IMF warns Coalition rent controls could slow housebuilding

Reduced investment property returns could dissuade construction, agency warns

International Monetary Fund director Christine Lagarde. Photograph: Cyril Byrne

International Monetary Fund director Christine Lagarde. Photograph: Cyril Byrne

 

The Government decision to impose rent controls could put a brake on construction in the residential property sector, the International Monetary Fund has warned.

The IMF noted efforts by the Government to boost the supply of housing by streamlining building codes and launching rebates for qualifying projects alongside other measures.

The measures are designed to kick-start a sector the agency states has been subdued by tight lending standards, high development costs and the financial weakness of builders.

But, speaking after its fourth post-bailout monitoring mission to Ireland, the IMF cautioned: “Some of the gains, however, may be offset by new administrative measures to stabilise rents which, by reducing rates of return on investment properties could dissuade construction.”

The IMF team, which filed the report following their visit to Dublin last week, said measures announced in the recent budget “rightly share the fruits of recovery” but said the Government could have been “more growth-friendly”.

Demographic pressures

Spending “could be better targeted and more protective of budget resources,” the IMF statement, issued by mission chief Zuzana Murgasova, said.

“The resulting savings would create more scope for capital spending and outlays related to demographic pressures.”

And referring to the decision to long-finger the issue of sharp increases in local property tax on the back of rising property values, it stated: “Maintaining timely property revaluations for revenue purposes would cement sustainability of the revenue base.”

While the IMF is optimistic about the prospects for the sale of the Government’s stake in the banks and acknowledges that new mortgage rules have curbed house-price increases, it said continued supervision was needed to drive resolution of outstanding mortgage arrears issues, where it suggested “ a more effective legal process would improve incentives for engagement”.

Debt forgiveness should be based not only on borrowers’ ability to repay but also on the difficulties lenders face in realising their collateral.

Reflecting comments from other troika observers, it noted that Irish growth in real GDP would this year be a “remarkable” 6 per cent boosted by strong demand in key markets and a weak euro that has enhanced the prospects for exports, alongside strong investment and private consumption.

However, like its peers, it warned of rising risks from the increasingly volatile global outlook and added that debt – public and private – remains a burden. “It is vital to increase room for policy manoeuvre,” the IMF statement said.

As it is, the agency said its estimate was that Ireland’s structural balance – before interest payments – would deteriorate this year despite buoyant tax returns “more than offsetting expenditure overruns and discretionary spending increases”.