Government measures to control rents have backfired and in many cases have led to an increase in rents, a new report has claimed.
The study by economist Jim Power suggests that rent pressure zones (RPZs), introduced in 2016 to limit rent price increases, have resulted in significant "rent rigidities" and an inefficient two-tier system where the proper maintenance of rental properties is no longer economically viable.
This has prompted many smaller landlords to exit the market and to be replaced by institutional landlords with new stock at higher rents.
A long-standing complaint against the RPZ system is that new rental properties or tenancies are excluded from the restrictions and can be put on the market at any rent. “The real losers are tenants at the lower end of the market,” Mr Power said.
The report, commissioned by the Institute of Professional Auctioneers and Valuers and the Irish Property Owners Association, concludes that the Irish rental market is not functioning in an effective manner, and that RPZs are undermining the market and not achieving what they are intended to achieve.
“New properties coming to the rental stock, even though they are in a rent pressure zone, are free to charge whatever rent the market will accept. In theory this is aimed at inducing new properties into the rental stock,” the report said.
“However instead of doing that it has encouraged landlords at the bottom of the market to leave as they cannot charge market rent, to be replaced by properties with much higher rents.”
The report also claimed the taxation treatment of private landlords compared to institutional landlords was acting “as a serious disincentive for private landlord participation in the market”.
The share of private investor participation in the mortgage market has fallen from 19.9 per cent of total mortgage lending in 2006 to 1.4 per cent in 2021, it said. “If private landlords continue to exit the market, the situation is going to get worse.”
According the property website Daft.ie, annual rent price inflation rose to a five-year high of almost 12 per cent in the first quarter of 2022. Daft also noted that there were just 851 properties available to rent nationally on its website as of May 1st last, a record low.
In his report Mr Power suggests that the majority of landlords exiting the market are those who in the past charged rents that were less than market rates and are now only able to minimally increase rent on their properties because they are subject to RPZ rules.
Mr Power, who presented research attesting to the difficulties faced by smaller landlords, said private non-institutional landlords are finding the current regulatory and taxation environment “very challenging”.
“This is causing an exit of private landlords from the market and is reducing the supply of rental property and putting upward pressure on rents at a time when significant increases are required to satisfy demand and create a functioning residential property market,” he said.