New rental properties may be driving higher rents, industry group claims

New rental properties or new tenancies that are exempt from Government rent pressure zone legislation may be the reason why rent controls have failed curb rent inflation, an industry group claims.

According to Residential Tenancies Board (RTB), rents rose at an average rate of 7 per cent in the second quarter of 2021 to stand at €1,323 per month nationally and €1,848 per month in Dublin.

The RTB data also indicated that there 14,140 new tenancies registered during the three-month period.

However, the Institute of Professional Auctioneers and Valuers (Ipav) claims the figures do not differentiate between new and existing rental stock, or between properties that are inside or outside the rent pressure zones.

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Hence, the Government cannot effectively determine which category of tenancy is driving inflation, it said.

Ipav's chief executive, Pat Davitt, has written to the RTB seeking a more detailed breakdown of the figures.

“Of the 14,140 new rentals in the system in the second quarter, I want to know how many are new rentals and how many are in the rent pressure zones and by how much each of those categories have gone up,” he said.

“That’s what the minister [of housing] should want to know,” he said.

Mr Davitt said there is a lack of clarity about what is driving the current acceleration in rents and this may be leading to ill-informed policy decisions.

Original legislation

The original rent pressure zone legislation, introduced in 2016, aimed to cap rent increases at 4 per cent in designated locations. This has now been changed to cap rent increases in line with inflation.

The controls mean that landlords of properties in rent pressure zones – which includes nearly all of Dublin and much of the rest of the State – cannot increase rents by more than the headline rate of inflation.

Landlords bringing new rental properties to the market or signing new tenancy agreements related to properties that have been out of the market for at least two years are, however, exempt from the rules and free to charge what they like.

The suspicion is that it is these categories of properties that are driving rent inflation.

Mr Davitt said the exemptions are allowing new institutional landlords set rent levels on a continuous basis that go beyond the maximum annual 4 per cent allowable under the rules.

“But we can’t deal with the current level of rent inflation until we know what’s going on,” he said.

When announcing changes to the rent pressure zone legislation in July, Minister for Housing, Darragh O'Brien, said the 4 per cent cap on rent increases in rent pressure zones had become "a target rather than a limit" for landlords.

“We are now taking action to ensure that tenants will only pay rent increases, if required to, which are in line with general inflation, which is currently below 2 per cent,” he said.

However, headline inflation has since risen to a 13-year high of 3.7 per cent on foot of pent-up demand and supply chain bottlenecks related to Covid-19. It is expected to surpass 4 per cent in the coming months before moderating next year.