Minister for the Environment Alan Kelly’s proposals for controlling rents could see landlords increasing prices before fixing them for a period in order to guard against losses, according to an independent report.
Mr Kelly is advocating linking rent increases to the Consumer Price Index for a period of between two and four years.
The proposal envisages regulating rents for a lease with one tenant, rather than between different tenancies.
It was one of six options on rent regulation examined by economic consultants DKM last year in a report called Rent Stability in the Private Rented Sector.
While the report, commissioned by Jan O’Sullivan when she was minister for housing, was published last year, its contents are informing the current debate with the Coalition on its forthcoming housing package.
It is critical of rent controls in general, but says the approach favoured by Mr Kelly may be seen by landlords as limiting their potential returns.
“This may encourage some landlords to exit the sector. Others may seek compensation at the beginning of a tenancy by increasing the initial rent above the market level.”
However, sources close to Mr Kelly said such a move would have kept rent increases below market level in recent years.
On introduction of rent controls as a principle, the report says they would make the problems in the private rented sector worse, would not generate better outcomes for tenants and could lead to tens of thousands of properties exiting the rental system.
"Given where the Irish housing market is at present, the introduction of rent regulations in Ireland is likely to exacerbate the current problems being experienced in the market," it says.
“A whole series of negative impacts are likely, including a reduction in new supply of rented property as well as an exodus of existing landlords from the sector.
“Moreover, the introduction of rent regulations would see the impact falling disproportionately hard on the very people that the rent regulations are trying to assist.”
It is understood the contents of the report convinced many in government that rent controls are not a viable proposal. Mr Kelly favours their introduction, but has come up against stiff resistance from Minister for Finance Michael Noonan and Fine Gael.
Sources suggested Fine Gael favours increasing the Housing Assistance Payment to prevent people becoming homeless.
Mr Kelly’s favoured option would see rent rise in line with inflation over a set period, but the report notes that each new lease would see a 10 per cent increase in rent.
“The prevailing market rent is increased by 10 per cent due to supply constraints which would be expected as a result of the rent regulation. There would be little benefit for tenancies of shorter duration, as the prevailing market rent would always prevail on commencement of a new tenancy.”
It is understood talks on the housing package will get under way again next week and will focus on tax incentives which may be offered to landlords to help with the crisis in the rental sector.
One such move is offering 100 per cent mortgage interest relief to landlords who give rent certainty to tenants availing of social welfare assistance such as rent supplement and housing assistance payments.