Why is the cost of property, esp renting, so high in Dublin?

Mad_maxx · 15-01-2020 2:36pm

MrMusician18 wrote: »

This idea that to be a profitable landlord, the landlord shouldn't have to top up the mortgage is a nonsense.

You do know they are left with a very valuable asset at the end of the term

You can't dine out on future valuations and besides, property is inferior to stocks when it comes to long term appreciation, property is better for yield - income, that's not much good if a tenant withholds for two years

argolis · 15-01-2020 2:47pm

Marius34 wrote: »

The price for property in Dublin is very normal for that size and economy level, while the renting is absolutely to high.
The main factor for the very high rents is due to the very low supplies of residential property over the past 10 years (due to residential construction crisis), especially for such a young city with growing population and booming economy.
To make things worse, private landlords are highly taxed, typically 50-52% on the profit, I don’t know any other country with that high taxation for private landlords. And more than that property should be supplied furnished, whereas in many European countries it’s common to rent unfurnished (at least Denmark and Germany from my own experience).

The standard of furnished/unfurnished doesn't make a difference. Whatever's the norm in a market is what people get on with. All tenants know that they either bring nothing or everything with them when moving house. How would it make a difference?

And landlords are taxed at the same rate as everyone else on their income/profits, as it should be. Saying they need special tax treatment is ridiculous. And I say that as a landlord.

However, to run their "business" all fair costs should be deductible, like mortgage interest, as it is for property funds or any limited company. The biggest factor is the erosion of protections for landlords from bad tenants and rent control. There should be protections in both directions. Tenants get increased security of tenure/rent increases but in return, if they stop paying rent or are certified problem tenants it should take no more than 3 - 4 months to evict them. And landlords should be able to set rent to the market rate between tenancies.

As regards the bigger picture, I'd echo what other posters said - there's too much concentration of infrastructure and industrial estates around the M50 which has resulted in Dublin having 30% of the country's population. Government policy has been crap at building infrastructure to support shifting these zones, and more population, away from Dublin. That goes for attracting IT companies to other cities as well. Really just token efforts so far.

Those policies, or lack of one, that draws more and more to Dublin combined with sticking to low density housing has really screwed the city and especially its tenants. The government's chickens are just coming home to roost really.

Mad_maxx · 15-01-2020 3:06pm

The protection for rogue tenants is purely ideologically driven, it serves no purpose other than to frustrate landlords and when burned by the experience of a two year eviction process, same landlord is likely to leave the market and advise others not to enter either

This creates a toxic environment which again hurts those renting, Marxists like eoin o Broin and Fr Peter McVerry are dictating policy right now

MrMusician18 · 15-01-2020 3:14pm

Donald Trump wrote: »

Dude, you are obsessed with something and I can't quite tell what it is. I think it is obscuring your ability to understand the logic of what is being said to you.

Nobody is saying that they shouldn't "maximize profits". They are saying that there is no reason why that should entail a sense of entitlement that a tenant should be entirely paying off the mortgage for them so that the landlord gets a free house at the end of it. It might work out that way, but there is no reason that it *should* by right do that

I never said that business like landlords had no right to make a profit. What I was pointing out was landlords can be making a healthy profit, even when they have to top up a mortgage.

If someone was letting out a house but over the course of the term, rent was less than the mortgage payments by €100k say, meaning the landlord had to top it up - but the house was valued at €400k at the end of the term, has the landlord made a profit? Of course he has, he's got a 3x return and the initial investment back.

A lot of smaller landlords never seemed to understand this and expected the tenant to cover the mortgage in it's entirety and in 30 years, said small landlord would collect the free house.

Mad_maxx · 15-01-2020 3:17pm

MrMusician18 wrote: »

I never said that business like landlords had no right to make a profit. What I was pointing out was landlords can be making a healthy profit, even when they have to top up a mortgage.

If someone was letting out a house but over the course of the term, rent was less than the mortgage payments by €100k say, meaning the landlord had to top it up - but the house was valued at €400k at the end of the term, has the landlord made a profit? Of course he has, he's got a 3x return and the initial investment back.

A lot of smaller landlords never seemed to understand this and expected the tenant to cover the mortgage in it's entirety and in 30 years, said small landlord would collect the free house.

All irrelevant to the central problem today when it comes to being in the landlord business, the lack of power if tenants go rogue

joxer1988 · 15-01-2020 3:20pm

Mad_maxx wrote: »

You can't dine out on future valuations and besides, property is inferior to stocks when it comes to long term appreciation, property is better for yield - income, that's not much good if a tenant withholds for two years

You're missing a key aspect of real estate investing - leverage. No brokerage on the planet will allow you to borrow 70% on margin to invest in securities, yet a real estate investor only needs 30% down in a BTL mortgage. Therefore the return is amplified by ~2.5x.

For this reason, the bizarre presumption that tenancy market needs rent > mortgage to function is laughable and at odds with every other stable city's rental market.

timetogo1 · 15-01-2020 3:27pm

MrMusician18 wrote: »

I never said that business like landlords had no right to make a profit. What I was pointing out was landlords can be making a healthy profit, even when they have to top up a mortgage.

If someone was letting out a house but over the course of the term, rent was less than the mortgage payments by €100k say, meaning the landlord had to top it up - but the house was valued at €400k at the end of the term, has the landlord made a profit? Of course he has, he's got a 3x return and the initial investment back.

A lot of smaller landlords never seemed to understand this and expected the tenant to cover the mortgage in it's entirety and in 30 years, said small landlord would collect the free house.

You're right. But it's another reason for small landlords to get out. I'm in my 40s. Using the process above I'd have to supplement the business for 30 years and hopefully survive to profit from it. (Which is quite rightly not a concern of the tenant).

I looked at buying to let a few years ago. When you do the sums it's not worth it. There are better places to put your money to work for you without the hassle / risk.

Mad_maxx · 15-01-2020 3:35pm

joxer1988 wrote: »

You're missing a key aspect of real estate investing - leverage. No brokerage on the planet will allow you to borrow 70% on margin to invest in securities, yet a real estate investor only needs 30% down in a BTL mortgage. Therefore the return is amplified by ~2.5x.

For this reason, the bizarre presumption that tenancy market needs rent > mortgage to function is laughable and at odds with every other stable city's rental market.

A very sizeable percentage of buy to let investors in the past six years are cash buyers, the same issues still sour their experiences of the market

You're hung up on the mortgage thing, buy to let on paper is a good deal right now as the yields are excellent, the extraordinarily protection of tenants is a damocles sword

Mad_maxx · 15-01-2020 3:43pm

timetogo1 wrote: »

You're right. But it's another reason for small landlords to get out. I'm in my 40s. Using the process above I'd have to supplement the business for 30 years and hopefully survive to profit from it.

I looked at buying to let a few years ago. When you do the sums it's not worth it. There are better places to put your money to work for you without the hassle / risk.

For me the threat of bad tenants and the ghastly RTB process is a far bigger problem than the tax, I'm not in the top tax bracket so perhaps it's an altogether different proposition for those who are?

I've a house in Limerick leased to the council for ten years since 2018, don't even know who lives in the joint, council are fully in charge of everything

Way i see it the state meddles so much in the business of landlords, might as well have the state as you're tenant

15-01-2020 3:53pm

Fol20 wrote: »

And now you ask why rents are increase yet ll are leaving the market. It is nonsense.... that you think it should be anything but cash flow positive if you think any sane person would want to supplement a business for 35 years to make tiny profits at the end of it. And yes. It is small profit to way you talk for 30years of hard graft as you pay tax at 50pc of any profits all income received and 33pc on cgt at the end of it.

Small but vital correction above.

Donald Trump wrote: »

Dude, you are obsessed with something and I can't quite tell what it is. I think it is obscuring your ability to understand the logic of what is being said to you.

Nobody is saying that they shouldn't "maximize profits". They are saying that there is no reason why that should entail a sense of entitlement that a tenant should be entirely paying off the mortgage for them so that the landlord gets a free house at the end of it. It might work out that way, but there is no reason that it *should* by right do that

In response to the above bolded part.

A €1,600 p/m rental income leaves an annual tax bill of about €8,600 without any expenses. If the expenses came to about €160 per month (generous) that still leaves an annual tax bill of €7,600 roughly, or close to €230,000 in tax over 30 years. Hardly free. This figure will go up, obviously, over the life of the mortgage as the interest deductible goes down and the rent increases along with inflation.

This obviously doesn't include the mortgage payments. So, if we imagine the rent doesn't change over the term of the mortgage for simplicity sake:

Mortage payments (300k @ 4.5% over 30 years: 547,000
Tax paid: 230,000
Total: 777,000
Less rent received: 576,000

Net: €201,000 paid over 30 years (€560 p/m)

Simplistic figures, open to correction, but you get the gist. That's before you factor in time and effort and stress etc. It ain't free, by a long shot.

stevedublin · 15-01-2020 3:56pm

Taylor365 wrote: »

The brilliant idea not to build high and to strangle transport routes to death.

Another corker - Every apartment requiring a parking space.

I live in an apartment in North Wall with no parking space....

LuckyLloyd · 15-01-2020 3:57pm

The process to evict problematic tenants needs to be streamlined. There is no good argument against this that I can see. Those who are pro tenant protection should also be for that as it makes things better for decent tenants who meet their obligations of a lease.

It’s undoubtedly a problem blown out of proportion on this forum as the overwhelming majority of tenants play by the rules and there is undoubtedly a large cohort of renters in Ireland who don’t fully understand their rights and would never dream of utilising the RTB. That said, if a landlord has to go through the full elongated legal process to evict a tenant over holding it is undoubtedly a financial and emotional disaster. Ideally the government would look at how the process from arrears to sheriff can be fast tracked. It really shouldn’t exceed 6 months.

In tandem with that there needs to be some teeth applied to planning clarifications around short term lets. Residential units should be used for that purpose barring legitimate application for change of use.

These are quick fixes in theory that could alleviate the situation and reduce the adversarial nature of the current conversation around the private rental market.

Beyond that we’re into much bigger fixes around building up; increasing residential stock generally and improving infrastructure so that people can live further out and commute effectively.

Fol20 · 15-01-2020 4:08pm

[Deleted User] wrote: »

Small but vital correction above.

In response to the above bolded part.

A €1,600 p/m rental income leaves an annual tax bill of about €8,600 without any expenses. If the expenses came to about €160 per month (generous) that still leaves an annual tax bill of €7,600 roughly, or close to €230,000 in tax over 30 years. Hardly free. This figure will go up, obviously, over the life of the mortgage as the interest deductible goes down and the rent increases along with inflation.

This obviously doesn't include the mortgage payments. So, if we imagine the rent doesn't change over the term of the mortgage for simplicity sake:

Mortage payments (300k @ 4.5% over 30 years: 547,000
Tax paid: 230,000
Total: 777,000
Less rent received: 576,000

Net: €201,000 paid over 30 years (€560 p/m)

Simplistic figures, open to correction, but you get the gist. That's before you factor in time and effort and stress etc. It ain't free, by a long shot.

Hey shifty. You need to deduct current expenses and capital allowances before you pay tax. Disregarding usc for this to make it simplistic.

KyussB · 15-01-2020 4:55pm

As you have gathered OP, the problem is with the supply of housing/rentals - in other words: Not enough houses/rentals are being built.

The no.1 problem there, is that there is an ideological objection (due to free market fetishism) to government building houses - and the government is entirely financially capable of doing this, and is capable of single-handedly solving the crisis.

That doesn't mean that's the way it should be done, it just puts the lie to the claim that it's not presently possible to build enough housing. It most definitely is possible. The ONLY reason for not doing so, is ideological.

That's obviously not the whole story though. The private sector isn't building enough houses/rentals either, despite it being obscenely profitable at the moment - so something is wrong on a much bigger scale.

To sum it up, the problem is that the entire property market has been financialized. What that means is that homes are no longer provided primarily for people to live in anymore - they are provided primarily in order to extract the maximum financial returns from people - and the best way to do that, is to put the price of property so far beyond peoples ability to afford, that they are forced to rent (which means deliberately constricting supply).

Essentially, the entire property market has been deliberately turned into a gigantic rent extraction machine. The beneficiaries of this are predominantly in the finance industry - and tend to be very large players in that industry.

The same general industry interests that benefit from this (both directly and indirectly) - also fund our major political parties, and are in bed with them. Those who make policy favourable to them, will end up in very favourable/cushy board positions, or make lots of very well paid 'speeches' at finance conferences etc. etc. - basically, they will be looked after by industry interests, in return for favourable policy. This is how modern corruption/bribery works.

Assuming FG trade places with their coalition partners FF in the coming election, keep on eye on where many of them land in private industry - the same as how it went for FF when they finished up in government - it will be very informative.

15-01-2020 5:11pm

Fol20 wrote: »

Hey shifty. You need to deduct current expenses and capital allowances before you pay tax. Disregarding usc for this to make it simplistic.

Yep, I allowed for 160 per month which translates to about €2,000 per year and is factored in to my rough calculations. Even if you doubled that, it's still a €6,800 yearly bill or 204,000 over the lifetime of the mortgage.

Browney7 · 15-01-2020 6:22pm

[Deleted User] wrote: »

Small but vital correction above.

In response to the above bolded part.

A €1,600 p/m rental income leaves an annual tax bill of about €8,600 without any expenses. If the expenses came to about €160 per month (generous) that still leaves an annual tax bill of €7,600 roughly, or close to €230,000 in tax over 30 years. Hardly free. This figure will go up, obviously, over the life of the mortgage as the interest deductible goes down and the rent increases along with inflation.

This obviously doesn't include the mortgage payments. So, if we imagine the rent doesn't change over the term of the mortgage for simplicity sake:

Mortage payments (300k @ 4.5% over 30 years: 547,000
Tax paid: 230,000
Total: 777,000
Less rent received: 576,000

Net: €201,000 paid over 30 years (€560 p/m)

Simplistic figures, open to correction, but you get the gist. That's before you factor in time and effort and stress etc. It ain't free, by a long shot.

1600 per month equals 19200 per annum - how much mortgage interest have you offset to determine tax amount?

Donald Trump · 15-01-2020 8:15pm

Deleted User wrote: »

Small but vital correction above.

In response to the above bolded part.

A €1,600 p/m rental income leaves an annual tax bill of about €8,600 without any expenses. If the expenses came to about €160 per month (generous) that still leaves an annual tax bill of €7,600 roughly, or close to €230,000 in tax over 30 years. Hardly free. This figure will go up, obviously, over the life of the mortgage as the interest deductible goes down and the rent increases along with inflation.

This obviously doesn't include the mortgage payments. So, if we imagine the rent doesn't change over the term of the mortgage for simplicity sake:

Mortage payments (300k @ 4.5% over 30 years: 547,000
Tax paid: 230,000
Total: 777,000
Less rent received: 576,000

Net: €201,000 paid over 30 years (€560 p/m)

Simplistic figures, open to correction, but you get the gist. That's before you factor in time and effort and stress etc. It ain't free, by a long shot.

Your post proves my point correctly. You should not be in this business as an amateur landlord. That is purely advice for your own protection.

You don't appear to understand the difference between nominal and real (I'm not even going to ask you to justify the discount factor you're applying here on the "income" side of your "analysis").

J_1980 · 15-01-2020 8:55pm

KyussB wrote: »

As you have gathered OP, the problem is with the supply of housing/rentals - in other words: Not enough houses/rentals are being built.

The no.1 problem there, is that there is an ideological objection (due to free market fetishism) to government building houses - and the government is entirely financially capable of doing this, and is capable of single-handedly solving the crisis.

The Irish construction sector is pretty much at capacity right now. Doesn’t matter if it’s private or public - there won’t be more houses.
Since 2007 real inflation adjusted salaries in eastern europe have more than doubled and unemployment rates are below 4%. No one is coming here to work as a full time employee. There a plenty of cash-in-hand folk still working here for refurbishment jobs, but professional builders and the state can’t hire on these conditions.

Making workers hand over half their cash (tax) so the government can provide an easy life (dole, A rated new house) to those who never work is simply never going to work. Nurse emigration is kind of the same thing.
Crazy that there’s a builder/trades shortage in a country with a real unemployment rate of almost 10% (Live Register rate + Live Register Activation Programmes).

fash · 15-01-2020 9:21pm

Reason for the high prices:
Supply and demand. There are insufficient residential units for the amount of people looking.
There are supply problems in particular: the construction and banking industries were destroyed in the bubble. They still do not have the capacity (construction workers and cheap capital) they had back then.
You'll note that even now only now are planning permission outputs being cranked up to the levels seen in 2009:
https://www.cso.ie/en/releasesandpublications/er/pp/planningpermissionsquarter12019/

Costs of financing and construction (due to tighter regulation) are now higher making things more difficult.

On the demand side, Ireland's economy has been growing massively and quickly with much of that activity happening in Dublin creating loads of jobs.
Supply usually takes a few years to catch up with demand (knowing that stuff needs to get built, then building it, selling it and renting it) - and supply in Ireland has been particularly slow given the fact it was destroyed.

riclad · 15-01-2020 10:07pm

The building industry crashed in 2008, many workers left ireland.since the boom our population has increased , we would need to build 10k housing units, every year to meet demand
We simply do not have enough rental units to meet demand.
Young people go to college or work in citys , they do not want to live in small
rural towns miles away from where they work
from the sunday times, last week, builders have applied to build 5000 new apartments ,average price 300k plus to be built in 2020
Many of these apartments will be rented out.We have loads of jobs in dublin,
they supply of rental units has not kept up with demand .
after 2008 many irish building companys went out of business ,
as the house,s they built overnight lost 50-60 per cent of their value.

Donald Trump · 15-01-2020 11:01pm

A proper, possible to enforce, vacant site levy needs to be implemented and actually enforced properly. It would need to increase over time sufficiently to discourage hoarding of land banks in currently needed locations.'

I know that there is one currently in practice, but I think that it is not applied very often.

Shelga · 15-01-2020 11:28pm

So say you're a landlord, and you own a 2 bed apartment with a mortgage of €900 a month, of which €350 is interest.

You rent out the apartment for €1500 a month. If your rental income is all taxed at 40%, but you can deduct the interest paid on the mortgage from the taxes owed, you pay Revenue €250 a month? (600-350). So you're still making a profit of €350 more per month than the cost of the mortgage?

I'm sure I've gotten this wrong, just trying to understand. I'm also aware that being a landlord can be a complete nightmare for the reasons listed in the thread, namely being unable to evict demon tenants, and I'm ignoring all the other costs associated with owning an apartment for now- ie property tax, maintenance fees etc.

Shelga · 15-01-2020 11:30pm

Also I see in the UK they have a separate tax credits system for landlords, in addition to the one they'd have in their day jobs. So you pay no tax on the first £11,500 of rental income, but they don't have tax relief for mortgage interest. Still seems like it would work out better to be a landlord there... Yes I'm sure you're all saying "duh"- :pac:

Browney7 · 15-01-2020 11:37pm

Shelga wrote: »

So say you're a landlord, and you own a 2 bed apartment with a mortgage of €900 a month, of which €350 is interest.

You rent out the apartment for €1500 a month. If your rental income is all taxed at 40%, but you can deduct the interest paid on the mortgage from the taxes owed, you pay Revenue €250 a month? (600-350). So you're still making a profit of €350 more per month than the cost of the mortgage?

I'm sure I've gotten this wrong, just trying to understand. I'm also aware that being a landlord can be a complete nightmare for the reasons listed in the thread, namely being unable to evict demon tenants, and I'm ignoring all the other costs associated with owning an apartment for now- ie property tax, maintenance fees etc.

It would be 40% + USC 7% + PRSI 4% = 51% * (1500 rental income - 350 mortgage interest).

Browney7 · 15-01-2020 11:47pm

Shelga wrote: »

Also I see in the UK they have a separate tax credits system for landlords, in addition to the one they'd have in their day jobs. So you pay no tax on the first £11,500 of rental income, but they don't have tax relief for mortgage interest. Still seems like it would work out better to be a landlord there... Yes I'm sure you're all saying "duh"- :pac:

Ireland is a high tax economy on Income for all income tax payers and whatever supplementary income they earn over 35K - it's not unique to people with leveraged property investments.

The UK also have a different taxation regime for a lot of investments like ISAs and dividend income from shares also - higher tax free thresholds for dividend income unlike here.

The UK have also changed landlord taxation in the past few years to increase the taxation burden on landlords - mortgage interest relief mainly has been reduced to the standard rate

Shelga · 16-01-2020 12:04am

Browney7 wrote: »

It would be 40% + USC 7% + PRSI 4% = 51% * (1500 rental income - 350 mortgage interest).

You pay USC and PRSI on rental income too??

Starting to understand why landlords charge crazy rent so...

Gumbo · 16-01-2020 12:09am

Shelga wrote: »

You pay USC and PRSI on rental income too??

Correct.

Donald Trump · 16-01-2020 12:53am

kceire wrote: »

Correct.

But that's only right and makes logical sense too. It is income and you are not writing down an asset over time. Even if you were allowed to do that, then you'd need to get taxed on the entire value at the end once it had been written to zero.

If you could get away without paying any tax on either end it'd be a massive loophole for avoiding tax.

KyussB · 16-01-2020 7:44am

J_1980 wrote: »

The Irish construction sector is pretty much at capacity right now. Doesn’t matter if it’s private or public - there won’t be more houses.
Since 2007 real inflation adjusted salaries in eastern europe have more than doubled and unemployment rates are below 4%. No one is coming here to work as a full time employee. There a plenty of cash-in-hand folk still working here for refurbishment jobs, but professional builders and the state can’t hire on these conditions.

Making workers hand over half their cash (tax) so the government can provide an easy life (dole, A rated new house) to those who never work is simply never going to work. Nurse emigration is kind of the same thing.
Crazy that there’s a builder/trades shortage in a country with a real unemployment rate of almost 10% (Live Register rate + Live Register Activation Programmes).

The construction sector is at capacity because government and industry have deliberately prioritized commercial construction to create a further hurdle to soving the housing crisis - the government has ample ability to take labour from commercial construction, by e.g. limiting further construction projects to 75%+ residential per building.

The latter is a straw man.

J_1980 · 16-01-2020 12:34pm

KyussB wrote: »

The construction sector is at capacity because government and industry have deliberately prioritized commercial construction to create a further hurdle to soving the housing crisis - the government has ample ability to take labour from commercial construction, by e.g. limiting further construction projects to 75%+ residential per building.

The latter is a straw man.

No one is “prioritizing” commercial building. They simply pay much higher rates (and it’s cheaper to build).
How to take labour away? Outbidding them? So house prices go even higher? All this state interference is just limiting supply. Half the irish builder who did my refurbishment 2y ago are now in the UK - higher pay, less tax etc.

Why is the cost of property, esp renting, so high in Dublin?

Comments