Later this month the State’s Housing Agency is expected to report to the Government on its review of rent controls.
It comes as the housing crisis is worsening, the property shortfall is as acute as ever, homelessness is rising and construction of residential accommodation is falling.
The report by the agency is expected to be brought to a Cabinet subcommittee by Minister for Housing James Browne this month.
This is usually a forum where coalition partners thrash out options before deciding on a formal proposal to go before a full Cabinet meeting for approval.
The question facing ministers is whether the current rent controls are too restrictive and may be discouraging investors who fund residential construction, and, if so, what could replace them.
The agency is expected to give the Government a menu of options and analyse the impact of each measure.
The current Rent Pressure Zones were introduced as a temporary step in 2016 and have been continuously extended since then.
In 2021, they were tightened, reducing the maximum increase from 4% to 2% and making them some of the most restrictive in the world.
“There is now little growth in Dublin and worryingly, some planning permissions are expiring without builders starting work on the sites.”
While they brought stability to thousands of renters by limiting increases, the wider question of their negative knock-on consequences on the falling supply of housing has to be addressed.
Many observers across the property industry, politics and housing charities agree that the current system needs to be replaced with something else when it expires at the end of the year.
In its submission to the Housing Agency, the charity Threshold said: “It is necessary to devise a new system of rent regulation to ensure long-term rent stability and affordability.”
The Rent Pressure Zones currently limit increases to 2% or the rate of inflation, whichever is lower.
When the rise in the cost of living has been near zero it has meant landlords have not been able to increase rents at all.
Limits blamed for discouraging investors
The limits have been blamed for discouraging investors from the property market, and ministers are now deeply concerned about the collapse in apartment construction, with completions falling by a massive 24% last year.
There is now little growth in Dublin and worryingly, some planning permissions are expiring without builders starting work on the sites.
This week the Central Statistics Office produced a snapshot of ongoing residential construction which showed activity was slowing marginally at the end of last year.
But the Government knows it has to move quickly and any decisions it makes may take up to two and a half years to take effect.
The coalition has frequently mentioned the possibility of introducing reference rents as a new mechanism for controlling costs for tenants.
“The danger is that it could create a financial incentive for landlords to evict renters.”
The system works by assessing a property on the basis of size, number of bedrooms, car parking, and access to schools or public transport to put a value on what tenants should pay.
While it is used in other countries, it would take years to implement in Ireland because the data, currently collected by the Residential Tenancies Board, is not sufficiently detailed.
An influential think-tank, the Organisation for Economic Cooperation and Development, last month proposed that landlords should be able to freely reset rents between tenancies.
Lobby groups representing the property industry have supported this suggestion, arguing it would allow landlords to invest and upgrade homes while attracting funds back to the market.
But it would be a significant step because it would remove the rent cap which exists from one tenancy to another, potentially leading to dramatic increases after tenants leave a property.
The danger is that it could create a financial incentive for landlords to evict renters.
Another idea floated within Government circles has been using limited tax incentives to encourage investors.
But the idea has been resisted by Minister for Finance Paschal Donohoe, who cited the lessons from the property boom and bust which was partly driven by tax breaks.
Another option would be to adjust the 2% cap to a higher level and allow rents to rise with inflation up to a certain point.
There is an adage in the property industry that investors like to see a yield of at least 5% to make their investment worthwhile.
Existing rent controls mean the yield for many property owners is far below that.
The challenge for the Coalition is to get returns for investors back to an attractive level and lure new funding as a means of increasing the housing supply, without adversely affecting tenants.
Standing still is not an option.
