First, a word on home ownership

Transcription

1 Tom Dunne

2 First, a word on home ownership Strong social arguments in favour & There are economic costs and benefits But the crisis has changed the balance of these House market may not reset To a pre-crisis culture/structure This may be a structural shift & the institutional & tax frameworks underpinning housing may change fundamentally We need to be alert to this

3 Objective To suggest that a home ownership mindset can blind us to changes and their consequences Policy makers may be inhibited by conventional wisdom & accepted thinking about housing Content of presentation Bit of history A look at the present Look at implications No predictions! Lao Tzu Those who know don t predict, those who predict don t know

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5 Housing in Ireland before crisis Social (+) 9% Private Rented 10% Stock Traded Owner Occupied 80%+ New

6 Housing in Ireland- Now... Big change! Social(+) 11.5% Stock T r a d e d Private Rented 18.5% Owner Occupied < 70% N e w

7 The Context... a brief look back In the developed world Up to 1930s private rented sector dominated Then there was a shift After Depression/WW2 tenure patterns changed Rented sector -contracted Home ownership -expanded Social Rented -expanded Home ownership became the dominant tenure in most developed countries & overwhelming majority in some

8 Why?...many reasons suggested Belief Rising home-ownership = a better society Underlying preference for home-ownership Instinctive resistance to renting Tenure choice was influenced by public policy Particularly tax policy Which modified the balance of costs and benefits attached to different tenures Facilitated the growth of home ownership

9 Government incentives Imputed Rent...not taxed Mortgage Interest reliefs Grants/ Direct subsidies No Capital Gains Taxes Reduced cost of purchase & cost of owning Increased the attractiveness of ownership Home ownership became the principal means of wealth accumulation for middle and lower middle classes

10 Move to home ownership - facilitated by Increasing employment and income security Financial Liberation post 1980s Access to finance made possible by deeper financial systems Experience of residential markets The value of mortgage debt seen to be eroded by rising incomes & inflation Volatile (boom & bust) residential markets encouraged buying to avoid higher prices tomorrow. The so-called housing ladder Result -higher levels of home ownership

11 Other influences in Ireland Access to mortgage finance was on favourable terms Local Authority Mortgages Favourable treatment of Building Societies Tenant purchase Since 1930s council tenants enjoyed right to buy At below market rates & were facilitated to do so

12 Additional reasons for HO in Ireland No stamp duty for new houses No Local Property Taxes One-off houses in rural areas could be built cheaply By 1980 subsidies to home owners were the most generous in western Europe

13 Outcome for Ireland Distinguished historically by a particularly high rate of Home Ownership 1970 Ireland 61% UK 50% Sweden 35% Driven by Dispersed rural pop. & cultural affinity + Strong government support

14 2007 (Source Social housing in Europe Whitehead& Scanlon LSE 2007)

15 Irish home ownership rates Higher than other Anglo-Saxon economies Incl. USof A Much in common with poorer southern EU countries Characterised by high levels of Home Ownership Distinguished from Northern EU countries with their higher levels of renting Eg Germany

16 Home Ownership... Issues now being raised Effect on macro-economy Need to consider effects of volatile housing markets Adverse effect on entrepreneurship Mortgage finance a problem... again As it was in the past So, with tighter lending criteria, will lower income households be able to access finance for house purchase

17 Other downsides of HO now being revisited -post crash Lower labour mobility Home owners (especially those in Negative Equity)are less mobile than renters Illiquid property markets - Can t sell Can t move Thinking about property is changing A home without equity......is just a rental with debt Joshua Rosner 2001 Home ownership isn t for everyone P. Krugman

18 Has home ownership been pushed too far? People on low & uncertain incomes can t afford to Maintain property Repay mortgages Does incentivising it cause over investment in housing? Crowding out other investment

19 What s the appropriate balance? Stated government policy now tenure neutral we now see reducing govt supports Eg removal of MIR Levying a property tax State cannot afford /is unwilling to supply social housing directly We have seen a shift to private renting but is it a fundamental shift?

20 What s Likely? Govt Will continue to modify balance of costs and benefits attached to different tenures Will look to private sector for social housing solutions There will be less incentives to buy More households will choose to rent

21 Housing in the future? Social(+) 8% Private Rented 22% Stock Traded Owner Occupied < 70% New

22 Focusing on the Private Rental Sector Now 305,377 households (Census 2011) 18.5% of total 32% in Dublin Concerns Withdrawal of BTL landlords Who will replace them if people are to rent from private landlords Property to rent will have to be financed But how? And who would be a residential landlord?

23 Non-commercial/ amateur/ non- professional landlords Comprise the vast majority of landlords From PRTB No. of registrations 231,818 No. of Landlords 145,021 Less than 1.25% of Landlords own 10 or more properties (NPPR) Other landlords Property Investment Companies exist in the private sector... but in very small numbers Approved Housing Bodies in the social sector

24 Landlords in the PRS Professional individual landlords Significant % of their income Small numbers Access to additional finance now problematical Resident Landlords Accidental /circumstantial landlords Developers letting for short term Vendors holding off market Those who Bought to Let (BTL)

25 BTL loans... not in good shape Outstanding BTL Loans 82,600? about 6% of all loans this rose to 17% Average balance on BTL Loans 244,000(CBI) Arrears about twice what it is for owneroccupied property. Many will want to pull out of the market Or be will forced out

26 Looking to the future Say the PRS settles at a norm of just 15% + households There will be a supply challenge if many existing BTL landlords exit If the PRS settles at c.18.5% to 22% of households Closer to normal for Anglo-Saxon economies Ie c.30% of housing stock in Ireland will be rented More 50,000 + extra properties will be in the sector and 25,000-40,000 more landlords!

27 Tenants in future Good incomes Short term immigrants Deferring house purchase Choosers who want standards and services Commercial companies will provide Lower incomes Can t access and repay finance Forced to be tenants by life/financial circumstances Riskier & more difficult to manage Who will provide accommodation?

28 Think about this Increase in households wanting to rent Or having to rent SWA+ Long term renting of social housing e.g. RAS scheme But rent from whom? Probably not from non-commercial landlords Who will not be able to finance BTL And their offering has inadequacies from the perspective of a long term renter Better if provided by more commercially oriented residential landlords & housing bodies

29 Commercial Property Investors Buy residential properties for rental income long term perspective Assemble portfolios of residential property Which they can professionally manage Willing to provide additional services Ideally buy entire apartment blocks Not interested in managing scattered portfolio Too expensive

30 Example - Kennedy Wilson Alliance Building Dublin Others are looking In the UK Housing for the Rentysomethings

31 Commercial Residential Landlords Professionally managed organisations Not speculative -Seek income Not likely to buy scattered individual units Prefer to invest in Blocks To reduce management expenses & risks Say 30 + units as a minimum Provide ancillary services Funded by equity finance + Could be financed by pension funds Could be REITs Have no issue with good regulation...the RTA2004

32 Residential Tenancies Act 2004 Amended the law for residential tenancies Its provisions reflect the dominance of rental market by amateur/ accidental landlords Designed for residential property market dominated by owner occupation need vacant possession to sell Basic scheme Balanced rights of Tenants & Landlords But recognised & provided for types of landlords then in the market No provisions preventing long term leasing Or rent security for tenants

33 Residential Tenancies Act 2004 Reasonable level of regulation (source IPPR) Accommodates Corporate Landlords but not designed for them

34 Amendments needed To reflect what could become a differentiated /two tier structure Traditional non-commercial landlords Existing regime applies Commercial Residential Landlords Landlords (with more than say 10 units) who could be allowed To register as commercial landlords rather than registering tenancies This should be done for Approved Housing Bodies also Who could accept their tenants having greater security of tenure and rent certainty Revise Part 4 tenancy arrangement

35 Other measures that might encourage investment by CRLs Assistance needed to buy blocks & assemble appropriate lot sizes Often where some units have been sold already to owner occupiers Give powers of Compulsory Acquisition Where management charges are in arrears From owner-occupiers at market price +25% Of mortgages secured on apartments in blocks they own

36 To summarise Lower government incentives for home ownership Some will defer buying to later in life Some will not be able to buy Housing structure More like Anglo-Saxon economies Smaller owner occupied sector 60%-65% Larger private rental sector 20%-25% Could be 50,000 units provided and managed by Commercial Residential Landlords A better offering for tenants, better managed by professional mangers

37 Summary contd. Deal with the reality of changed circumstances Govt policy to recognise that aspiration of owner-occupancy may not be achievable for as many as was the case in the past The state needs to facilitate / foster the development of more commercial residential landlords & housing bodies eg allow Reits, subsidise housing associations Could be funded by equity and pension funds Give tax relief on pension contributions invested in regulated CRLs

38 The world has changed The financial sector has changed The housing sector has changed Mindsets of younger people have changed Housing requirements are different Should thinking about housing policy change also At the very least we should be alert to the probability that the fundamentals of housing have changed and the implications of this for public policy.

39 Thanks & Questions

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