up  



Paul Sweeney

Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a …

Vic Duggan

Vic Duggan is an independent consultant, economist and public policy specialist catering …

Kirsty Doyle

Kirsty Doyle is a Researcher at TASC, working in the area of health inequalities. She is …