Government plans to intervene in the rental market by capping rent increases in Dublin and Cork are "counter-intuitive" but necessary, Minister for Housing Simon Coveney has said.
Mr Coveney published his strategy for the private rental sector after getting Cabinet approval for the plan this morning.
It sets out proposals for immediately designating Dublin and Cork city as so-called “rent pressure zones” and imposing limitations on the level of rent increases allowable on residential properties in these zones.
The designation will apply for three years, Mr Coveney said, and would mean landlords can only increase rents by 4 per cent per year for that period.
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The Minister arrived at this "straight forward" figure following discussions with the Irish Strategic Investment Fund (ISIF).
“One of the reasons behind that is that ISIF, in terms of the investments that they make, they have set a target for themselves in terms of a reasonable rate of return of 4 per cent,” Mr Coveney said.
“So we want landlords to make a reasonable rate of return. What we don’t want is landlords, because there is huge pressure on the market and huge demand for the properties they own and rent, we don’t want that to be abused in terms of very significant rent hikes with rent reviews or changes in tenancies. So we’re talking about steady, stable predictable rent increases.”
Mr Coveney said he had worked closely over the past week or so with the Department of Finance "to try and get the numbers right".
He said they wanted to ensure there was “an incentive to invest and to stay in the rental market, while at the same time we have sensible, practical measures to protect vulnerable tenants.
“It is all about getting that balance right even though sometimes, politically, you only hear one side of the argument, which is about tenants.
‘Some people won’t like it’
“If you don’t have landlords, you don’t have supply, you don’t have a functioning [rental] market.”
“There are some people who won’t like it, and that is fine.”
Mr Coveney said it was simply not feasible for the Government to leave the rental market to resolve itself without any intervention.
“I think we have a lot of experience over the past ten to twenty years that actually the market on its own does not solve many problems and sometimes the State needs targeted intervention.”
The designation of the zones will automatically fall after three years, Mr Coveney said. He said the policy, which he is calling “rent predictability”, is counter-intuitive to what he may have believed but stressed it was necessary to steady rents.
“We want landlords to make a reasonable rate of return,” he said but added he did not want the rising rental market to be abused by landlords applying higher increases.
The plan will also move towards granting tenancies of longer duration. At present, once a tenant has rented a dwelling for more than six months, the tenant is entitled to stay in that dwelling for four years, subject to rights a landlord currently has to terminate a tenancy.
This period will be extended towards six years as the first step towards tenancies of indefinite duration.
The document said the Government does not believe in linking rent increases to inflation, as had been proposed in the past.
“The Government does believe this to be an approach that serves the interests of tenants or landlords for a number of reasons, including the risk that limiting rent increases to zero ‘real’ growth in relevant areas would adversely affect this scope for a smooth transition when any such limitations would be lifted in due course.
“Therefore, a time-bound system of rent predictability based on the concept of rent pressure zones is to be introduced.
“Under this system, those areas which have experienced the most significant increases in rent, leading to acute affordability problems for households and negative consequence fort overall national competitiveness, would be designated as rent pressure zones, the effect of which would be to limit rental increases, both within existing tenancies and between tenancies to 4 per cent per annum for a specified period.”
Mr Coveney said he intends to pass legislation to give effect to the proposals through the Oireachtas by the end of the week.
Assistance from Fianna Fáil
The Government will need assistance from Fianna Fáil to do so, and the party's housing spokesman Barry Cowen has raised concerns about the plan.
The Minister, however, said he had Cabinet approval for the plan and would not be able to make changes to the core elements of it.
“I hope that Fianna Fáil will help us get this done before Christmas, because I think that is needed,” Mr Coveney said.
“I think it would be very unhelpful if we were to announced new measures and not implement them straight away. Because then you do have unintended consequences where the market wants to react before a designation actually comes in.
“I have approval from Government now for this strategy, not a different one. We are not going to be able to flexible in changing a whole series of recommendations. If there are areas where we can make changes but have the same net effect but are improving or amending certain provisions, then I will keep an open mind on that. Core changes are probably something that I can’t support.”
The overall strategy has four planks: security, supply, standards and services.
As part of efforts to increase the supply of homes, newly built developments and refurbished vacant homes will be excluded from rent predictability.
Other measures to increase supply include an examination of the “tax/fiscal” treatment of landlords and developers to protect existing supply and stimulate further building.
inister for Finance Michael Noonan will set up a working group to assess what policies in this area, if any, can be included in next month's budget.