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Towards a sustainable private rented sector: What can we learn from other countries?

Explore the private rented sector (PRS) in other developed countries and compare it to Ireland. Learn about changing regulations, the types of households it accommodates, and the potential for a sustainable PRS. Discover how other countries have approached rent regulation, financing for landlords, and the physical/legal form of rented stock.

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Towards a sustainable private rented sector: What can we learn from other countries?

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  1. Towards a sustainable private rented sector: What can we learn from other countries? Kath Scanlon London School of Economics Residential Property Summit 6 December 2016 Dublin

  2. Topics What does the PRS look like in other developed countries and how does Ireland compare? How is regulation changing, and how is the PRS responding? Are there lessons for Ireland?

  3. What is a ‘sustainable’ PRS? A large sector? A growing sector? A profitable sector? One that accommodates a broad range of households? -- OR -- mainly houses those who benefit from the characteristics of private renting?

  4. Size of PRS

  5. Change since early 80s

  6. Landlords(for-profit and non-profit, including pension funds)

  7. Who lives in the PRS? • In most countries tenants are • Young or old • Low-income • Singles or single parents (Main exception: Switzerland) • Mobile • Young professionals • Students • High-income corporate transfers • People who can’t afford owner-occupation • Housing benefit recipients • Migrants • Those who can’t afford mortgage deposits

  8. Who doesn’t live in the PRS? • Middle- and upper-income families usually own their homes in almost every country • Very few of the elderly rent privately in the UK (not the case in some other countries)

  9. Ireland and UK Buy-to-let mortgages fund small investors Elsewhere Special mortgages for residential landlords not common. Many countries offer grants or tax incentives, almost always linked to affordable rents or energy saving. Financing for landlords

  10. Leases

  11. Ireland and UK Landlords own individual units which are not tenure-specific Elsewhere Denmark: Landlords own entire blocks which can only be sold as a whole to co-operatives USA: Restrictions on change of tenure (‘condo conversions’) in some urban markets Physical/legal form of rented stock

  12. How is regulation changing?The elements of regulation

  13. Rent regulation

  14. Historic evolution First generation (post WWI) Control of rent levels (‘rent freezes’). Incentives for landlords to leave the sector and under-maintain remaining properties. Second generation Control of rent increases within and between tenancies. Still generates disinvestment when rises below market. Third generation Control of rent increases based on defined index within tenancies, but not for new tenancies. Most market-friendly.

  15. Path of rents under third-generation controls (e.g. Germany)

  16. The German exampleTerms and conditions of renting • Tenants get indefinite leases • Landlords can evict only for reasons set out in the law; notice period 3 – 9 months depending on how long tenancy has lasted • If the landlord sells, the lease binds the new owner • Initial rent can be freely set, but not more than 20-50% above average rents in the local area • Rent can go up every 15 months by average in the area

  17. Some typical new rents

  18. Would it work here?Different rental offer • Most PRS units are in rental-only blocks in single ownership • Tenants stay for long time (average 11 years) • Landlords invest with long time horizon • Landlords provide minimal facilities beyond the dwelling itself: usually no furniture or kitchens

  19. Would it work here?Different economic environment • Over last 30 years real house prices fell in most areas • General inflation also very low so costs predictable—though standards have risen e.g. re energy efficiency • In some cities (Berlin, Hamburg, Munich) rents are rising rapidly and market very tight →new controls on initial rents • Owner-occupation and house prices in these areas also now increasing

  20. Other international experience France Rent increases within lease period controlled; standard lease 1 to 3 years. 2012: rent increases limited in 38 high- demand areas. 2015: ALUR law (similar to German system) brings in tougher restrictions, especially in Paris. Denmark Most PRS rents controlled under one of two systems—exception is new-build. Indefinite tenure. Rents below notional market levels; excess demand. Netherlands Rents for most of the PRS set under ‘points’ system; sector shrinking.

  21. Other international experience USA: New York Rent stabilisation applies to about 50% of PRS. City Hall sets allowable % rent increases, mandatory lease renewals. Stabilised rents well below market in Manhattan; differences smaller in other boroughs. Higher-rent units can be brought out of regulation under ‘luxury decontrol’. Tenants stay longer but are mainly middle income. San Francisco Initial rents freely set; rent increases on apartments (but not houses) set by rent board—generally less than 2% p.a. Landlords selling to developers.

  22. England: Build to Rent • Purpose-built private rented blocks, single ownership, corporate (often overseas) landlords • Big advantages: speed of development, professional management, long leases • 3,500 completed in London and 15,000 in the pipeline • Most investors still require subsidy or guarantees. Long-term commitment?

  23. Learning from abroad: Correcting some assumptions • Institutional investment does not dominate private rented sectors in other countries. • Regulation is not inherently associated with smaller poorly operating private rented sectors. • Deregulation was not generally followed by increase in supply— UK and Ireland the exceptions

  24. Learning from abroad: Lessons • Private renting needs a range of investors—institutions and corporates have their strengths but will never replace small landlords • The sector can suit families and older households, not just the young/mobile. Long-term secure leases may help.

  25. Learning from abroad: Lessons • Regulation not necessarily good for tenants/bad for landlords: • Can address market failures for both tenants and landlords, while reducing risks for both • Or can restrict returns to landlords and result in lower levels of supply and access to rental housing for tenants

  26. Learning from abroad: Lessons • The role and scale of the PRS are determined not only by regulation and taxes but also by • Built form • Availability of finance for landlords and developers • Returns on alternative investments • Tax treatment of other housing tenures • Culture

  27. Learning from abroad: Lessons • Stability more important than degree of regulation • Context is important--beware of policy ‘transplants’!

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