(This is pasted from a Word document and so formatting has been lost.)
Having a few spare hours and a nerdy disposition, I decided to do some analysis on Pre-63 houses.
I wanted to understand and attempt to quantify the possible impact on the housing market, the rental market and house sale prices of the changes in Pre-63 properties as detailed in the Revision of the Standards Regulations Applying to the Private Rented Sector.
I have not seen any such an analysis. I have seen partial analyses that look at areas such as impact on low-cost rental market due to the possible loss of this rental sector but nothing that looks at the impact across the entire property sector: from increased rents at the low end, to reduction in availability of low-cost rental to affect on property supply and property prices if owners of these properties decide to sell rather than renovate to the affects of numbers of houses remaining unsold.
I have been considering the matter for a few weeks and so decided to put my time where my mouth is and produce an initial analysis to start discussions, rather than just expressing opinions not supported by facts or by producing a tendentious a priori analysis to support an existing view.
So, first things first. I am not a landlord. I do not own a second property. I have no vested interest in supporting landlords from a position of dogma. I do believe that a healthy rental market is an essential component of a healthy wider property market.
As an aside I have seen inconsistencies bordering on hypocrisy on this board with posters advocating on the one hand a more European approach to rental rather than purchase combined with vitriol directed against those who provide properties for rent. You cannot have it both ways. You need to be consistent. There are various factions on this forum who take dogmatic views on either side of the landlord topic.
Also, landlords have to make a profit otherwise they will not enter or stay in the market. There is nothing wrong with making a profit from business, even from renting houses.
Layering costs on rental and removing profit by these changes represents a major intervention in the market that has distorting affects. The public service loves to introduce regulations and other changes without taking any notice of their likely consequences. It is a consequence of their insulated working environment and lack of experience. BER certificates and registration fees for rental properties cost money that will have to be retrieved from rental prices. Introducing regulations that have costs mean those costs have to be recovered or absorbed somewhere.
Personally, I believe that a functioning private rental market is an important component of a functioning wider property market.
However, I prefer to do the analysis and let the information speak for itself rather than performing tendentious analyses.
To make the analysis easier, I am only looking at Dublin postal regions 1-9. I feel, without supporting information, that is both representative and that these areas probably contain a higher proportion of Pre-63 properties that other areas of Dublin and even the country.
To have a pre-63 declaration a property has to have been built and rented in bedsits before 1964. That rules out large sections of other postal districts.
The detailed analysis that follows applies to Dublin 6/6W. I selected this because it has the largest number of PRTB registrations of Dublins 1 to 9. It may also have the highest proportion of pre-63 rental properties.
The PRTB data relates to 15 November 2011.Key Questions I Feel Need to be Considered
1. How to identify rental properties that are Pre-63?
2. How much will it cost to upgrade a pre-63 property to the new standards?
3. How many pre-63 properties will be sold rather than renovated?
4. What impact will this have on the rental sector?
5. What impact will the sale of pre-63 properties have on the market?
6. If pre-63 properties are withdrawn from rental but not put on the market or unsold, what impact will this have?
7. What impact should these changes have on housing policy?Background Information
See Revision of the Standards Regulations Applying to the Private Rented Sector September 2008 Centre for Housing Research - http://www.environ.ie/en/Legislation/De ... 126,en.doc
Pre '63 is the term used to describe residential investment properties let in multiple units and converted into such prior to the operation of the Local Government Planning and Development Act 1963.
Information from Census 2006 indicated that there are approximately 170,000 dwelling units in the private rental sector, making up approximately 10% of the total housing stock. Tenancies falling within the scope of the Residential Tenancies Act, 2004 must be registered with the Private Residential Tenancies Board (PRTB). At the end of August 2008, 235,941 tenancies were registered with the PRTB, covering 398,140 tenants and 107,094 landlords (http://www.prtb.ie/pubregfStats.thm
(The correct URL is now http://public.prtb.ie/pubregfStats.htm
Note the published PRTB statistics are published only up to 2009.
It is likely that the revised standards will have most impact at the lower end of the private rental sector. These are mostly older, pre 1963 buildings. There are approximately 8,750 bedsits in the country housing 14,500 people, with around 55% of these being in Dublin city. Older (pre-1963 buildings), multi-unit dwellings are also considered to be more likely to require remedial work in light of the new regulations. It is estimated that approximately 35,000 dwellings fall within this category, again mainly in the Dublin area. It is envisaged that the 1993 regulations will be fully revoked. The objective of the new regulations is to better reflect the requirements of modern private rented sector and to provide for its sustainable development into the future, as agreed through the social partnership process.
For some landlords it may prove that the cost of compliance may out weight the financial benefits. For example, a landlord with an 8 bed pre-63 house might expect to have to convert this to a six-bed unit. An estimated cost for this work (plumbing, wiring, structural alterations, fixtures and fittings and labour) could be in the region of €120,000. If the
bed unit was returning €60,000 per annum (€7,500 per unit), a six-bed unit would now need to yield €10,000 per unit to return the same gross rent. Additional rent would be required to recoup the refurbishment costs.
See http://www.environ.ie/en/DevelopmentHou ... edHousing/
The Housing (Miscellaneous Provisions) Act 2009
On the 1st of December 2009 certain provisions of the Housing (Miscellaneous Provisions) Act 2009 came into effect which related to the minimum standards in private rented accommodation. This fully delivered on the commitment in Towards 2016 to update and effectively enforce the minimum standards regulations for the private rented sector. The Housing (Standards for Rented Houses) (Amendment) Regulations 2009 (S.I.462/2009) amend the Housing (Standards for Rented Houses) Regulations 2008 for compatibility with the Housing (Miscellaneous Provisions) Act 2009.
The two most significant changes to the legislation are the introduction of a comprehensive new sanctions regime and a new definition of what constitutes a “proper state of structural repair” for the purpose of the Housing (Standards for Rented Houses) Regulations 2008.
See New Standards Regulations for Rented Houses - The Housing (Standards for Rented Houses) Regulations 2008 SI 534/2008 - http://www.environ.ie/en/DevelopmentHou ... 400,en.doc
As such, where a property has been let at any time from the 1st of September 2004 to the 31st January 2009 it will be deemed to be an “existing tenancy” for the purpose of the Regulations and Articles 6, 7 and 8 will not come into effect for that property until the 1st February 2013. These properties will continue to be governed by Articles 6 and 7 of the 1993 Regulations until the 1st of February 2013.
The Housing (Miscellaneous Provisions) Act 2009 is available fromhttp://www.environ.ie/en/Legislation/De ... 568,en.pdf
Housing (Standards for Rented Houses) Regulations 2008 S.I. 534 2008:http://www.environ.ie/en/Legislation/De ... 142,en.pdf
Housing (Standards for Rented Houses) Regulations 2009 S.I. 462 2009:http://www.environ.ie/en/Legislation/De ... 710,en.pdfPRTB Data
PRTB data is available here: https://www.prtb.ie/public_registrations.aspx
The PRTB supplies data for counties and Dublin postal districts that contains the following fields:
• Address Line1
• Address Line2
• Address Line3
• Address Line4
• Address Line5
• Type Of House
• Number Of Bedrooms
• Bed Spaces
• Floor Space
The field Type Of House is frequently blank.
The data supplied by the PRTB is of very poor quality. There are frequent spelling errors and inconsistencies that makes data analysis difficult. For example, the data for Dublin 6/6w contains many errors such as:
• Zicharlston Avenue
• 1040 Lower Rathmines Road
• 105 Grove Park and 105 grove park
• 12 LEINSTER RD and 12 Leinster Road
• 12 Lowper Road
• 12 Maxwell Road and 12 Maxwells Road
• 12a Grosvenor Sq and 12a Grosvenor Square and 12A Grosvenor Square and 12A Grosvenor square
• 13 Chelmsford Road and 13 Chelmsfort Road
• 13 Palmerston Road and 13 Palmerstown Road
• 108 New Seskin Court Whitestown Way Tallaght
• apartment 3 583 north circular road Dublin 6W
• Rathgar Road 20
• Orwel Road
• 1 Beuumont House 60 Terenure Road East
• 1 Palmerstown Villas Rathmines and 1 Palmerstown Villas Upper Rathmines Road
• Apt.94 oakfield house Seven oaks Church avenue
• Apartment 94 Oakfield House Seven Oaks Rathmines
Take one example of 293 Kimmage Road Lower and the values for the first three address lines where the address lines are not consistently used.
• Address Line1 - Apt 6 Clonallen, Apartment 4 Clonallen, Apartment 5, Flat 3, Apartment 2, Apartment 3
• Address Line2 - 293 Kimmage Road Lwr, 293 Lower Kimmage Road, Clonallen
• Address Line3 - 293 Kimmage Road Lower
I have just done the analysis for Dublin 6/6W.
I used the following houses listed on Myhome.ie that were explicitly classified as Pre-63 and had full address details:
• 188 Lwr. Rathmines Road, Rathmines, Dublin 6
• 93 Sandford Road, Ranelagh, Dublin 6
• 124, 124a 124b Leinster Road, Rathmines, Dublin 6
• 44 Kenilworth Park, Kenilworth, Dublin 6, Dublin
• 190 Lwr. Rathmines Road, Dublin 6, Dublin
There are many others that are clearly pre-63 advertised on myhome.ie but I omitted these because of the absence of an explicit identification.
The main problem with this analysis is the truly dreadful nature of the published PRTB data. The PRTB may have more accurate data internally but somehow I doubt it. The data really needed proper rationalisation and improvement.
This poor quality data has required some manipulation to extract useful information.
It would be a lot easier if better data was more easily available.Some Results
The total units registered by the PRTB for Dublin 1-9 are:
Area Units Bedrooms Bed Spaces
D1 7,125 2,119 3,458
D2 3,911 6,917 11,621
D3 3,996 8,153 13,117
D4 7,141 14,394 23,776
D5 1,562 4,102 6,279
D6 10,487 20,210 30,438
D7 6,962 12,340 19,442
D8 9,645 5,706 9,402
D9 4,548 11,047 16,680
Total 55,377 84,988 134,213
The PRTB have 10,487 residencies listed for Dublin 6/6W. These have a total of 20,210 bedrooms and 30,438 bed spaces.
Based on the analysis listed below, there are 2,383 unique properties of the PRTB register for Dublin 6/6W. (This number is probably a slight underestimate).
Of these there are around 825 that appear to be Pre-63. That represents 34.6%. This seems a bit high but let’s leave it for now.
These apparently pre-63 properties have 8,209 bedrooms and 12,005 bed spaces. They represent 5,253 units.
The average rental income per unit for the small sample of properties identified explicitly as pre-63 and where rental income is provided is €7,027. The estimates for renovation of an average unit that is currently not at the required standard is €15,000. This amount will clearly vary depending on the number and type of units and the size of the house. This number seems high but it is provided by the Department of the Environment so let it stand for now.
There is also a second cost related to lost rental income while the property is being renovated.
Note that the €7,027 is revenue, not profit while the €15,000 is all cost. How much will rent need to rise to recover costs over a reasonable time?
Given that these will be older houses and so the property costs will be, in most cases, low, making an assumption that the net profit from the average of €7,027 is €3,500 then the renovation costs represent over four years profit, assuming the renovation costs are accurate and that there are no other costs.
If the entire 5,253 units in the identified pre-63 properties were renovated, the estimated cost based on the€15,000 cost per unit is €78,795,000.
Currently there are 243 houses for sale in Dublin 6/6w listed on myhome.ie. What would be the impact of a significant proportion of the 825 properties in the areas that appear to be Pre-63 being put on the market?Key Questions I Feel Need to be Considered - Some Possible AnswersHow to identify rental properties that are Pre-63?
See below.How much will it cost to upgrade a pre-63 property to the new standards?
€15,000 per unit (based on Department of the Environment estimates)How many pre-63 properties will be sold rather than renovated?
This is clearly hard to forecast. I have noticed a larger number of pre-63 type properties being advertised. Auctions being organised by Allsops and others contain a high proportion of this. I can recall the idiot from the September auction who bought the houses in Waverly Terrace from money from motorcycle accident compensation saying they would be worth millions in a few years but saying in the interim he was going to continue to rent them, not knowing that he had bought himself a huge renovation cost in order to continue to rent them in a year.
If I was a landlord with such a property and I was facing €15,000 costs per unit, wiping out my profit for several years at least and facing other property-rental-related regulatory changes such as reduction/removal of rent allowances that will squeeze me from the revenue end, I would look to sell. If I was a landlord with lots of such properties I might stay in the business and seek to attract higher rents for my upgraded units, assuming I could fund the upgrades.
It depends on whether the trickle of pre-63 sales becomes a flood and when this happens. If I was selling, I would sell now and sell cheaply to achieve a sale. But that depends on a rational analysis. Clearly one of the major lessons from the last few years in that decision making and rationality are ill bed-fellows.
Also, one of the other lessons from the last few years is that matters take longer to come to a head than would be expected. However, with the pre-63 regulation changes due to come into force in February 2013, there is just over a year for a resolution to happen.What impact will this have on the rental sector?
Drive rents up, reduce supply at least in the short term during renovations and probably reduce supply in the long term. This will affect the low end of the market aimed at those who cannot afford high-rents.
It depends on the areas in which the houses are located. A pre-63 house in Rathgar can be realistically converted to a single dwelling and then rented in its entirety or lived-in because the area can sustain this. A house on the Phoenix Park end of the North Circular Road will still be in the middle of knackersville no matter what is spent on it individually. The area would not sustain such a change in usage.
If the Dublin-based low cost rental sector is removed, this may force this cohort to move to lower cost areas farther from Dublin, increasing their travel costs and time.What impact will the sale of pre-63 properties have on the house sale market?
If there is a large number of such houses put up for sale, the consequences could be multiple and substantial.
• Anyone buying such as house for rent will have to factor in a substantial renovation cost which will drive the price - for example look at 19/20 Charleston Road, Ranelagh, Dublin 6 http://www.myhome.ie/residential/brochu ... -6/1736219
. This could be an example of someone looking to exit the rental market quickly. This has16 self contained units: eight 1 beds, two 2 beds, 4 bedsits and two 2 bed apartments. The renovation costs of this would be of the order of €240,000 to bring it to the standards of the new regulations. The ad says the annual revenue is €130,000. The asking price of €1,600,000 seems very high because the property is effectively not being bought as a going concern but one which needs substantial investment. What will happen to houses like this when there is a much larger number on the market?
• Sellers should want to sell quickly before more houses are put up for sale and so should drop their prices to achieve quick sales. (There are too many shoulds here that imply rationality that may not exist.)
• Other property sellers should recognise that the market may be flooded with doer-uppers and react by dropping their prices to achieve quick sales. (Again too many shoulds here.)
• Estate agents should be advising their customers of the potential. (What are the chances of this?)
• There should be an associated increase in house renovations, either by landlords or buyers. If I was the CIF I would seek to offer packages. (Then again if I worked for the CIF, I would have taken other actions like offering pyrite resolution packages to generate business in the past instead of whingeing.)If pre-63 properties are withdrawn from rental but not put on the market or unsold, what impact will this have?
Possible clusters of derelict houses in areas where renovation does not make economic sense or where the area cannot be gentrified.What impact should these changes have on housing policy?
If I was a policy maker I would consider some, none or all of the following, subject to a more detailed information gathering and analysis exercise to enable me make effective decisions:
• Loan guarantees for landlords renovating properties to avoid a sudden shock to the rental sector
• Work with building industry bodies to create renovation packages
• Work with landlord representative bodies to understand the problem and produce solutions
• Phased introduction of new pre-63 regulations and associated sanctions
• Relaxation of new pre-63 regulations and associated sanctions
Then again, if I was a policy maker I would not realistically consider any of the above because I would be lazy and incompetent.Notes on Data Analysis Approach
Create property code based on processing of address to allow for spelling errors concatenated with property number. I took this approach as an easy and quick way of cleansing very bad data. There are better data cleansing approaches and tools that will resolve the data issues if a more detailed analysis is required.
Sort by property code.
Identify as potentially pre-63 if words Flat, Apt, Apartment, Unit, Room appear in the address line and there is more than one unit for the property code.
This is not exact as it will include some apartment blocks. It will also exclude others. There are errors in this analysis. It is not exact. Pay me and I will do a more exact analysis.
Further some of these pre-63 properties will have already been renovated to the standard.
As mentioned above, the analysis has been done for Dublin 6/6W but it could be repeated for the other Dublin districts and other areas.
My worked data can be viewed here http://depositfiles.com/files/81h2ocln5
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Let the informed
Any and all errors identified are welcome.