herald

Monday 21 August 2017

A third of us are tenants, so rent controls are vital

Environment Minister Alan Kelly told delegates at last weekend's Labour Party conference that he was considering capping residential rents, with any increase being restricted to the rate of inflation, for a period of three years until the supply of housing catches up with demand.

It's not difficult to see why Minister Kelly (inset) would want to restrict rent increases. Residential rents rose by 9pc over the past year and by a cumulative 20pc over the past three years, according to property website Daft.ie.

The rate of increase has been highest in Dublin with average rents there rising by more than a quarter over the same period.

At the same time, with the banks having effectively withdrawn from the mortgage market, the proportion of households who are renters rather than homeowners has been steadily increasing.

The 2011 census revealed that 29pc of households were renting, up from 22pc in 2006. With new household formation running at over 20,000 a year, the proportion of renters has continued to increase over the past four years.

With the housing crash having ended the dream of home ownership for many people and rents continuing to rise, the pressure on the Government to "do something" about rising rents, is becoming irresistible.

The fact that there will be a general election within the next 13 months has also helped to focus ministerial minds on the issue.

rights

But there is a problem, a very large problem in fact. In 1982 the Supreme Court threw out the previous set of rent controls, some of which dated back to the First World War, on the grounds that they infringed landlords' constitutional property rights.

To pass muster, any new set of rent controls would either have to find some way of side-stepping the 1982 ruling or else the Government would have to amend the constitution.

However, just because doing something may be difficult is no excuse for not trying. Most developed countries, including both the United States and Germany, have rent controls.

Judging by the proportion of renters in both of these countries, almost 60pc of Germans rent rather than own their homes while about 31pc of American householders rent, rent controls are not incompatible with a thriving residential rental market - despite what the property lobby would seek to have us believe.

What did for rent controls in Ireland last time around was that it was virtually impossible for landlords to secure a rent increase from their tenants under any circumstances.

This meant that during the very high inflation of the 1970s and early 1980s, with Irish prices rising more than eight-fold between 1965 and 1985, landlords saw the real value of the rents they were being paid by their tenants evaporate. A rent of €1,000 per year in 1965 would have had a real, i.e. inflation-adjusted, value of just €120 two decades later.

Which is why we should do what they do in most other countries - allow landlords to increase the rents paid by their existing tenants in line with the average rate of inflation but by no more.

When an existing tenant vacates a property then (but only then) the landlord should be free to increase the rent in line with the overall movement of the rental market.

This is the model which Mr Kelly seems to be seeking to adopt here, but only for three years. Well, with all due respect, that is utterly ridiculous.

crash

Firstly, the notion that everything will be back to normal in the dysfunctional Irish market in just three years is complete nonsense.

Secondly, while the increase in the proportion of households renting rather than buying was accelerated by the housing crash, it also reflected deeper underlying trends. The likelihood is that, even when the housing market recovers, more of us will be renting than we did before the crash.

That isn't necessarily a bad thing. As the existing amateur landlords are pushed out, the residential rental market will come to be dominated by professional investors owning dozen or even hundreds of units. Many of these investors will probably be the pension funds paying our post-retirement incomes.

Rather than last just three years, Mr Kelly's proposed rent controls need to deal with this new reality.

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