How New Rental Laws Will Impact Property Values
Legislative Context: The New Reality for Landlords
Under last week’s announcement, Minister James Browne sought to end ‘no fault evictions’ for landlords with four or more properties, with an effective prohibition on notices to quit – for sale – unless at the end of a 6-year tenancy cycle. This move, aimed at protecting tenants amidst the housing crisis, will, like many policies before it, inadvertently reshape property economics, especially for investment owners.
But what are the economic consequences for landlords caught in this position?
At Artis, we compile a wide range of comparable data. One dataset we've collated focuses on the value effect on the sale of a property with a tenant in situ. Given the recent announcements, we thought it would be timely to share our analysis of this data:
Landlords are facing average valuation discounts of over 11.3% when selling with a tenant in situ.
Data Snapshot: Tenanted vs Vacant Sale Prices
From a dataset of Dublin-located buy to let grade apartments (specifically selected for precise like-for-like comparison), the following key figures emerged:
- Average Value (Tenant in Situ): €268,000
- Average Value (Vacant Possession): €295,000
- Average Discount: €33,000
- Average Percentage Difference: 11.3%
The disparity peaked at 33.3%, with one property selling for €95,000 less when sold with a tenant compared to vacant possession. In contrast, a minority of properties showed minimal or even negative differences—these typically held rents at or close to market levels. The greater discounts appeared when the rent being paid was significantly below market—also a direct economic consequence of housing policy.
What are The Economic Consequences of Selling a Rent-Capped Property?
In our sample, properties that sold closer to their vacant possession value (-5% to -10%) had rents that were closely aligned with market levels. Properties where the tenant was paying significantly below-market rent suffered the greatest erosion of capital value.
The Rental Discount Gradient
Our analysis of rent gaps (monthly shortfalls Vs. market rent) reveals:
For every €1/month below market rent, the property's capital value is discounted by approximately 0.039%.
That means:
- A €500/month rent gap equates to an average 19.34% in value discount vs. vacant value
- A €250/month gap still equates to a 9.67% in value discount vs. vacant value
This is a quantifiable consequence of RPZ rent capping, which restricts landlords from raising rents to market levels.
Why the Discount Exists
Several factors contribute to the lower sale prices for tenanted properties:
- Restricted Buyer Pool: Owner-occupiers generally won’t purchase properties with sitting tenants due to the perceived risk and mortgage issues (a typical owner-occupier mortgage is unlikely to suit).
- Perceived Risk: Investors are cautious about inheriting existing tenants under legacy terms and unknown tenancy history.
- Lower Flexibility: Lease terms, RPZ rent caps, and regulatory constraints transfer to the new owner, reducing control and return potential.
Implications for the Market
This legislative framework may have further long-term ripple effects:
- Landlord Exodus: Already widely flagged by several estate agencies, Landlords are exiting the market, deterred by the threat of eroded asset values and limited flexibility — this trend is likely to continue, and may accelerate in the short term following the revised laws
- Rental Stock Crunch: Linked to the above, a reduced private rental sector could further exacerbate housing shortages.
- Investor Hesitancy: Buyers may demand even deeper discounts for tenanted properties to offset the regulatory drag on yield and control.
Who are Artis? We are Chartered Surveyors who specialise in valuation and advisory work for secured lending and brokerage purposes. Our particular specialism is in the residential investment sectors, we hold market-leading data in areas such as: Social housing developments, Pre-63 values, and residential investment portfolios. If you would like to hear further on our services, then please contact me directly on richard@artis.ie