A new low in the political discourse over housing came last week when the government was accused of sitting on a report for all of 13 days. The Housing Commission report runs to more than 500 pages and it has called for a “radical reset”, highlighting the current crisis as an “emergency”.
The commission describes “ineffective decision-making and reactive policymaking where risk aversion dominates”. If only we could take the politics out of housing policy.
The government recently extended rent pressure zones (RPZs) until the end of 2025, in a move that pushes the issue out beyond the next general election and into the hands of the next administration.
Rents in the zone can be increased by no more than 2 per cent or the rate of inflation, whichever is lowest. RPZs have been in place since 2016, with the initial cap of 4 per cent halved in 2021 as part of the government’s response to the cost of living crisis.
Even Christine Lagarde, president of the European Central Bank, is confident that inflation is coming under control. Yet the caps were extended, with market consequences.
Advertisement
The Housing Commission has stated that closing the housing deficit of 256,000 units will require an annual investment of €16 billion-€20 billion, and this can be achieved only with both public and private investment.
With rental yields dictated by political whim, there is little or no private investment in rental stock. While the initial slowdown was due to interest rates, there is far more visibility these days on the cost of money, and the big block now is rent control.
As we noted here in 2022, the exit of private rental sector investors offered the state a massive opportunity to catch up in the construction of social and affordable housing, striking deals with developers on sites that were ready to go but short of funding.
This is precisely what has happened, through approved housing bodies, the Land Development Agency and local authorities. The state has become the dominant force in the institutional end of the market, and “non-household” buyers account for 40 per cent of transactions in the entire market, exceeding first-time buyers and movers.
Yet this has come at the expense of the private rental market, which is shrinking. Roughly speaking, Dublin’s private rental sector consists of 100,000 private landlord units and 25,000 units in the hands of institutional landlords.
Advertisement
With their income heavily taxed, interest rates on the rise and no room to raise rent, private landlords are exiting the market at an estimated pace of 8 per cent a year. The private rental market is careering in the wrong direction.
Assar Lindbeck, the Swedish economist, famously stated that “in many cases, rent controls appear to be most efficient technique presently to destroy a city, except for bombing”. Rent control means different things in different cities. The long ingrained system of rent control in Stockholm is very different to the model in Ireland — it curbed rents and killed supply.
Here the measure is crude, if well intentioned.
The priority has to be to take it out of the hands of politicians and into the offices of an independent regulator. The Housing Commission recommendations on rent control include a publicly available register of rent, which does not sound very GDPR friendly, and a link between rental yield to local property prices. Investors need certainty.
[email protected]
