The balance between supply and demand determines price and the Irish housing market is no exception to this fundamental rule of economics. With fewer properties available to rent, and demand continuing to rise, rents in Ireland have soared. Just 5,250 rental properties are on offer countrywide at present – a decline of four fifths since 2009 when the rental market peaked. So is there any obvious and easy answer to the supply shortage in the market? Regrettably, there is no silver bullet solution.
The difficulties in the rental sector help to explain the political tensions on this issue that have developed between the Coalition parties, and between Minister for Finance Michael Noonan and Minister for the Environment Alan Kelly in particular. Mr Kelly favours rent certainty – a political euphemism for rent controls – but Mr Noonan, rightly, remains deeply sceptical. Clearly, he is convinced that Government interference in the rental market would not work, and would have adverse consequences by aggravating rather than alleviating the supply shortages in the sector.
Rent controls could be open to Constitutional challenge. A cap on rent rises would be a serious disincentive for the sector. It would both discourage new buy-to-let or institutional investors from entering the market and drive out existing property owners – less willing to rent – as their financial returns declined. Rent regulation, as a Scottish housing Mark Stephens, speaking in Dublin last month said, would be a far better option than rent control.
The difficulties in the rental market sector are just one part of a broader national housing crisis where too few houses are being built. Some 11,000 were completed last year when, it is estimated, twice that number may be needed to meet demand, and that buyer demand is clearly evident as house prices rise. Mr Noonan has said the National Asset Management Agency (Nama) would provide 20,000 houses, including 2,000 social houses, between now and 2020, and he hoped the private sector would also contribute. However, time is not on the Government's side.