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Cover story: The foundations of a sustainable rental sector

Rosalind Carroll, Director of the Residential Tenancies Board (RTB), speaks with Ciarán Galway about growth in the rental market and her organisation’s changing role in its efforts to ensure a well-functioning rental sector.

The rental sector in Ireland has continued to grow beyond expectations and defied an assumption that, with restricted supply, there would be a bottoming out.

The Residential Tenancies Board’s Rent Index for Q1 2018 indicates that, in Dublin, rents are 16 per cent higher than ever before. At a national level this figure is 7 per cent. In the Dublin market, the annual rate of inflation was 7.8 per cent and the standardised average rent was €1,527. The national standardised average monthly rent was €1,060, an inflation of 7.1 per cent when compared with the previous year.

However, as RTB Director Rosalind Carroll indicates, there has been “some moderation”, although it is too early to say whether this is a trend that is likely to continue to a point where it will have a significant impact on the market. While the annual rate of inflation has slowed and this is acknowledged as a positive, Carroll concedes: “It’s difficult for us to say that’s a good result, because the affordability pressure is still absolutely massive. Growth upon growth, even if it’s marginal growth, can be very difficult for someone who is renting.”

Changes in the rental sector

On the recent trends in the rental sector, Carroll asserts: “I don’t think we’re going to go back to an owner-occupied world where that is the dominant tenure in Ireland. Therefore, in the long-term, we need to think about the type of rental sector that we’re going to have.”

Previously, 80 per cent of the population lived in owner-occupied properties. The 2016 census indicates that this figure is down to 67.6 per cent. “That is a significant change for us and some people suggest that this is all down to the recession and once people start buying houses again, we’ll go back to where we were. However, if you look at the demographic factors, people are renting for longer, so even if they are going to own at some point in the future, the average age that someone will buy their first home is well into their 30s.”

Likewise, current trends show that young people stay in education for longer and, following this, they want to be geographically mobile in their working. Similarly, young people are getting married and having children later than ever before. Combined with this, 75 per cent of non-Irish nationals live in the rental sector. As Ireland develops economically and attracts increased migration, this proportion is likely to positively correlate.

“Access to finance is another major issue in that people don’t have permanent jobs. At the other end of the spectrum, in terms of our older population, rates of divorce have increased. Divorce, for many people may result in one party staying in an owned house and the other party renting because they can’t afford two mortgages. Our society as a whole has changed and more people will enter the rental sector,” the RTB Director explains.

Striking a balance

As such, the RTB is in the process of implementing the two-year change management plan announced by Housing Minister Eoghan Murphy last September, aimed at enabling the organisation to be more proactive, enhance its regulatory powers and, more generally, evolve its role. The three big changes for the RTB are: a more complicated regulatory framework through changes to legislation which needed to be supported through implementation; the introduction of rent pressure zones; and a surge in demands on service continuing to increase.

The RTB’s vision is to ensure a well-functioning rental sector which is “fair, balanced and accessible for all”. This balance between the landlord and the tenant is difficult to attain in the current market, but emphasising its necessity, Carroll explains that RTB has traditionally held two main functions. The first is the registration of tenancies and enforcement of this registration. The second is to operate as an alternative to the courts for landlord and tenant disputes.

Tenants

With regard to the dispute resolution function, the RTB Director contends that while it worked well in a market with plentiful supply, in the current market where there is restricted supply, people may be intimidated from bringing a dispute before her organisation due to concerns about potential repercussions.

Now, however, there is legislation before the Oireachtas in the form of a proposed bill which would enable the RTB to undertake an enhanced regulatory function, with the power to directly prosecute. “Rather than wait for someone to take a case to us, we would be able to investigate and implement sanctions ourselves. People would be empowered to make anonymous complaints to us. That’s a real move forward and takes us into a regulatory space rather than simply a quasi-judicial space,” Carroll explains.

The proposed investigatory powers are broad. Currently, if the RTB is to undertake enforcement of registration, it must go directly to the courts. Under the new legislation the RTB can demand access to the records of bank accounts, request that individuals appear before it and even seek to enter properties. “They’re quite strong regulatory powers which may give us the teeth that the RTB is perceived, by some parties, as having lacked,” Carroll adds.

Landlords

At the same time, the RTB Director acknowledges that rhetoric concerning the rental sector is often very negative towards landlords. “Even a good landlord or a good tenant, trying to do the right thing will often find that they are not complying with the law because we have simply added patch upon patch onto what was already a complicated regulatory framework,” she outlines.

“This new sanction regime can be proportionate in that you can simply issue a caution and the party at fault has an opportunity to remedy their contravention. After that, it is still possible to pursue a criminal avenue. Of our landlords, over 70 per cent of them only own one property. They’re not professional landlords, so they need support in doing it right.”

We must fundamentally shift in our thinking of rental policy, to move away from a transient rental sector, to one which supports people to stay in rented accommodation for the long-term.

A component of Carroll’s vision for the RTB is to have enabling regulation. “What I mean by that is, rather than coming at people with a stick all the time, it’s about supporting them to do the right thing,” she notes.

“This allows us to work with the landlord. Really, in that space, you would hope that an individual would be given a caution and they then understand what is required to rectify the wrongs.

“Interestingly, if you look at our disputes in 2017, which totalled nearly 6,000, they represent only between 1 and 2 per cent of our registered tenants. A lot of landlord and tenant relationships are working well and we need to ensure that we focus on the good landlords, as well as the bad.”

Priorities

A substantial challenge for the RTB is the growing portion of the population that it is trying to communicate with. “We have 340,000 tenants, 714,000 occupants and another 174,000 landlords. In addition, the landlord demographic tends to be different from the tenant demographic. Overall, many people may not want to engage until there is a problem. How do you embrace this and effectively communicate with these people?”

The RTB is pursuing a proactive approach to dispute prevention through earlier engagement with stakeholders. To that end, its most pressing priority is education and information – ensuring that people, whether landlords or tenants, understand what is required of them. “We’ve been talking to a number of parties recently and it’s clear that many people still do not understand their full entitlements or what they should be doing,” reveals Carroll.

“The imminent launch of the Landlord Accreditation Scheme, which while voluntary, is an attempt to capture new landlords at the outset and provide them with all the information they need to know. We have also entered into social media for the first time in this quarter, so that will help with our tenant demographic.

“Secondary to that, we must start to look at the change management component to prepare for the new piece of legislation that we are going to be taking on. However, we can’t let that detract from our focus on dispute prevention.”

Communication

In the context of Approved Housing Bodies coming under the RTB’s remit, there are now 340,000 tenancies, up from 319,000 when Carroll was appointed Director in April 2016. Consequently, there is growth in the demand for services and the number of calls being received by the RTB has increased dramatically.

“We are now looking at our resources to ensure that there is sufficient support for that level of change. On a positive note, I think the organisation has evolved well with that change. The fact that we have established the communications and research unit points to our outward looking focus.”

Previously, one of the most significant criticisms of the RTB has concerned service times and ICT infrastructure. “As an organisation thinking about change, we have embarked on a massive digital transformation programme. This represents the biggest investment of capital that the RTB has made since its establishment in 2004. It will bring new platforms to interact with our customers and flexibility in terms of bandwidth.

“If you consider the population that we interact with and recognise that we are an organisation of 60 people, we have to rely heavily on ICT as a way of communicating with people. For example, we have webchat services and we introduced a one-stop-shop this year to change how we deliver our services. Under the new system, we will be able to take this further – by launching proactive campaigns to enable greater online engagement. But also, because we deal with the dispute service, we compile a huge amount of evidence and this puts pressure on our system.

“Organisationally, we need to be capable of coping with these pressures. The digital transformation will be innovative in enabling an organisation our size to manage the scale of work that we have to process.”

Landlord diversity

From a macro-perspective, the RTB’s vision is a well-functioning rental market. Acknowledging that the current market is “a far cry from that”, Carroll is an advocate for a more diverse landlord cohort.

“The Government’s strategy has been to attract Real Estate Investment Trusts [REIT], or large-scale institutional investment. That’s great, but we also need to embrace mid-sized landlords – we can’t have a one-size-fits-all rental sector.

“That means we must value the small landlords – they are good at keeping rents at a more affordable level, because they don’t have programmed rent reviews every year. Whereas, large professional landlords, who have shareholders, have a programmed rent review each year and they can push inflation up.

“At the same time, that doesn’t mean that they don’t play a positive role in ensuring supply, especially for professionals who are renting in the sector. I also believe that we need to extend our not-for-profit rental sector away from just the provision of social housing and into market rental and affordable rental.”

Culture

The RTB Director contends that, in Ireland, the concept of renting is associated with a negativity which revolves around an inability to fulfil aspirations to own property and perceptions of ‘greedy landlords’.

“While in Europe you may find that people aspire to own property, they are not as negative about renting and there is certainly not the same level of negativity around landlords as there is here. Culturally that needs to change,” she argues.

“We need to move away to at least be neutral about renting. Such a cultural shift will help with the security of tenure changes which are needed. Not everything can be about regulation and it might seem strange that the regulator might say that, but over-regulation would be dangerous to the market and we can’t resolve our way out of this through incessant regulation.”

Carroll is also a proponent of extending tenant participation beyond social housing tenants to those in the private rented sector and establishing a tenant representative group. “Those type of shifts need to occur for us as a society to accept renting as something that is ok for people to do and remove the stigma.”

Misconceptions

Likewise, Carroll is also wants to challenge the misconception that you have to be either a landlord or a tenant – people can be both. “This phenomenon we have of double-renters is perceived as a bad thing, but it can actually be a good thing if we manage to make it work. It’s quite a common story here, but more so in places like Germany because not everyone can live where they can afford to buy.

“What is wrong with that concept? Particularly if you consider that there is a lot of concern around renting in old age. While you may want to live and rent in Dublin city for your working life, you could choose to lease a place outside of the GDA where you then choose to live in your older age.”

Combined with this, there is a need to move to a regulatory framework which ensures greater security of tenure for tenants and income for landlords. In regulatory frameworks with strong, virtually indefinite security of tenure and very strict guidelines on eviction – where you can only sell with the tenant in situ – there is a zero tolerance towards rent arrears or anti-social behaviour issues, because the landlord must also have security of income.

“We must fundamentally shift in our thinking of rental policy, to move away from a transient rental sector, to one which supports people to stay in rented accommodation for the long-term. We have more to do in that space. This is a slow road, but we shouldn’t neglect it to the point of simply introducing more regulation. We must do both,” argues Carroll.

Optimism

Looking to the future, Carroll summarises her position as one infused with optimism. “If you were to look for any silver lining to the very difficult situation that people are facing – and I don’t want to detract from their situation – it is that the rental sector is getting the focus that it has never had before.

“We need to use this to get the best framework for tenants and landlords into the future so that we have a really good structure in place and don’t face these current hardships again. We have to use this crisis as a learning curve and consider how we ensure a sustainable rental sector going forward,” she concludes.