In my latest article, I outline how, in order to attract the capital needed to support housing supply at the necessary scale, we must take a strategic policy approach. This comes against the backdrop of similar issues across Europe, making it a competitive space. Ireland must stand out as a strong value proposition for investors. Current government policy is creating an unstable environment for investors in an already uncertain macro context. Investors are starting to move capital out of Ireland to Europe where the environment is more conducive to longer term investments.
Specifically, investment in the private rental sector must be encouraged to hit housing targets, as evidenced by its positive impact on accommodation supply in the past 10 years. The “ESRI Population Projections, the Flow of New Households and Structural Demand” paper was published earlier this summer. Presenting different scenarios for structural demands in the future, the paper estimated that Ireland will in fact require the delivery of 50,000 new homes per annum as opposed to the earlier projection of 44,000 per annum.
Currently, we have a situation where investors are either signalling a move or, indeed, exiting the market at a time when increasing supply by all stakeholders is urgent. In June, Capreit pulled out of Ireland, announcing it had sold its remaining equity interest in Irish Residential Properties REIT. Similarly, in September, GSA Group, one of the biggest student accommodation providers, announced it is opting to build in other European locations as a result of new laws brought in to regulate the sector. For many investors, Ireland’s PRS is seen as not commercially viable, a direct consequence of instability caused by short-term and reactive policy. According to Mark Kenney, Capreit’s president and chief executive, the government’s rental policies and penalty stamp duties have resulted in barriers to attracting the much-needed rental supply.
While Taoiseach Simon Harris has pledged to build 250,000 homes over the next five years, the government must act to make this a reality. The state cannot improve the current situation by itself. Responding to recent RTB figures around Irish landlords, Paschal Donohoe TD, Minister for Public Expenditure and Reform noted that Ireland “needs corporate landlords to provide more rental accommodation” and that “far from seeing corporate investors as a sign of failure, if we want to provide a lot more rental properties and rental homes within our country, we need the investors and companies who could do that at scale”. In briefing documents for Minister for Finance, Jack Chambers TD, officials from the Department of Finance highlighted the critical need for private investors. According to the briefing documents, institutional real estate firms are focusing “primarily on building apartments for the rental sector”.
It’s important to highlight that we are not alone in this issue. According to JLL, growing demand for private renting means that Europe will need an additional 3.6 million private rental homes over the next decade, reflecting a €1.4 trillion investment opportunity for institutions. A large increase in construction and investment will be needed across Europe to help support this increase in supply. Emma Rosser, Living Research Director, EMEA at JLL notes: “There is already an obvious shortage of quality rental housing in Europe. With millions more in need of accommodation in key markets, without significant investment, this undersupply will worsen”.
However, the number of investments being made in Europe means that we are competing against our European neighbours for capital. According to Colliers’ Global Capital Flows, Europe holds seven of the world’s top 10 cross-border capital destinations, with Spain obtaining over €2 billion in real estate investment in the second half of 2023.
With surging rental demand across Ireland due to our fastest population growth rate in over 150 years and strong potential for capital appreciation, Ireland is set to be an attractive economy to invest in. However, we are losing the competition to our European neighbours due to our constant changes in policies and regulations, overly restrictive rental caps and viability issues surrounding building city rental accommodation driven by the removal of Build to Rent (BTR) and co-living planning designations.
Rent caps, which limit annual increases to 2 per cent on properties in rent pressure zones (RPZs) will jeopardise future investment according to a recent report by Hook & MacDonald. The report highlights that the current restrictive rent caps are affecting the supply of new rental properties from institutional investors and that the supply will “fall away” in Dublin in the next 18 months. As I mentioned in my last article, reduced rents will result from an increased supply of accommodation, and not increasing or continuing rent controls. By limiting the potential growth for investors in Ireland, these rent controls are in turn affecting any new supply.
One option that will attract foreign investors and increase the supply of rental accommodation is reintroducing BTR schemes such as co-living. BTR schemes can offer solutions to the current supply issues we’re facing across Ireland by providing much-needed accommodation. It also professionalises the rental market, ensuring tenants are receiving the service and support they need.
Co-living is an example of a BTR scheme that we strongly believe should be reintroduced in Ireland. Our recent development, Rathmines House, is Ireland’s first office-to-co-living development, turning a vacant property in Dublin City into 110 units of much-needed accommodation in a highly sought-after area.
To attract the capital needed to support housing supply, we need a consistent policy environment with balanced policies and regulations that provides accommodation for renters and attracts investors.
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