Ireland’s rental crisis: Will new measures help?

After months of inter-Coalition wrangling, and years of escalating rents, the Government has come up with a solution to Ireland’s rental-accommodation crisis: landlords can raise rents only every two years instead of every year. As showpieces go it’s hardly dazzling. But is it enough to make a difference?

There is a bit more to the package that the Government is calling its new deal for tenants. There will be increased notice periods both for ending a lease and for increasing rent. The long-promised deposit-protection scheme, whereby tenants' deposits would be held by the Private Residential Tenancies Board rather than by a landlord, will be set up.

But the deal is a far cry from the proposal by Alan Kelly, Minister for the Environment, to link private-sector rent increases to the consumer price index for four years. The measures won't make a dent in existing rents, and it's far from certain that they will make renting a viable long-term option.

At other times this may not have mattered quite so much. Ten years ago one in 10 households lived in privately rented accommodation. Now it’s one in five, and another 10 per cent live in rented social housing. Numbers renting are even higher in urban areas: a quarter of Dublin city homes are privately rented. Historically, most Irish people have viewed renting as a temporary measure, a stopgap between leaving the nest and having the wherewithal to buy your own place.

Even with so many more people renting, this perception hasn't changed. A report late last year by the economic consultancy DKM on the future of the private rented sector, commissioned by the Housing Agency, showed a low appetite for long-term renting. Almost three-quarters of renters planned to leave the rental market this year or next. Just 17 per cent saw themselves as lifelong tenants, and for most of those it was not because they wanted to but because they had to. The majority in this category cited an inability to afford a house as the main reason they had continued to rent.

Separately, a large group of the population rent from landlords with State assistance, and they don’t seem to want to stay as private-sector tenants either.

We don't know for certain how many people want a council house. The last national assessment of need, completed in 2013, showed that just under 90,000 applicants were on local-authority waiting lists. Dublin City Council had 16,000 on the list at the time; last July the figure had increased to almost 21,600. More than 100,000 applicants are now likely to be waiting.

And these are just the people who have had their need for a council house approved; many more are skittering around the eligibility threshold and would like the stability of a council house – in effect a home for life, something the private rental sector certainly does not guarantee.

What all these figures show is that almost nobody living in private rental accommodation, supplemented or not, wants to be there. And it’s easy to understand why.

The high cost of renting and the inability to control and predict that cost in the medium or long term is a major drawback. Rents have been rising steadily since 2013, particularly in Dublin. The rises haven’t been minor: rents in the capital went up by 9.2 per cent in the year to the end of June, and rents across the State went up by 5.8 per cent, according to the Private Residential Tenancies Board.

This means that the average Dublin renter, who had been paying €1,275 a month for a house or €1,152 for an apartment in the summer of 2014, is now paying €1,387 for a house and €1,260 for an apartment. Rents for houses outside Dublin increased from €656 to €695 in the year, and for apartments from €623 to €660.

Why has this happened? It’s a simple equation of supply and demand. To give the short version of the housing boom and bust: we spent a few years building too many houses (more than 93,000 in 2006), many of them in the wrong places, then spent a few years building far too few (8,301 homes in 2013) anywhere.

Things improved a little last year: 11,016 homes were completed, but that’s fewer than the number the year records began, 1970, when 13,887 houses were built. The 11,016 built last year are just over half what the Housing Agency says is the minimum needed to meet demand.

There’s an inevitable trickledown effect. Without enough homes for sale, would-be buyers keep renting. More people renting in a market with fewer homes pushes up rents. More people renting who in a normal market would have the money to buy pushes it up even further.

Real solution

At the end of the chain are people who can’t afford to rent anywhere, and for whom social housing isn’t available.

The only real solution is to build more. Construction 2020, published in May 2014, was the Government's first response to this need. To a large degree it was a strategy for strategies, recommending the setting up of taskforces and working groups.

The recently announced Budget 2016 has more solid housing-construction measures. Four thousand houses are to be provided next year under the first phase of an initiative to build 20,000 homes on sites controlled by the National Asset Management Agency by 2020. About 90 per cent will be in the Greater Dublin Area, and three-quarters will be starter homes.

This week’s housing package also included an initiative aimed at kick-starting the construction of 7,000 more affordable homes in Dublin and Cork. Developers will receive rebates on construction levies where a scheme has more than 50 homes and where houses are priced at less than €300,000 in Dublin and €250,000 in Cork.

These initiatives should help to speed up supply, but building houses takes a couple of years on average, so this doesn’t alleviate the immediate pressures on the rental market.

That’s where the “new deal” should help. The two-year rent freeze gives private tenants breathing space to muster a deposit towards their own home if they so wish – or to find a better deal if measures to increase supply and reduce prices work.

One announcement this week could bring a glimmer of hope to tenants reliant on State support. Tax relief will be introduced to encourage landlords to rent their properties to tenants in receipt of social-housing supports such as rent supplement. These landlords will be able to claim 100 per cent tax relief, up from the current 75 per cent. This carrot is more likely to yield results than any of the Government’s rent-regulation sticks.

The Government also hopes to boost the market by making apartment construction more appealing to builders. Its “guidelines” on apartment standards – enforceable by ministerial direction – are to be issued early next year.

“Apartments for hipsters”

Here the Government is following the example of Dublin City Council, which has put forward the notion of smaller apartments for renters only – described by one councillor as apartments for hipsters. With 63 per cent of renters aged under 34, and multinational firms that the Government is so eager to attract saying that they can’t find accommodation for their workers, there may be a case for allowing these smaller units.

Another form of rental provision, which is likely to prove more popular, is the idea of public housing. This would involve having private developers and investors build housing on council land, combining social rental with private rental.

Two schemes put forward in the Budget seem similar in intent. One is the concept of an affordable-rental scheme, for which €10 million from the sale of Bord Gáis has been set aside to fund a pilot project. This will be aimed at people whose incomes are above the threshold for State rental assistance but who cannot afford private rents.

The other, for social-housing tenants, involves a new form of public-private partnership in Dublin. In the new scheme, sites stay in the ownership of the State, and the developer receives payments for 25 years, after which the houses or apartments return to State ownership.

These are positive moves that could stave off a similar rental crisis in future. But they are unlikely to help people who right now can’t afford, or can’t find, a place to rent.