Why rent controls have failed

Rent pressure zone report stands as searing indictment of Government housing policy

It’s a grim time to be a tenant, economist and author of the latest Daft.ie rental report, Ronan Lyons, said earlier this month. He was responding to the findings of his own report, which indicated that annual rent price inflation was running at a five-year high of 11.7 per cent and that the supply of available rental properties had slumped to a new low.

Daft said there were just 851 homes available to rent nationally on its website as of May 1st last.

With most of the State’s urban housing stock now inside a so-called rent pressure zones, you would be forgiven for wondering how it has got this bad. Were these zones not specifically designed to control rent inflation?

In a separate report on the rent pressure zones released yesterday, another economist, Jim Power, attempts to explain why the rent pressure zone system has so singularly failed to rein in rent inflation and, if anything, has made things worse.

The controls, introduced in 2016, have resulted in significant “rent rigidities” and an inefficient two-tier system, he says, where small landlords find it increasing difficult to maintain their properties. Together with a more onerous tax regime, this has prompted many smaller landlords to exit the market and to be replaced by institutional entities with new stock at higher rents.

A long-standing complaint against the rent pressure zone system is that new rental properties are excluded from the restrictions. Landlords of these properties, which more often than not tend to be the big institutional players, can charge as much as the market will bear. This keeps rents, at least for those tenants moving or entering the market for the first time, rising and confers a significant advantage on newer landlords.

Mr Power suggests the majority of landlords exiting the market are those who in the past charged rents that were less than market rates. Now, he says, they are only able to minimally increase rent on their properties because they are subject to rent pressure zone rules. These landlords, he says, are being replaced by institutional landlords with new properties at much higher rents.

His report stands as a searing indictment of Government policy in the area.