A report from property group Daft.ie this week showed quarterly rents increased by the largest amount on record between December and March, surging 4.4 per cent. So what exactly is going on with the rental market?
Why have rents gone up so much in such a short space of time?
The increase in rents coincided with the Government’s new rent control system coming into force in March. The new system, which represented the biggest shake-up of rent regulations in a decade, allowed landlords to reset rents to market rates in between tenancies.
The new rules meant landlords could increase rents by 2 per cent or the rate of inflation, whichever is lower.
Dermot O’Leary, chief economist with Goodbody, has pointed out many properties were being let at below market levels. “Thus, the first-quarter out-turn partially reflects a return to market rents for properties that are being re-let,” he said.
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In addition, it’s important to note existing tenants are still protected by rent control rules.
What was the Government thinking with this plan?
Minister for Housing James Browne said the measures would bring certainty and security for renters while incentivising investment to grow supply. Tenants now also enjoy greater security of tenure, with new six-year tenancies of “minimum duration”.
The measures have drawn criticism though. Rosaleen Leonard, national representative of the Community Action Tenants Union, said the Coalition was “couching it in language of renter protections when the reality is a lot of rents are going to go up”.
John-Mark McCafferty, chief executive of Threshold, a charity supporting renters experiencing problems with their tenancies, said the Government seemed to be trying to strike “that impossible balance between the needs and wants of renters and landlords”.
So the Government will have known that rents would increase?
The Government will have expected a rise in rents but perhaps not by this much. Remember though, it is betting the measures will lead to an increase in supply, which in theory should bring rents down again.
Trinity College economics professor Ronan Lyons, who wrote the Daft report, said the surge in rents comes at a time when overall availability of rental housing remains very limited, and so the price effects have appeared more quickly than any increase in supply.
Have the Government’s measures worked and led to a rise in supply then?
Not quite. The Daft report showed there was a drop of 4 per cent in the availability of homes to rent in the quarter, but the overall rate was massively dragged down by Dublin, where availability was down 23 per cent year on year. It was up 29 per cent elsewhere.
O’Leary said there was evidence to suggest landlords held back on advertising their properties for rent until the new rules kicked in, something he called “an obvious consequence” of the delay between announcing the measures in June and them coming into law in March.
Lyons said the rise in availability for full properties outside Dublin “contrasts sharply” with trends in the room rental market, where availability has fallen across all regions.
Lyons said overall supply “remains very constrained”, adding the recent increase is “unlikely to represent a sustained improvement in rental availability”.
Is the plan likely to increase supply in the long term?
O’Leary said it would “take years possibly” for the impacts to result in new supply. “That does not make the policy wrong,” he insisted.
“It just further underlines the point that stable housing policy creates a stable housing system over the medium term. This was a key point that the Housing Commission made in its report.
“The key test is whether we see an impact on new supply in the market. There are other issues beyond the rent controls that are impacting in the short term, namely higher interest rates and increased construction costs.”
He noted the revised rent rules form part of a broader suite of policy measures introduced over the past year, all with the objective of narrowing the viability gap in the construction of new rental housing.
“While affordability concerns remain, the underlying issue continues to be one of insufficient supply. Elevated market rents are ultimately a function of this shortage, rather than the direct result of recent regulatory changes.”
