The Government has said that changes announced yesterday on rent controls will offer certainty to investors and more security to renters.
It said it wants to increase the number of properties available to rent and the rules on rent needed to be changed to encourage more construction.
The Daft.ie Rent Report shows that the average asking price nationally to rent a house or apartment is over €2,000 and in Dublin it’s over €2,500 – up 6% in the last year.
Professor of Economics at Trinity College Dublin and author of the Daft.ie rent report Ronan Lyons spoke to RTÉ’s Morning Ireland about the changes.
How will renting out a new house or a new apartment be different from next March to today?
RL: I think the key change here, there’s been obviously a lot of attention on how much rents can increase year on year. But I think the key change is instead what happens when the tenant leaves up until now, since rent pressure zones were introduced and if you were in a rent pressure zone, the rent for the new tenant was related to the rent for the old tenant.
And that means that if you think about the very first rent you set for a brand new home and that effectively determines that in perpetuity that, no matter how long you go into the future, it’s always going to be related in some way to what you charge that first tenant on the first day.
From the new system will mean that when the tenant voluntarily leaves, the landlord will have the opportunity to reset the rent to the market level and so you’re no longer linked to that very first rent you set on that very first day.
And that may seem like a relatively small change, but what it does is, it moves Ireland from one type of rent control system to another, and in particular to a type of rent control system that has less harmful effects on supply.
Because you can reset the rent between tenants. That means there’s more of an incentive to maintain properties. And to keep the quality of and indeed keep the quantity of rental housing up as well.
So for new houses and new apartments, how will they change and how? How will rent change from year to year if a tenant doesn’t leave?
RL: If the tenant doesn’t leave it, it’s going to be governed by the rate of inflation. At least, that’s the information we have at the moment. And so that will be very little change in practical terms, very little change from the current system the rate of inflation or 2%, whichever is lower in most of the last 20 years, the rate of inflation has been below 2%.
If I wanted to build a set of new apartments and put them up for rent today or I put them up for rent in March, why would it be more encouraged to do it in March than I would be now?
RL: The first thing to note is that apartments don’t happen that quickly. We sort of know the pipeline, the pipeline is pretty small in terms of what’s happening in 2025, the rest of 2025 in terms of new rental housing.
So it’s not really that they’ll be a whole load of stuff being held off or not. I think the interest is more in will there be new projects proposed now that the rules have changed?
Why would it be more likely to be?
RL: The key bit here is if you, under the current system since 2021, if you built a new rental home, the most you could ever increase your rent year in year was 2% and that applied across tenancies that was in perpetuity.
And what that does is, if inflation were to go above 2% and or indeed if your cost of maintenance were to rise faster than inflation, it means that running an apartment block is a losing proposition. So, we saw very little investment in new rental housing in Ireland, after those rules were changed in 2021, even as investment increased in some jurisdictions, [they] didn’t increase everywhere.
But the fall in Ireland was quite harsh. It was … almost three-quarters and some places saw fall by a third, some places saw investment rise. So yes, the international environment changed, but Ireland’s rules changed as well and we could see that impact in in the investment with the new rules.
But inflation is much more than 2% at the moment anyway?
RL: That’s correct. It’s not about the 2% per se, it’s about the ability when the tenant leaves to reset the market. It’s known as vacancy decontrol in the rent control world and it’s quite a common feature in other systems.
There’s lots of rent control systems around the world that have this vacancy decontrol element. When the tenant leaves voluntarily, the landlord is able to reset the market and it means that improvements, maintenance and so on can be done without the landlord worrying about whether they can get that money back.
If the tenant leaves voluntarily, there was a lot of talk yesterday about increased security of tenure. This was for renters, will people be any more protected from being moved out if the owner of the property wants to sell now?
RL: It seems from what was published yesterday, it seems that there will be greater protections around what are known as no fault evictions. I think the other thing to note here is the six-year tenancy cycle as well. and that.
There seems to be, from the information that’s available at the moment, two categories of landlord. The landlord that owns three or fewer properties will be able to terminate a tenancy if they are looking to sell the property and if they’re looking to renovate the property or they need it for a family member.
They’re already conditions in there at the end of a six-year tenancy. During a tenancy, there are fewer provisions under which any landlords will be able to [evict].
But larger landlords face even stricter conditions around terminating tenancy.
Can a property be sold during the six years?
RL: During the six years, small landlords will only be able to terminate the tenancy where they face hardship, which is going to be defined in legislation, or where they require the dwelling for an immediate family member. So it looks from the information available at the moment.
At the moment they can do that, but there’s other circumstances under which they can terminate the tenancy at the moment as well.
One question there would be, if you’re renting out a property for a family member who is in a nursing home and they die and you want to sell it in the open market, will you be able to? So I guess some of the devil is going to be in the detail in terms of what hardship means in in legislation.
But there’s a stricter set of circumstances going forward than in the present. And if you’re a larger landlord, more than three properties, there’s even fewer circumstances and basically they’ve ended no fault evictions. If you’re a larger landlord.
Are rents going to rise again and by more than under the current rules?
RL: I think the critical point here is what will determine rents over the next one, two, three, four, five, six years is how what volume of rental housing there is in. In particular, will new rental housing get built?
So, to answer the question of what will happen rents over the next two to five years, it’s really important to understand will the changes introduced yesterday have an impact on the amount of new rental homes getting built? And I think being realistic, the answer in the Dublin area, I would expect, yes. I would expect there to be more projects proposed for new rental housing over the next couple of years than would have been the case if they hadn’t changed the rules yesterday.
Outside Dublin, I don’t expect that to be the case simply because even rents as high as they are, they are not enough to cover the very high cost of construction we have in this country outside of Dublin.
In other words, market rents are very high everywhere, but they’re even higher in Dublin and high enough that they can justify or cover the cost of construction.
Outside Dublin I don’t expect this to have an impact in terms of getting new projects started. Perhaps there’ll be one or two in Cork and Galway in terms of projects, but realistically I don’t think we’re going to see an impact outside the capital.
Who’s going to police and enforce all these new rules?
RL: I’m assuming that it will fall on the RTB. That’s already their role and any landlord looking to example terminate the tenancy has to go through the process at the RTB.
So, I’m assuming that. I haven’t seen any indication that’s going to change.
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