Given what we have been through it is not surprising that the current recovery in house prices has captured the nation’s attention.   Amidst the furore about rising prices, however, a new debate is beginning to emerge.

In broad terms, the pattern of home ownership is shifting from households to investors.  Moreover, the profile of these investors is changing. Gradually, but unmistakably, the amateur is being displaced by the professional.

Furthermore, for the first time, institutions which specialise in large-scale residential lettings are getting involved.  The extent of these changes, and the fact that they relate to people’s homes, means that any discussion about this subject is inherently emotive.  Therefore, it is useful to start with a few facts.   

Overall, residential sales have been rising for two years, and transactions in the first quarter were up 34% on last year.  More interesting, however, is the changing profile of buyers.  Last year, traditional owner-occupiers – that is, first-time-buyers and families moving within the market – accounted for 87% of total sales.   This year the figure has fallen to 54%.

So who is buying the remaining properties?  Well, the answer is buy-to-let investors.  In quarter one of last year investors accounted for just 13% of sales.   Twelve months later their share has jumped to 43%.  

Drilling deeper into the transactions data gives us an insight into the profile of these investors.   First and foremost, 95% of them are cash buyers. Their interest in the buy-to-let business is based on a hard-headed comparison of the financial returns on cash and property.  On one hand deposit rates are currently at rock-bottom and net returns have been eroded by a succession of DIRT increases.  

In contrast, although average residential yields are being edged down by rising house prices, they remain attractive when compared with deposits.  Moreover, net returns on buy-to-let property are being boosted by the capital gains tax exemptions which will remain in place until the end of this year.  

Further reflecting their commercial focus, today’s professional investors are targeting one and two-bed apartments which are cheaper to maintain than houses, and which deliver higher yields.  It is not surprising, therefore, that 46% percent of investment sales in the first quarter of the year occurred at a price-point below €250,000, while a further 32% of sales were in the €250,000 to €499,000 range.  On average, investors are paying 29% less than owner-occupiers for their properties.  

Perhaps inevitably, this upsurge in buy-to-let activity has caused consternation among pundits who argue that commercially motivated investors are crowding traditional home-buyers out of the market and driving up housing costs.   Their outrage is compounded by the fact that, since 2012, more than 2,000 residential units in Dublin have been bought by institutional investors, some of which are foreign.  

At one level, these concerns may be understandable.  It is undeniable that every property bought by an investor leads to one less unit being available to an owner-occupier.   Furthermore by competing alongside traditional home-buyers investors add to the demand for housing.  In a context of tight supply, this undoubtedly drives up prices.   

However, this logic only takes us so far. Because, while investors account for one element of demand in the sales market, they also represent the supply-side of the private rented market.

One-third of Ireland’s households rely on rental accommodation.   And, just as tight supply is forcing up house prices, a scarcity of rental properties is driving up rents.   Due to a combination of factors – including population growth and the withdrawal of up to 6,000 bedsits from the market due to tightening regulatory standards – the availability of rental units has fallen by 40% in the last year.  Consequently rents have risen by 8.9% nationally, while the increases have been even sharper in Dublin.   This is piling pressure onto renters.  And, let’s be absolutely clear, this includes vulnerable families who are facing very difficult choices.   It is also impacting on the public finances by driving up the costs of rent supplement.   

Clearly, then, investors are not the enemy.  If anything we need more rather than fewer landlords to come forward and supply the market with rental properties. And if these are professionally managed units, so much the better.  

The real problem is that we do not have enough houses to accommodate our population. As such, we are trapped in a zero sum game; on one hand we need more rental properties, but we also need more homes for owner-occupiers.  These objectives simply cannot be reconciled without building additional units.  Ultimately, then, when it comes to solving our housing problems, all roads lead back to supply.

Dr. John McCartney is Director of Research at Savills Ireland.